IN THE SCOTTISH LAND COURT
under
THE AGRICULTURAL SUBSIDIES (APPEALS) (SCOTLAND) REGULATIONS 2000


Record No: SLC/32/07
Form: 39

COUNCIL: ABERDEENSHIRE
Appellant: David Stephen (Redhouse Farms)
Respondent: The Scottish Ministers
Subjects: Redhouse of Barra


EDINBURGH 3rd September 2008. The Land Court have issued the following Order in the above Application:-

Edinburgh 3rd September 2008. The Land Court (One) ALLOW the grounds of appeal to be amended in terms of the Minute of Amendment for the Appellant dated the Ninth day of June 2008 (Two) under reference to the appended Note REFUSE the appeal (Three) CERTIFY the cause as suitable for the employment of Junior Counsel (Four) RESERVE all other questions of expenses; ALLOW parties to lodge motions on expenses with the Principal Clerk, George House, 126 George Street, Edinburgh EH2 4HH within fifteen days of the date of intimation hereof.

“DAVID J HOUSTON”
Member of Court

“JAMES M MCGHIE”
Chairman

“A MACDONALD”
Member of Court

Note

[1] This appeal relates to the Suckler Cow Premium Scheme 2003. It was a stated condition of the scheme that a claimant required to include a minimum of 5% heifers throughout the retention period. A heifer was defined in the E.C. Regulations for the purposes of the scheme as a female bovine animal from the age of 8 months which had not calved. Mr Stephen made a claim for Suckler Cow Premium (SCP) in relation to 215 animals including 20 such heifers. Of these heifers, 15 calved within the retention period. He took no steps to replace the animals which calved although he had other animals on his holding for which no claim had been made and these included a substantial number of maiden heifers. These heifers were shown on the records held by the British Cattle Movement Service (“BCMS”), under the Cattle Tracing System (“CTS”). The respondents’ department, then known as SEERAD, had access to such records. In the event, SEERAD reduced the applicant’s claim to a total of 109 animals being the number in respect of which the ratio of 5% could be maintained by reference to the remaining claimed heifers. Underlying the appeal before us was the idea that the situation should be looked at as if the element of non-compliance by Mr Stephen was simply a failure to notify replacements in a formal way; that this was excusable because the Department could be taken to know about them in any event; or, if not wholly excusable, was such that a smaller deduction should have been made.

[2] For convenience it may be noted that we deal with matters in this note in various sections. We deal with formal matters of procedure at paragraphs 3 to 5 and then set out various findings in fact. This case was taken as a test case and these findings are the ones principally relied on. However, from paragraphs 6 to 10 we look at the particular circumstances of Mr Stephen’s case. We then set out, from paragraphs 11 to 97, the detail of the legal arguments advanced by the parties. The “Discussion” section, which attempts to summarise matters and sets out our views on the various issues, starts at paragraph 98 on page 39. This is followed by a short statement of the formal decision, which, for the reasons set out in the “Discussion”, is to refuse the appeal.

Procedural matters

[3] At the hearing from 2 to 4 June 2008, Mr Michael Upton, Advocate, appeared on behalf of the appellant, David Stephen and Ms Anna Poole, Advocate, appeared for the Scottish Ministers. Evidence was led from Mr Stephen. Evidence was also led from Scott Walker, Policy Director with the National Farmers Union of Scotland who provided us with various arithmetic calculations demonstrating different penalties which might apply on various different hypotheses. Gordon Cranford, from the respondents’ Rural Payments Inspection Directorate, dealing with livestock subsidies, gave general evidence about the operation of the various schemes. Graham Thomson, a Higher Agricultural Officer, involved in the respondents’ Animal Identification and Tracing Team described the system of processing, checking and payment of claims. Stewart Johnson, a Principal Agricultural Officer, also gave evidence of the respondents’ regime for inspection and checking of claims.

[4] We heard legal submissions over two days. Both counsel provided very full written submissions. It may be noted that, for record purposes, we have decided that the written submissions should be treated as productions. They are now numbers 45 to 48 of process. We are grateful to counsel for the comprehensive nature of their material and the clarity with which it was presented. Mr Upton’s submission may be consulted for detail of the many cases mentioned as part of the exposition of European background to the case and various minor Regulations considered. We have not considered it necessary to refer to these for present purposes. We have endeavoured to set out the salient points of argument in our summaries below.

Statutory material

European Regulations

Council Regulation EC No. 1254/1999
Council Regulation EC No. 1512/2001
Commission Regulation EC No. 2419/2001
Commission Regulation EC No.2342/1999
Parliament and Council Regulation No.1760/2000

Domestic legislation

The Suckler Cow Premium (Scotland) Regulations 2001 (S.I.2001/225)
Cattle Identification Regulations 1998 (S.I. 1998/871)
IACS (Amendment) Regulations 2000 (S.I. 2000/2573)
The Cattle Database Regulations 1998 (S.I. 1998/1796

Case law

European

BayWa AG v Bundesanstalt [1982] ECR 1503
Cementbouw T-282/02
Hopermann C-358/88
Krucken C 316/86
Lageder C-31/91
Maatschap v Minister van Landbow C-34/05
Pretzsch C-147/00
R v MAFF ex parte NFU c-354/94
Schilling and Nehring C-63/00
Starke v Hannover C-94/05
Toeters v Productschap C-171/03

Domestic

Barachander Farms v Scottish Ministers 2008 SC 341
Booker Aquaculture v Secretary of State for Scotland 2000 SC 9 at 27
Campbell v Scottish Ministers 2004 SLCR 1
Millar v Scottish Ministers (SLC/189/05)
R. v Chief Constable of Surrey, ex p. International Traders [1999] 1 All ER 129
Somerville v Scottish Ministers [2007] UKHL 44
Shetland Line v Secretary of State for Scotland 1996 SLT 653

Textbooks etc.

Bealey and Hoskins, Remedies in E.C. Law
Bennion Statutory Interpretation
Craig EU Administrative Law
Emilou, Principle of Proportionality
Finch and Ashton Administrative Law
McBryde on Contract 3rd Edition
Schwarze European Administrative Law
Usher, E.C. Agricultural Law
Working document AGR 49533/2002

Relevant provisions

[5] We had cited to us a great deal of statutory material and we have decided that it is unnecessary for the purposes of this Note to quote it in full. We set out, in context below, such material as seems necessary for a proper understanding of the issues.

The Facts

a) Facts based on Joint Minute

There was no significant dispute over relevant facts and the following matters were agreed by way of Joint Minute:-

1. The appellant was sent a letter by SEERAD dated 3 July 2003 which enclosed copies of the SCP Scheme 2003 Notes for Guidance, a claim form for SCP 2003, and copies of the loss/replacement cattle notification form (SCPS 2003.4).

2. The appellant submitted a claim for SCPS on 3 December 2003. He claimed SCP in respect of 215 animals.

3. The retention period applicable to the appellant’s SCPS 2003 claim ran from 4 December 2003 to 3 June 2004.

4. The rules governing SCPS 2003 required SCP claims to contain a minimum of 5% of eligible heifers. For a claim in respect of 215 animals, 11 eligible heifers were required for compliance with the 5% rule. [It may be added that it was not disputed that in accordance with authorised rounding up provisions set out in tabular form, a claim for 109 animals could be supported by 5 heifers.]

5. A number of the heifers identified on the appellant’s SCP application form calved during the retention period. The eartag numbers of six of the heifers identified in the application form which calved during the retention period were:

UK521470300257

UK521470200242

UK521470100241

UK521470600309

UK521563600285

UK521563400297

6. There were a number of heifers, aged 8 months and over and which had not calved, which were not identified in the appellant’s claim form for SCP 2003, nor identified on any replacement cattle notification form submitted to SEERAD, but were present on the appellant’s farm throughout the retention period. The eartag numbers of six of these animals are:

UK521470400426

UK521470200431

UK521470700436

UK521470200452

UK521470100465

UK521470400475

7. The six heifers referred to in paragraph 6 were registered in the appellant’s farm records.

8. SEERAD found that the appellant’s claim for 215 animals was six heifers short of complying with the 5% heifer rule. They found the appellant was eligible for SCP restricted to 109 of 215 the animals claimed.

9. By letters dated 19 January 2005, 12 April 2005 and 17 October 2005, SEERAD stated to the appellant that checks had shown the 5% heifer rule was breached, and sought to recover alleged overpayments of aid from the appellant.

10. In the event that the appellant succeeds in this appeal, he is entitled to be paid the further sum of £20,177.93 in full and final settlement of his claims for aid under the 2003 bovine aid schemes.

11. The appellant submitted replacement cattle notification forms for SCPS 2003 to SEERAD in respect of nine animals identified in the aid application, four of which had died and five of which had been sold.

12. CAP schemes apply to countries which are members of the European Union. In the UK in 2003 there were 636,734 claims under seven of the various CAP schemes (BSPS, SCPS, SPS, EPS, BNE, SAPS and AAPS). Of these claims 44,420 were under the SCPS, 7,749 of which were from Scotland. The expenditure in the UK on these 2003 CAP schemes totalled £2030m. £237 million was attributable to SCPS, of which £61 million was paid out in Scotland.

13. Funding for CAP schemes comes from central European Union funding (the European Agricultural Guidance and Guarantee Fund or EAGGF). National authorities are subject to audit, to ensure they are administering CAP schemes in accordance with scheme rules. European funds are withheld in respect of claims which are not in accordance with scheme rules.

14. The U.K. can be deprived of EU funds if it fails to apply scheme rules.

15. The system used in Scotland by SEERAD for administration of payments under CAP schemes including SCPS is the Scottish Integrated Administration & Control System (‘SIACS’).

16. A separate system exists to record births, movements and deaths of cattle in Great Britain called the Cattle Tracing System (CTS) database. It is operated by the Rural Payments Agency through the British Cattle Movement Service, which is a different body from SEERAD. The Rural Payment Agency runs the CTS database on behalf of the English, Scottish and Welsh Ministers. SEERAD are able to obtain information from the CTS database.

17. During the retention period applicable to the appellant’s SCPS 2003 claim, the CTS database contained information confirming the presence on the appellant’s holding of the animals referred to at para. 6 above during the retention period, and the fact that they were not recorded as having calved during the retention period.

18. 7,749 claims for SCP were received by SEERAD in 2003. 213 of these claims, or approximately 2.75% of the total number of claims, failed to comply with the 5% heifer rule.

b) Additional findings proposed by appellant.

The appellant proposed certain additional findings derived from the findings of the Stage 2 panel. We are satisfied that the following facts were established:-

1. The appellant is Mr David Stephen, a partner in the firm of Redhouse Farms, Redhouse of Barra, Oldmeldrum, Aberdeenshire.

2. The respondents are the Scottish Ministers, operating as Scottish Executive Environment & Rural Affairs Department (SEERAD) at the times of the events with which this appeal is concerned.

3. The SCPS 2003 claim for 215 animals included 20 heifers,

4. On 3 July 2003, SEERAD wrote to potential claimants under SCPS 2003 to, amongst other things, alert them to main changes to the scheme, including the 5% heifer requirement. The letter contained the following paragraph:-

‘For SCPS 2003 you must include a minimum of 5% heifers in your claim (unless you claim for less than 14 animals) and not exceed 40%. You must make sure that you keep enough heifers throughout the retention period to meet the 5% minimum. If a claimed heifer calves during your retention period your cow/heifer ratio will alter. If your heifer percentage then falls below 5% you will have to replace the calved heifer with another eligible heifer, within the time limits set out in the Notes for Guidance (Section 4.3). You may wish to consider, therefore, if you have that option, claiming heifers that are not in-calf at the start of your retention period but which you expect to keep throughout your retention period.’

The letter also enclosed the Suckler Cow Premium Scheme 2003 Notes for Guidance. On page 2, under the heading MAIN CHANGES, the first two bullet points were:-

‘If you claim 14 animals or more you must include a minimum of 5% heifers in your claim: Section 2.4’ and

‘If a heifer calves and your percentage falls below 5% you must replace it with another heifer and notify the replacement: Section 4.2.3’.

Paragraph 2.4 was headed “Heifer/cow limits” and stated that, ‘If you are claiming for 14 or more animals your claim must include at least 5% … heifers. … If a claimed heifer calves during your retention period your cow/heifer ratio will alter; you must make sure you keep enough heifers during your retention period to meet the minimum heifer requirement.’

Paragraph 4.2 was headed “Losses during the retention period” and stated that, ‘During the 6 month retention period any reduction in the number of animals claimed will be the result of (3rd bullet) … heifers calving; …’

Paragraph 4.2.3 was headed “Heifers calving” and stated that, ‘If a heifer calves during your retention period and the number of heifers remaining falls below 5% of your claim, you must replace the calved heifer with another eligible heifer and comply with the rules on replacement (see 4.3).’

Paragraph 4.3 was headed “Replacement and notification of animals” and stated that, ‘You may replace claimed animals with other eligible animals, provided that after replacement the number of heifers making up your claim does not go below 5%’.

5. SEERAD’s administrative cross-checks appeared to establish that the business did not maintain a minimum of 5% of heifers for the duration of the retention period as required by EU legislation. During the retention period 15 of the 20 claimed heifers calved but the business did not notify SEERAD of any eligible replacements.

6. As a consequence of this, the business did not have the required 5% heifers on the claim at the end of the retention period. The maximum number of animals which can be supported by a claim with five heifers is 109. Payment under SCPS 2003 was restricted to payment for 109 animals.

c) Additional findings proposed by respondents

For the respondents, Ms Poole requested that certain findings be made on the lines set out in their answers. She also made various assertions of fact in course of her wider submission. Some of this material involves mixed matters of fact and law and is discussed further below. But we accept that the following was admitted or established:-

The CTS has not been positively approved by the EU for subsidy purposes. It is not set up to show details of claims under any of the various schemes. The CTS shows the presence of animals on a holding and the registered keeper of such animals. It does not show whether there has been any claim for subsidy in relation to such animals nor the identity of any claimant for subsidy. In other words the data held by the CTS does not identify which heifers on the holding have been included in an SCPS claim. The data does show which animals are heifers because the information held in relation to each animal includes its sex and date of birth. It does not show directly that a particular heifer has calved. However, there is an obligation on a farmer to apply to the CTS within 7 days of birth of a calf for a passport in respect of each calf. The application will include the identity of the dam and this information allows the dates of calving of each heifer to be determined. The Scottish Ministers could ascertain that information and thus find out when a particular animal had ceased to be a heifer. It would not show that a keeper had taken the animal off any subsidy claim he might have made. As the CTS makes no reference to aid applications it does not show that any particular heifer has been replaced for aid purposes nor does it identify any particular animal as a replacement. Notification to the CTS is subject to different time limits from notification of SCPS replacements. Registration with the CTS does not demonstrate the number of SCPS eligible heifers on a farm because an animal is not eligible unless it is properly recorded in the farm records and complies with the provisions relating to ear tags.

The keeper of animals as disclosed by CTS might not be the same as the person claiming subsidy in relation to such animals. However, it would be possible in any case where a person claiming subsidy asserted that they were the keeper, for the Department to check that no other claim was being made in respect of such animals. A check of this nature is routinely made in respect of all claims. Computer programmes are set up to allow certain types of information to be obtained from the total data bank by using standard processes. In technical terms the database can more easily be “interrogated” to disclose anticipated types of information than to disclose other types of information on an ad hoc basis. The means of accessing data held on a computer system is an important element in any administrative process. Data may be comparatively useless if it cannot easily be accessed in a meaningful context. The respondents’ systems are designed to facilitate checking of current claims. Cross checks to ensure that no double claims have been made for the same set of animals are part of the routine process. We accept the evidence of Mr Cranford that it is less easy to make such a check in subsequent periods. It is impossible to make such a check without knowledge of the specific animals by their individual identification numbers.

The letter of 3 July 2003 enclosed the Notes for Guidance and also a copy of the SCPS 2003 Loss/Replacement Cattle Notification form. Both specified where particular documents should be submitted. That was to the local area office of SEERAD. In the case of the CTS, notifications were specified to be made to BCMS. The Cattle Database Regulations 1998 as amended specified where notifications should be sent (if posted as opposed to submitted electronically), which was to BCMS. Notifications sent electronically for the purposes of SCP and the CTS, respectively, went to different databases.

Reasons for shortfall

[6] We were not asked to make findings relating to the particular circumstances of the present case. There was no doubt that the effective cause of the shortfall was that some heifers calved and ceased to be heifers in terms of the EU definition for the purposes of the Scheme. The appeal focused on the steps requiring to be taken by a producer to remedy that situation. The reasons why no positive steps were taken were not sharply in issue. It was not suggested that Mr Stephen had failed to give formal notification of replacements because he thought that he could rely on the information being in the hands of the CTS. It is plain that he did not notify replacements because he did not realise that he had to.

[7] The appeal was presented on a broad basis because it was regarded as a test case which was likely to have a bearing on a number of similar cases. However, it seems appropriate to make certain comments on the particular circumstances spoken to by Mr Stephen himself. We heard no submissions about the particular detail but we are conscious that the reason for the problem was a matter of some public interest. The original grounds of appeal in many of the cases lodged with the Court had explicitly referred to confusion over the definition of a “heifer”.

[8] A heifer is defined in article 3(g) of Council Regulation 1254/1999 as “a female bovine animal from the age of eight months which has not yet calved”. We have no doubt that this was different from the way many Scottish producers would have understood the term. Many would have been brought up with an understanding that an animal was a heifer until it calved for the second time. Others might have regarded it as a heifer until the end of its first lactation or until it went to the bull for the second time – that is, until the start of the second pregnancy. Mr Stephen told us that was his understanding. We suspect that many farmers might never have given much thought to the precise definition but all would be familiar with expressions such as “heifers with calves at foot” – a category inconsistent with the definition in article 3. Mr Stephen assured us he had read all the relevant literature. He knew that written material from SEERAD had said clearly that if a claimed heifer calved during the retention period, his cow/heifer ratio would alter. However, he said that made no sense to him because he did not associate the calving stage as having any bearing on the definition of a heifer. He had simply ignored the material about calving heifers. He took no steps to replace such animals because it did not occur to him that there was any need to replace them.

[9] His approach is a little difficult to understand. He clearly knew that significant sums of money were dependant on compliance with the conditions. Where an applicant comes across a condition in a scheme which makes no sense to him, it would be a matter of commonsense to make enquiries to clarify the point. It would be easier to understand the position of an applicant whose understanding of heifer status was that it persisted until the second calving. This might have led to an unthinking assumption that the guidance about changing ratios simply did not apply to his first calvers. However, in both these situations, the essential problem would be a failure to understand the requirements of the scheme. The definition in art 3(g) cannot be said to be in any way ambiguous in the context of this case and misunderstanding suggests that, for whatever reason, the definition itself was not considered. It may be observed that the definition was not expressly quoted in any of the SEERAD literature. It may also be added, for completeness, that we have become aware of a possible ambiguity in definition arising in a quite different context from potentially conflicting provisions relating to the defined start age but this has no present relevance.

[10] In his application, the applicant undertook to comply with the scheme rules referred to in the Notes for Guidance and the EC rules and Regulations relating to his claim. In terms of Regulation 2419/2001 art. 10(g) the aid application was required to contain a statement by the farmer that he was aware of the requirements pertaining to the aid in question. The Notes for Guidance might have been confusing to a farmer who read them with an unquestioning assumption that only a seconding calving was relevant. But they said nothing which can reasonably be taken to have created such misunderstanding. Without a false assumption as to the meaning of the word, the references to “calved heifers” could have been read as a perfectly natural way of referring to a former heifer which had calved. All other references stressed the importance of the change which would take place as a result of “calving”, without qualification or ambiguity. Other documentation was to the same effect. The standard form of notification of replacement referred to heifers calving as well as to animals which had died or been sold. However, Mr Stephen had used on-line methods of intimation in respect of animals which had died or been moved and there was some doubt as to the precise content of the electronic form and its “drop down menus”. The electronic form itself did include reference to notification being necessary “each time claimed cattle are lost and replaced “(including when a heifer calves and the number of heifers remaining is less than 5%)”.

Submissions

For Appellant

[11] Counsel set out in the document production No. 45 a full and helpful analysis of the relevant Regulations and authorities bearing on the proper construction of European legislation. He dealt with the general principles of proportionality. This could be relevant in at least three ways. First, where an authority had a choice or discretion as to how to implement EU law, it was obliged to act proportionately. This had been described as the most important general principle in Common Market law. Secondly, EU legislation should so far as possible be construed to be proportionate in its effects. Thirdly, legislation which cannot be construed to be proportionate in its effects must be treated as invalid. He did not need to invoke this last principle but contended that Commission Regulations 1254/1999 and 2419/2001 had to be construed in accordance with the principle of proportionality and this supported the appeal. Any approach which was wider than necessary was prohibited. He referred to Campbell v Scottish Ministers and submitted that a central question was to determine whether the alleged breach had effects which could be said to be “significant”. He contended that an omission to send information was not significant when it would not have affected any practical outcome.

[12] Another principle of importance was that of clarity. He contended that this principle meant that dubiety about the meaning of rules should where at all possible be resolved so as not to bring upon the shoulders of members of the public financial consequences which were not stated clearly and precisely in the law.

[13] Counsel opened his substantive discussion of the appeal by submitting that it was important to consider whether Mr Stephen breached an aspect of the 5% rule. The question was put in that way because it had not been alleged that Mr. Stephen failed to keep heifers totalling 5% of his claimed animals. Mr. Stephen was not alleged to have broken the 5% rule as such, but to have broken the rule requiring notification of replacements. It was central to the appeal that at all material times Mr. Stephen did in fact have sufficient additional heifers to comply with the 5% rule, and that that was at the time matter of publicly-held record.

[14] In terms of art 10(1) of Regulation 2419/2001 Mr. Stephen’s application had to “contain all information necessary to establish eligibility for the aid, in particular: … (c) the number of animals of each type in respect of which any aid is applied for and … the identification code of the animals … ”. The Regulation went on to refer to the Identification and Registration (I&R) database: the “keeper [is guaranteed] the right to obtain from the competent authority [i.e., the respondents] … information on the data relating to … his animals kept in the computerised database”: art.10(2). In the next paragraph, art.10(3), the rules referred again to the I&R system; the respondents are given a discretion about whether to require information which they already hold to be re-submitted. This provision was clearly wide enough to contemplate information which had been submitted for I.&R. purposes.

[15] The discretion in art.10(3) related to the essential starting-point for a claim, namely, the information in the application. A claimant could simply submit a claim for all animals registered as present on his holding on a given date. There would be no need for identification numbers on such a claim as the respondents would have access to all relevant information. The present situation was clearer. It concerned only information - identities of replacements - which might only need to be submitted if a need for replacements arose. It was ancillary to the basic information in the original application. Given that the discretion applied to the content of the fundamental application, it would be odd to read the legislation as not extending that discretion to ancillary information. The EU Commission’s Agriculture Directorate-General’s Note AIN-6 recognised the validity of “notifying” replacements “indirectly via the I&R”.

[16] The first sub-paragraph referred without qualification to information already communicated to the Ministers. The second sub-paragraph should not be read as qualifying the first. In any event, it did not require an act or certificate of approval from the EU Commission. It applied in objective terms where the database offered the necessary level of assurance and implementation. No reasons for doubting the CTS database had been established. It had been implemented sufficiently to provide a comprehensive record, containing all of the information necessary to know whether an animal was eligible for SCP. There was no apparent obstacle to checking that a set animals had not been claimed twice.

[17] Accordingly any need for Mr. Stephen to submit six forms to tell the respondents that, although a heifer had calved, he continued to hold six other heifers on his holding was something which the respondents could waive.

[18] In choosing to decide whether to waive the “re-submission” of the identification numbers of six animals, the respondents had to be guided by the policy of the legislation and the policies of EU law generally. Proportionality posed the question: what is the purpose of requiring replacements to be individually identified as and when the need arises, as opposed to accepting retrospective identification of a sufficient number of animals not linked one-to-one as substitutes for animals on the original claim? The purpose, he submitted, was to allow practical administrative checks to ensure that those animals meet the criteria for eligibility, and were not being claimed by someone else. The next question was, is it necessary for that purpose or could the purpose equally be served by allowing retrospective identification of a sufficient ‘reserve’? When a claimant reports after the event that he has sufficient additional animals, all that requires to be done is to check them, in no more or less than the same way that any claimed animal may be checked.

[19] Although a CTS check did not reveal ownership, art.6 did not require that the claimant had legal title. Security against a double claim was available by a routine check. The mischief at which art.37(20) was aimed was the possibility of the paying authority being misled about whether the claimant actually had sufficient potentially eligible replacements but that mischief could be just as securely prevented by the retrospective provision of information. The absence of art.37(2) notifications would not allow a claimant to use or manipulate any rule so as to increase the charge on public funds. The information already having been provided to the respondents’ agents, it was not proportionate to require individual animals to be nominated to replace individual losses, providing the actual overall numbers adhere to the correct proportions.

[20] Mr Upton moved to discuss the penalty provisions. The reason why no penalty had been applied in the present case was, he contended, relevant to the discussion of the utility of the I&R system. In terms of art.38(1) Mr. Stephen declared 215 animals but the number of determined animals was smaller. The respondents’ position was that it was 109. It was more correct to say that it was 209 (215 less 6 calving heifers). On either view, the point was that if non-notification of replacements meant that there were some animals for which all conditions were not met and which were therefore not determined, then the question arose of whether a penalty - a reduction or exclusion - should apply. On the appellants’ approach the percentage error rate in terms of art.38(3) was 2.06%. On the respondents’ approach the percentage error rate was 32.44% and under art.38(2), no subsidies at all should have been payable for the year in question.

[21] Whichever approach was taken a penalty applied. The only grounds in law for not levying a penalty must be found in art.44’s provision for a claimant who submitted factually correct information. That was reflected in the advice in the Commission’s Note AIN-6 which accepted that informing the I&R was ‘indirect notification’. That was important because nothing recorded on the I&R linked a given calved heifer with another animal identified as its replacement. If there was an insuperable, practical difficulty with accepting the information on CTS as notification, then the Commission would not have given that advice. Consideration of the penalty régime thus supported the appellant’s case on absence of a necessity for “direct” art.37(2) notification.

[22] With regard to the principle of clarity, a decision to insist on notification of the identities of replacements rendered the SCPS less clear and precise, and more complex and uncertain, when regard was had to various background factors. The substantive 5% rule both in its detail and in the very concept of requiring a minimum of heifers was a novelty. Where sufficient additional animals were already held by the farmer, art.37’s reference to “replacement” as a distinct step or act sat unhappily with the ordinary use of that English word. The Notes for Guidance with regard to replacements and notifications in the case of heifers calving itself lacked clarity in several important respects.Farmers with sufficient additional animals who had complied with the I&R rules would know that that information was already accessible to the respondents. Accordingly insistence on notification of animals already held increased complexity by requiring ‘notification’ of information already available to the recipient. The Commission’s guidance had for one purpose recognized I&R notification as a valid substitute. Neither the legislation nor the guidance stated with clarity or precision the consequence of non-compliance with an insistence on notification of replacements.

[23] The omission to waive the need to submit identification numbers of animals already held accordingly offended against the obligation to administer Regulation 2419/2001 in a manner that was proportionate and promoted clarity and precision.

[24] Counsel also submitted that the circumstances disclosed a case of “obvious error”. The policy of Commission Regulation 2419/2001 itself expressly adjustment in cases of obvious errors. Ms Poole objected to this line of argument as it had not been foreshadowed in the grounds of appeal. She pointed out that there was a body of law relating to this concept and that in the available time she would not be able to respond properly. Mr Upton sought leave to amend to introduce the point explicitly, pointing out that as parties were agreed that this was a test case it would make sense to deal with the issue even if some adjournment was required. Ms Poole reserved her position but indicated that she would try to meet the point. An Amendment was later tendered.

[25] It was submitted that there was no requirement that “adjustment” could only be made on the application of the farmer. The language made it clear that the authority could do this at its own instance. Since any need for notification of a replacement was ancillary to the application itself, there was no good reason to read art.12 as not applying to errors in that regard just as to errors in the original submission. Art.12 did not restrict itself to errors of commission as opposed to omission. It quite plainly bespoke a policy that, where comparison of undisputed facts with what the farmer had submitted revealled that they differed in a way that could be recognised as an obvious error - as opposed to misleading information or a substantive departure from the rules of eligibility for the aid - then the authority could make the necessary correction.

[26] He submitted that, given the policy of art.12, it was difficult to identify a justification for the insistence on notification of matters already on record. This was the final reinforcement of the argument that the respondents’ omission to administer the Regulations by waiving the art.37(2) requirement under art.10(3) ran contrary to the tenor of the legislation.

[27] In any event, art.12 itself was an independent ground for the allowance of the appeal. Mr. Stephen complied in fact with the conditions for eligibility for the premium, but made an obvious error of omission in respect of animals his keeping of which was on the publicly-held record, so that all that stood between his case and full compliance with the Regulations was the want of postage of a list of six identification numbers. His application and ancillary notifications should have been adjusted under art.12, and his error thus deemed to be corrected. No useful purpose was served by a contrary approach.

[28] For these reasons, the decision to insist on notification of identities of animals already held and duly recorded with the I&R system was a flawed exercise of the respondents’ discretion in administering the SCPS. In any event, if that was not so, he was entitled to the benefit of a corrective adjustment under art.12.

[29] Mr Upton then moved to consider the consequences if it was to be held that the appellant had indeed breached the 5% rule in a way which could not be corrected. He submitted that the respondents were mistaken in requiring repayment of premium in respect of the cows (as opposed to heifers) in respect of which there was no omission of notification.

[30] He pointed out that the respondents’ ‘Notes for Guidance’ did not spell out the consequences for non-compliance with the 5%-heifer rule. At para.4.3 the Notes for Guidance said “If you do not meet the replacement and notification requirements we will apply penalties to your claim.” It did not say if the farmer did not meet the replacement and notification requirements for a single heifer he would lose the premium on 19 cows. He accepted that the Regulations were not easy to paraphrase. He did not blame the respondents but suggested that the omission to spell out the consequence was an indication that their construction was neither inevitable nor obvious. He suggested that the reason why the Guidance did not spell out that the consequence of failing to notify replacements sufficient to amount to 5% is the loss of premium not only for the shortfall in heifers but for half of the herd, is presumably because neither Regulation 1254 nor Regulation 2419 laid down any such result.

[31] On the contrary, Regulation 2419 made it plain that that was not the consequence. Art.6 of 1254 required that 5% of the number claimed for must be heifers. Art.37(1) of 2419 says that “animals present on the holding shall only be regarded as determined if they are identified in the aid application”. The 195 cows were present on the holding and they were identified in the aid application. There was no ground on which it could be said that the other 100 were not “determined”. Art.36(3) provided that “The aid shall be calculated on the basis of the animals determined”. The 195 animals cows were “determined”, and so the aid “shall be calculated on the basis” that that was the case.

[32] The rules were plain and clear. If they were not, any doubt about the matter would be resolved by returning to the recitals, whose practical purpose in any question of interpretation was to provide such guidance. The recitals stated the objects of the legislation. Recital 34 addressed “irregularities” - defined as “any non-compliance with the relevant rules for the granting of the aid in question” (art.2(h)). “Non-compliance with the relevant rules for the granting of the aid in question” shall “lead to the ineligibility of the animal concerned.

[33] The non-compliance was the failure to make good by notification the shortfall in heifers. On one view, the 6 potential replacements of which notice was not given were the animals “concerned” in the non-compliance. On another view, it was the last 6 of the 15 that calved. But he contended that on no possible view was any one the 195 cows “the animal concerned” in the irregularity within the meaning of recital 34. To conclude otherwise would deprive recital 34 of content. The Commission made a point of spelling out in recital 34 what the consequence of non-compliance should be. It was untenable to suggest that recital 34’s purpose was to extend or widen the consequences, because the legislators could not realistically have been concerned that those applying the Regulation would do less than treat the animals concerned in an irregularity as ineligible. It was of the nature of non-compliance with a criterion of eligibility that the result was ineligibility. The inclusion of those words in recital 34 showed an intention to limit fairly the consequences of an irregularity. It chose to do so by clarifying that non-compliance in respect of any given animal should not lead to the ineligibility of any other animal.

[34] However, if the appellant was wrong in contending that the only ineligible animals were the 6 heifers, then construing arts.2(h), 2(s) & 36(3) with recital 34 produced two competing constructions: animals concerned in the irregularity are the 6, or are the 106 (215 less 109). If the Court considered both constructions possible, the principles of proportionality and certainty resolved that issue in favour of the appeal. faced with two alternative constructions the one clearer or simpler or more precise than the other, was to be preferred.

[35] Mr Upton submitted that if the appellant’s primary submission that the meaning of the non-complaint animals was plain was not accepted, then the lack of clarity was a significant flaw in the legislation. The Regulations provided for sums to be paid as of right; they created legal entitlements. Payments were not discretionary. Yet the 2001 amendment of the SCP scheme launched into a new régime of minimum percentages without an express statement of something as basic as the relationship between the criteria of eligibility and the amount to be paid. The respondents’ view visited upon intended beneficiaries of the aid a far greater financial consequence than the competing approach. Moreover, the respondents’ approach introduced the complexity of treating 100 individual animals as ‘non-compliant’ or ‘concerned in the irregularity’ (and hence not “determined”) in the face of the fact that each of those individual animals considered on its own was compliant; both claimed and eligible. The respondents’ approach excluded them by characterizing them as ‘unsupported cows’. That was a new concept which was not to be found in the Regulations. Such a construction should be rejected. It was manifestly clearer and more precise to say that the non-complaint animals were those claimed as heifers to be retained as such for six months so as to amount to 5% of the claimed herd but which were not in fact so retained because they calved. Those were the animals which caused the problem. As a matter of ordinary English usage they were the animals ‘concerned’ in the irregularity. He submitted that is was, therefore, the calved heifers which were ineligible and hence not “determined”.

[36] Turning to proportionality, counsel contended that the respondents’ approach to the consequence was also disproportionate. The problem with the respondents’ argument was that it led from an irregularity involving 2.79% of the claimed animals to the ineligibility of 49.3%. The potential penalties were even more disproportionate. Mr. Stephen seemed to have escaped because he registered the 15 heifers’ calves with the CTS, or because he had registered the potential replacements. If he had not done whichever of those things was taken to excuse him, then, on the respondents’ approach, his percentage error rate was 32.44%, and for want 6 notification forms he would lose all aid under all bovine schemes for the year. Given the apparently measured, graduated approach set out in art.38 - before it ran into the ‘scaling-back’ approach to eligibility adopted by the respondents - that was not simply disproportionate, but, he said, extreme to the point of irrationality.

[37] The present case was concerned with eligibility and Mr Upton made it clear that his reference to the rules on penalties was made simply to explain the consequences entailed by the respondents’ argument. Nevertheless, in seeking to identify the consequence for eligibility of non-compliance with a rule, he submitted that proportionality was as relevant to the construction of the legislation as it was in the case of a penalty. Where proportionality was at issue, the behaviour of the farmer said to have broken the rules, and any degree of culpability, were relevant to assessment of whether the consequence was proportionate: Campbell v SMs. Mr. Stephen did not fail to keep the requisite proportion of maiden heifers. He did not fail to do anything that might be required by way of an act of “replacement” in terms of art.37(1), for he already had the animals. He recorded them in his herd register. He had intimated, in effect, that the 15 had calved

[38] Mr Upton contended that Mr Stephen had proceeded on the basis of an accepted meaning of the word “heifer” with which the legislators chose to be at variance. His default was in practical terms the minor matter of failing to post a list of six numbers. The respondents’ construction resulted in a wholly disproportionate outcome. So that construction was wrong.

[39] On the question of the possibility of a reference to the European Court of Justice, counsel suggested that guidance from Lord Bingham, M.R., in R. v. International Stock Exchange, ex parte Else (1982) Ltd., at p545 might be relevant. It had been followed by Lord Rodger in Booker Aquaculture Ltd v Secy of State forScotland, at p.27A. It was to be noted that questions of construction were to be distinguished from questions as to how a particular body might choose to exercise any power or discretion. The appellant’s submission was that the Court could with confidence answer the questions about the construction and proper implementation of arts.10(3), 37(2) & 36(3) in favour of the appeal. But, if not, he moved the Court to appoint parties to be heard on the terms of any question or questions that might require to be referred.

Submissions for respondents

[40] Ms Poole set out her response in written submissions which are production 46. Her position can be summarised shortly. Mr Stephen was not entitled to payment of SCP on the 215 animals claimed, but only on 109 animals which met scheme conditions. The replacement obligations contained in art. 37 of Regulation 2419/2001 were not met by the existence of information on the CTS database. The correct interpretation of the provisions of art. 36(3) 2419/2001 was that where the 5% heifer rule was not met due to heifers having calved, aid was lost on both claimed suckler cows and calved heifers failing to meet the 5% rule.

[41] Counsel made various submissions about findings in fact which we have taken into account in the findings set out above. She then dealt with principles of construction relevant to interpretation of the EU legislation. It was necessary to consider not only the wording, but also the context and the objectives: Maatshap v Minister vanLandbouw. Provisions of community law and, in particular, of Council or Commission Regulations which create a right to benefits financed by community funds must be given a strict interpretation: BayWa v Bundesanstalt. If there are several different interpretations, preference should be given to the interpretation which ensures the provision retains its effectiveness: Schilling and Nehring. There was no discretion on a Member State to waive repayment of aid irregularly granted; BayWa. There was no discretion in relation to application of EU rules: cf Campbell v SM

[42] There were two other potentially relevant principles of construction. The appellant relied in his submissions on the principle of legal certainty but there was no notice of this in the pleadings, and the Court should not entertain these arguments. The other relevant principle was proportionality. She returned to this as indicated below.

[43] Council Regulation 1254/1999 set up the SCPS. The recitals showed that it was an income payment for farmers, to reduce over time: (recitals 2 and3). The recitals also showed a concern not to increase overall production (eg at 4 and 9), and referred to compliance with identification and registration and time limits (recital 18). A producer or farmer keeping cows on his holding was entitled to SCP, provided certain conditions were satisfied, including certain proportions of cows and heifers. These proportions varied from one annual scheme to another. Compliance with ID. and registration requirements was required by art. 21. Heifer was clearly defined in art. 3(g).

[44] Council Regulation 1512/2001 amended 1254/1999 in response to the BSE crisis. Because the market had tumbled, it aimed to reduce future production, inter alia by cutting down the number of suckler cows by increasing the requisite number of heifers (recitals 1 and 4). The UK was subject to less stringent requirements than other member states because foot and mouth had reduced the number of cows to some extent. Art. 1(6) inserted additional paragraphs in art. 6 1254/1999 requiring, in 2003, at least 5% of the total number of animals for which SCP was claimed to be heifers. Farmers would be encouraged to keep a band of animals which were not calving, thereby reducing the size of herds.

[45] SCPS was administered as part of the IACS system; Commission Regulation 2419/2001. Ms Poole referred in particular to Recitals 15, 16, 32-34, 36, 42, and Arts. 2(h), 2(s), 10, 12, 14, 16, 17, 18, 25, 36, 37, 38, 44, 49. This system underpinned the CAP subsidy payments. Vast sums were spent on CAP and giving aid to farmers. IACS aimed to control the aid. The objectives of the IACS Regulations were to enable the reform of CAP to be implemented efficiently, to monitor compliance with the provisions on Community aid effectively, and to adopt provisions to prevent and penalise irregularities and fraud effectively: Schilling and Nehring.

[46] Counsel discussed various issues referred to in the appellant’s pleading but not insisted in at the hearing. It is unnecessary to set out the detail of this but she touched on legitimate expectation, fairness, reparation and set off. She submitted that the Land Court should not entertain any argument on these issues. In any event the averments were wholly lacking in specification, and are irrelevant. Administrative failures by Government gave no automatic right to compensation: Shetland Line (1984) Ltd v Secretary of State forScotland;Somerville v Scottish Ministers, and Finch and Ashton, para 14-22. There was no general principle requiring all administrative action to be fair: Shetland Line case at 658D. Such a national rule could in any event not operate to disapply a clear rule of EU law: Emsland-Starke, and Lageder para 34. If damages for failure of a state to apply an EU provision are sought, there would at the least require to be some specification of this and the three pre-requisite criteria in the Factortame case - discussed in Craig, at 817-819. The issue of ex gratia payments was not a matter for the Court, and in any event required to be seen in the light of the above considerations. Set off was entirely inapplicable to the facts of the case.

[47] In amplification of the basic proposition on the merits counsel submitted that the 5% rule in art. 6 as amended applied to animals claimed, not to all animals on a farm. This was a consequence of the wording of the article which provided ‘for the year… 2003, the number of heifers to be kept shall be equal to at least [5%] of the total number of animals for which the premium is requested’. The appellant had failed to comply with a condition. This was not properly described as a failure to notify six replacements.

[48] Registration on CTS was not sufficient to satisfy the art. 37 obligations in relation to the 5% rule. Art. 10(3) allowed use of information on the computerised database for the purposes of aid applications, but subject to provisos; information must already have been communicated to the competent authority, and the computerised database must offer “the level of assurance and implementation necessary for the proper management of the schemes involved”. Those provisos were not met. The CTS system had not been accredited by the EU. There was unchallenged evidence that it had been formally indicated by EU authorities that it was ‘not fully operational’. So, it could not be used for art. 10(3) purposes. Art. 10(3) did not explicitly require formal accreditation, but the funds to pay SCP were EU funds and where the paymaster had indicated that CTS was insufficient and the consequences of failing to comply with EU rules were so expensive for the taxpayer, the authorities could not be expected to start using CTS.

[49] The fact that the computerised database could be used for cross checks, but not verification, was a consequence of the IACS regulation provisions and did not assist the appellant. Regulation 2419/2001 required cross checks of SCP by means of CTS to verify eligibility for aid (art. 16(b)). That was a separate provision from art. 10(3).

[50] A strict construction was required of provisions having the effect of conferring a Community benefit. Use of CTS to supply information instead of farmers submitting a notification form would be contrary to time limits specified in art. 37(2)

[51] Art. 37(2) required notification to ‘the competent authority to which the aid application was submitted’. BCMS was not the authority to which the aid application was submitted. It was not intimation to SEERAD Area Office as required on the claim form and cattle replacement notification form, nor to the competent authority as defined in the IACS (Amendment) Regulations 2000 (SI 2000/2573) Regulation 2A. Administrative systems would clearly be unworkable if notifications could be submitted to any body for which the Scottish Ministers had responsibility.

[52] On its face, art. 37(2) envisaged notification of a “replacement”. But no replacement animal was identified on CTS. Identification numbers were the cornerstone of the IACS system. 90% of claims were paid without inspection (art. 18(1)(b) 2401/2001). The system of applications and checks was a balance of resources. Arts. 37(1) and 10(1)(c) showed that claims had to have animals identified. Checks included a check that animals were eligible for the aid claimed (art. 25(b)) and were not limited to a check of CTS. Without numbers, authorities could not know which animals to check. As already found by the Court in Millar v Scottish Ministers pages 17-18: “It cannot be the intention of the legislators that stock found to be non-compliant could thereafter simply be replaced with some other stock”. Mr Cranford had given evidence that it would be ineffective management if authorities were to search through animals until an eligible animal was found. The EU auditors would find a ‘pool of animals’ approach totally unacceptable. Using CTS to give details would mean there would be no distinction between claimed and unclaimed animals; a distinction upon which the penalty provisions in arts 38 and 39 were based.

[53] Placing the obligation on authorities, rather than the farmer, to search for and identify replacement heifers, which was a consequence of the interpretation sought by the appellant, would render aid schemes unworkable when considered on an EU wide basis. There were five livestock aid schemes. Schemes would be unmanageable if the authorities had to check SCP eligibility for unclaimed animals as well as claimed animals. There could be animals on a holding owned by different producers. By contrast, it was not particularly burdensome to require a farmer to fill in intimation forms. Large sums of money were at stake. Insofar as proportionality applied to the interpretation of art. 10(3), the minimal requirement on the farmer compared with the enormous burden on the authorities supported the construction put on it by the respondents.

[54] CTS could tell the authorities that a heifer had calved. But it would not necessarily provide the identity of the claimant of SCP whose claim was thereby altered, because the keeper of the animal on CTS might not be the same as the claimant of SCP.

[55] Ms Poole then dealt with the argument that it was unclear and imprecise to insist on notifications of replacements to SEERAD. The appellant relied on various matters to suggest a lack of clarity, and then went on to say that as a result of these it should be found that registration of animals on CTS is sufficient. In essence this was the appellant’s legitimate expectation argument repackaged under the name of legal certainty. But the matters relied upon were all extrinsic to the legislation. The appellant could not avoid the clear meaning of Article 37(2) by means of these extrinsic matters. The ECJ had given short shrift to arguments that particular domestic situations could allow avoidance of clear EU obligations. “The principle of protection of legitimate expectation cannot be relied upon against an unambiguous provision of Community law; nor could the conduct of a national authority responsible for applying Community law”: Emsland-Starke. The court would rarely find EU provisions to be ambiguous: see Krucken. A practice of a Member State which did not conform to community rules could not give rise to a legitimate expectation: Lageder para 34. Underlying the court’s strict approach to legitimate expectation was the need for uniformity of interpretation through the EU.

[56] The legal certainty argument should be excluded for lack of fair notice but in any event, was misconceived. Although the ECJ recognised legal certainty as a general principle, it was concerned only with the terms of the legal provisions, not local guidance. She instanced the MAFF case at para 57-59; another example was Starke at para 47. Difficulties of interpretation did not necessarily infringe the principle of legal certainty. The court would take into account that the provisions were intended for professionals. The provisions of art. 37 were clear. Notification of replacements was required to the authority to whom the aid application was submitted within time limits.

[57] The court required to apply the rules set down in the underlying EU legislation when deciding eligibility for SCP, not things said in Guidance: T Millar & Son at para 11. Animals could not be deemed eligible just because an appellant had done their best or did not know the precise requirements: Millar p.19.

[58] The notes for guidance had to be seen in context. They were intimated along with a number of documents. The letter of 3 July 2003 set out the 5% rule, and explained that a farmer would have to replace a calved heifer when the percentage fell below 5%. The notification of replacements form also made it clear that notification to SEERAD was expected.

[59] The appellants’ contention that authorities should adjust claims using the information on CTS would reverse the obligation on farmers to comply with conditions of aid. It would require authorities to check unclaimed animals for compliance with scheme rules, and select animals requiring to be replaced and their replacements. That interpretation ignored the wording of the first paragraph of 10(3) 2419/2001 which required information to have been communicated to the competent authority by the farmer before it could be used. It was also contrary to the responsibilities for compliance placed on the farmer by the system: see Schilling and Nehring at paras 33 to 37, Pretzsch para 52; and Barrachander Farm v Scottish Ministers at para 37. Farmers receive very substantial benefits and were expected to take a positive role in complying with all administrative requirements. The vast system of public funding involved in CAP required a strict administrative system and compliance with that system: Millar v Scottish Ministers, at p14.

[60] Art. 37(2) had to be considered in the context of the aims of the whole IACS scheme, and the rest of the Regulation. The IACS scheme was set up in such a way that farmers could not change claim forms after checks had been announced: arts 14, 17 and 44(2). The art. 12 provision for obvious errors did not change that general position. Obvious errors meant exactly that and covered matters such as spelling and typographical errors. In any event there was no evidence of any obvious error. The effect of the interpretation contended for by the appellant would be to allow changes after checks, by substitution of alternative animals. There would be no incentive to submit factually correct information or to notify of changes. That was contrary to the aims of the IACS scheme.

[61] Ms Poole advanced various further reasons why the interpretation that registration on CTS was sufficient for art. 10(3) and art. 37(2) purposes could not be accepted. The interpretation sought would not comply with the aims either of the IACS scheme or the SCP legislation. As far as the IACS scheme was concerned, it would not monitor compliance with the provisions on Community aid effectively Schilling and Nehring para 25. As far as the SCP legislation is concerned, it would not meet the aim of the 5% rule, which was to decrease beef production. It would encourage a claimant to keep additional animals, so they could be substituted by the authorities if there was an irregularity in the claim. There would be little incentive to keep 5% of heifers, if subsidies could be paid out on the whole herd regardless of percentage composition excepting only the calved heifers themselves. The purposes of the 5% rule would thereby be frustrated.

[62] The Commission Guidance Note did not relieve claimants of the requirement to notify the competent authority of replacements. The example given illustrated how art. 36 would operate to scale back the claim. It then, in relation to penalties under art. 38, referred to ‘indirect notification via the I&R’, the I&R being CTS in the UK. The UK authorities read this as allowing them not to apply art. 38 penalties in addition to scaling back under art. 36. But the Note specified that the first stage was the scaling back rule. The calves and unsupported cows were deducted from the claim. The exemption from imposition of penalties thereafter was not the same as exemption from the requirement that animals were only determined if scheme conditions were met. The same system was used for SCP as all subsidy claims. Where there was no communication to SIACS but there was to CTS, animals were deducted without penalty, whereas if they are not notified at all they would be deducted with penalty.

[63] Communication to CTS on the birth of a calf, and the information held on CTS, was not sufficient to meet the requirements of art. 37(2). It was a communication of a different nature, under a different procedure, using different forms and to a different computerised database. It was incomplete information for SCP. It notified a calf’s birth as opposed to notification of a replacement heifer. The communication with CTS was an application for a passport for a new calf under Regulation 13 of the Cattle Identification Regulations 1998/871, which implemented various aspects of EU identification and registration rules. The form required details of the dam, and from that information CTS would be aware a heifer had calved. But nowhere on the form was it indicated that the dam was to be replaced for the purposes of SCP. Notification under art. 37(2) required notification of which heifer claimed has calved, the date of replacement, and the number of a heifer to replace it

[64] In relation to the argument that assuming Mr Stephen did breach the 5% rule, he should lose subsidy only on the 6 heifers that calved and not the suckler cows removed from the claim, Ms Poole submitted that the suckler cows could not be regarded as “determined”. The scaling back resulted from application of the provisions of art. 36(3) and art. 2(s) of 2419/2001 and the 5% heifer requirement in art. 6 of 1254/1999 as amended. Art. 36(3) provided that aid should be calculated on the basis of the animals determined. ‘Determined’ was a defined term. It meant an animal for which all conditions laid down in the rules for the granting of the aid had been met (Article 2(s)). An animal had also to be identified, in the aid application, or by being notified as a replacement (Articles 37(1) and 10(1)(c)), in order to be determined. A condition which applied to the SCP 2003 scheme was the 5% heifer rule, which applied, in terms of art. 6, to the ‘total number of animals for which the premium is requested’. The rule required consideration of both cows and heifers. Where there was no minimum 5%, all cows and heifers affected failed to meet scheme conditions.

[65] The appellant had argued that the definition of irregularities in article 2(h), in conjunction with Recital 34, meant cows did not have to be taken into account when subsidy was scaled back. That was is not the case. Art. 36(3) did not refer to animals with irregularities, but to animals determined. However, they were related concepts. An irregularity was: ‘any non-compliance with the relevant rules for the granting of the aid in question’. Percentage requirements had two elements, cows and heifers. If the percentage was not met, both groups were affected. Recital 34 was consistent with this; ineligibility of ‘the animal concerned’ covered both the cows and the heifers as both were ineligible. SCP could only be paid out on the number of animals meeting the 5% rule condition. This interpretation was consistent with the principle that provisions of EU regulations which create a right to benefits financed by community funds had to be given a strict interpretation; BayWa v Bundesanstalt para 10.

[66] Counsel turned to the principle of proportionality. Proportionality could only apply where there was room for differing interpretations; if not it was to be seen as equivalent to challenge to the validity of legislation but that, she pointed out, was not being argued. The principle of proportionality applied to conditions for aid but with varying degrees of intensity depending upon the context. She submitted that because the challenge was in the context of CAP, proportionality was to be applied with relatively low intensity: Craig, EU Administrative Law pages 658 to 660. For this reason authorities touching on the proportionality principle which were not concerned with the IACS system require to be read with care. The test, according to Toeters para 50-56, was whether there was a manifest error of assessment, in the light of the principle of proportionality. Proportionality required that measures adopted by Community institutions did not exceed the limits of what was appropriate and necessary in order to attain the objectives legitimately pursued by the legislation in question. Where there was a choice between several appropriate measures, recourse had to be made to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued. In the sphere of CAP, the court took a hands off approach, and the legality of a measure was affected only if it was manifestly inappropriate having regard to the objective which the competent institution is seeking to pursue. The test was not whether the act or measure was the only or best thing to do, but whether it was manifestly inappropriate: for example Fedesa or Affish. In the context of CAP, it had repeatedly been found proportionate that subsidies were lost when farmers have animals, but failed to comply with administrative requirements: eg Nilsson, Schilling and Nehring, and Toeters.

[67] It was not accepted that the manifest inappropriateness criterion was irrelevant to interpretation of legislation. The appellant had cited no authority for this contention and issues of interpretation and validity were related. The European Court had on occasions rephrased questions, which might on one view be seen as being about interpretation, as challenges to validity, and applied the manifest inappropriateness test; for example Starke para 25 (question 2(b)) and para 54. There was no clear line. In Schilling and Nehring para 39, the court referred to the wide measure of discretion in agricultural matters in the context of interpretation.

[68] It was not disproportionate to impose a dissuasive and effective means of enforcing a condition such as the enforcement of the 5% rule by paying out only on animals meeting that condition: Starke paras 55-57. The scaling back rule was not an ‘all or nothing’ rule. Its effect was graded according to the seriousness and magnitude of the shortfall, indicating it was proportionate. Reference was made to Schilling and Nehring para 37. More serious sanctions were available under art. 38, where the whole aid could be lost: for example NFU case at para 54-55. Further, there was a defence if the farmer could show he was not at fault or submitted factually correct information (art. 44 2419/2001). That was relevant to proportionality even if inapplicable to the present factual situation.

[69] There was a superficial attractiveness to the argument that where a loss of subsidy was more extensive than the actual irregularity (loss of subsidy on 106 animals where only 6 had calved) there was disproportion. But 106 animals failed to comply with a scheme condition, not just 6. Further, the ECJ had repeatedly upheld loss of aid in greater proportions than the irregularity. For example, in the NFU case, a forage area was over 20% smaller than declared, and although there had still been a large remaining forage area, the whole beef special premium was lost: para 42-55). Scaling back also occurred in other aid claims; for example, the Court had dealt with a case where a decision to withhold subsidy on two fields and impose penalties because there was a separation strip which had irregularities: Anniston Farms v Scottish Ministers. Although nothing was wrong with the fields, only with the separation strip, aid was lost on the whole area. The ECJ had previously found that failure to comply with a condition could lead to total loss of aid, notwithstanding compliance with some of the conditions: Hopermann.

[70] The ECJ had made a distinction between penalties, and failure to fulfil the conditions laid down by the law, which was apposite in this case: Toeters, para 47. We were concerned with a failure to fulfil scheme conditions. The amount of art. 38 penalties, and the Penalties Booklet, had no direct relevance, because no penalties were applied. The appellant’s calculation was irrelevant and in any event wrong. Art. 38 required animals with irregularities to be divided by all bovine animals ‘determined’, so would have to be based on eligible animals, which meant the animals meeting scheme conditions. Mr Walker’s calculations were inaccurate even if they had been relevant. If the suckler cows removed from the claim had to be taken into account it would result in the payment of no subsidy for any of the bovine aid schemes for that year. This was a far greater sanction than the scaling back rule. The 5% heifer rule and scaling back where there had been a breach has been found to be proportionate by the courts in Northern Ireland: King, Petr, at para 31. The challenge to proportionality in that case was under Article 1 of Protocol 1 ECHR, but Ms Poole submitted that the dicta were transferable to proportionality under the EU proportionality principle which was a related concept.

[71] The appellant’s submissions on “obvious error” should not be admitted as they were not foreshadowed in the pleadings. But to assist the Court an attempt had been made to answer. The concept was dealt with in art. 12 of 2419/2001. the precursor of which was art. 4(2)(a) of Regulation 3887/92. Ms Poole said she had been unable to find any ECJ authority directly interpreting these articles. However, the European Commission had issued Guidance on the concept of obvious error in Working Document AGR 49533/2002. This gave guidance as to how the Commission viewed the concept.

[72] It was submitted that the failure to have a minimum of 5% heifers was not an ‘obvious error’ which could allow competent authorities to insert a list of alternative heifers taken from CTS. It would be contrary to the Commission’s guidance. Obvious error meant exactly that. It covered matters such typographical errors and arithmetical mistakes or erroneous bank codes. It might cover failure to tick a box. It did not cover a failure to comply with the 5% heifer rule. There was no error on the applicant’s forms. It was not entirely clear what was said to be the error. It might be that the real error was the appellant’s failure to understand the rule. The minimum heifer error was not obvious in the sense that it could be detected from information given in the aid application form submitted. While errors detected as a result of cross checks might in limited circumstances count as obvious errors, an error could not be judged as obvious on the grounds that a Member State had set up an effective system for detecting irregularities. The sort of matters detected on electronic cross checks that could count as obvious errors were errors in the farm number, or reversed animal numbers. These were errors of a wholly different order to an error in failing to include a sufficient number of heifers on a claim.

[73] To treat such matters as obvious errors would be contrary to the scheme of the IACS Regulation, which generally speaking did not allow aid applications to be changed after errors had been found, as evidenced by arts. 14 and 44(2). If this type of error were allowed to count as an ‘obvious error’ it would be difficult to see which cases of non-compliance with scheme conditions picked up on cross checks would not count as such. The effect would be to allow numerous claims to be changed after errors were found, which would mean arts. 14 and 44(2) would be undermined, and the system of checks rendered ineffective in controlling aid. The evidence of Gordon Cranford was that this error was not obvious, but required detailed checking. It was for the competent authority to accept that the error was obvious; it was not enough that it might have been known by a farmer.

Reference to the European Court of Justice

[74] Art. 234 of the EC Treaty allowed the Court to make references for preliminary rulings concerning the validity and interpretation of the EU legislation applicable to this case. Before a reference was made it had been said to be ‘highly desirable’ that the national court should determine all issues of fact and domestic law. References could be made where a court considered a decision on a question is ‘necessary’ to enable it to give judgement. Because there was an appeal from the Land Court, the Court had a discretion whether to refer or not. The appellant was not challenging the terms of EU legislation itself, so there was no obligation to refer. She referred to Foto-frost v Hauptzollant Lubeck-Ost at page 4231, paras 16 and 17. She submitted that the Land Court should not exercise its discretion to refer in this case. There were issues of costs and delay inherent in referring cases to the European Court of Justice. Delay was a weighty consideration. There were 16 appeals awaiting the outcome of this case. There had been delay already. The SCP scheme had been replaced by Single Farm Payment, so the ruling would have limited future impact. The decisions cited gave the Land Court guidance as to how the European provisions should be interpreted and applied in this case. They made the decision clear. The appellants’ argument would lead to unreasonable and unlikely results. There was no requirement to refer in such a case: Barachander Farm v Scottish Ministers at para 43; Scotbeef v Palmero.

[75] In conclusion, counsel submitted that if the respondents were successful, expenses should follow success. Should the appellant succeed, the issue of expenses should be put out by order to allow consideration of whether there should be modification of any expenses awarded to take account of divided success or time spent preparing to meet cases pled by the appellant but departed from. In any event, the cause should be certified as suitable for the employment of junior counsel.

Response

[76] Mr Upton provided a full and detailed response to the respondents’ submissions.

[77] He asked the Court to note the concession by Ms Poole that the respondents accepted that they had access to the information on the CTS. The dispute was over what they were obliged to do with it.

[78] The Court had asked the respondents whether the 109 animals which they had accepted were determined had been identified. It could be seen that the correspondence in process referred only to an unidentified block of 109 animals in this connection.

[79] The respondents appeared to place some reliance on recital 15 of Regulation 2419/2000, but that related chiefly to area-aid applications. The respondents had submitted that there was no unbreakable connection between the keeping of animals on a given holding and the right to SCP, because the right could be transferred without a transfer of the holding. The appellant submitted that whether what was contemplated was an assignation of the right to payment, or a sale of an animal carrying with it the right to “its” SCP, neither possibility detracted from the primary requirement which was that the applicant was “keeping suckler cows on his holding” in terms of art.6, and the presence of the animals on the holding must be registered with the CTS. The routine possibility of a check against double-claiming sufficed to meet any point about the possible difference between a keeper and a claimant. The appellant reiterated that for both I&R and IACS purposes, the “competent authority” was the respondents.

[80] The respondents had submitted that allowing an applicant to identify reserve animals retrospectively would not serve to limit the numbers of cattle in line with the fundamental objects of the legislation. But, both approaches contemplated that an applicant might either have or acquire sufficient additional animals to act as replacements. The dispute was about the relative practicality of checking whether that was the case, either by contemporaneous notification of replacements or by retrospectively identifying a block of animals sufficient in number to equal the number of ‘losses’.

[81] He pointed out that there was no evidence that the paymaster - the EU Commission - had indicated that the CTS was insufficient for the purposes of art.10(3). The legal requirement for cross-checks of SCP claims by means of CTS to verify eligibility for aid underlined the appellant’s submission that CTS and IACS were in law integrally related and this supported the argument that it was unnecessary to require notifications of what could be ascertained without them.

[82] The appellant’s proposal could only be said to be “unworkable”, because the respondents elected to adopt administrative arrangements which separated between different organizations, records which by law are to be submitted to and maintained by one body, the Scottish Ministers. Such arrangements could not be relied upon by them to the detriment of a member of the public who chose to rely on their legal obligations to hold those records and on the legal and practical arrangements for cross-checking one, the SIACS, against the other, the CTS.

[83] The Court had raised the question of whether art.6 required the minimum of 5% heifers to be claimed. Mr Upton said this was an important question. Art.6 required only that they were kept, and not that they were claimed. By doing so it served the policy of discouraging calving just as well as requirement to claim the 5%, since on either approach there is a financial incentive to not calve from the same number of heifers. That, he said, was a short answer to the respondents’ whole argument.

[84] The respondents had objected to the burden of an onus on them of checking all animals kept as opposed to all animals claimed. But no shift in the burden of proof to the respondents was required for the appellant’s argument. The appellant’s point about the information available to the respondents was that if, even after the end of the retention period, the claimant told the respondents that he had had sufficient potential stock, the respondents could check by cross-checking the animals in the same way as they could and, in fact, do with any check of claimed SCP animals - principally, against the CTS, and also for double-claiming by reference to other SCP claims. The appellant was not arguing that the respondents should be required to check of their own initiative, but that they could do so if a claimant submitted that he held a sufficient reserve. That possibility secured against their being mislead, as in all cases the deterrent against submission of incorrect information was the possibility, not the certainty, that it would be checked. As a workable check was possible just as in the case of animals identified on an original claim or by art.37(2) notification, there was no sufficient necessity to insist exclusively upon the latter. Art.37(2) notifications and retrospective identification of a sufficient reserve differed in only two respects: the latter was after the problem was identified and it did not link given lost animals one-to-one with their replacements. Neither difference rendered the latter method less reliable or practicable than the former. Only one check was needed, when the respondents queried compliance with the 5% rule and the claimant responded with a submission that he did in fact have a sufficient reserve.

[85] The respondents had referred to the relatively indulgent application of proportionality to decisions about how to legislate for the CAP. This could be summed up by saying that legislation must be manifestly inappropriate to be disproportionate. But, that test was laid down in cases like Fedesa which were concerned with the validity of legislation. The M.A.F.F case was the same; as was Toeters. The respondents had not identified authority that the same approach should be adopted in relation to interpretation of legislation. He referred to Schilling and Nehring. The principle was a guide to preferring an interpretation which adequately secured the legislative purpose with the least burden or degree of control.

[86] The discussion of the potential difference between keeper and claimant was academic given that the respondents’ own witness testified that, as a matter of routine, checks were made against double claims. The Regulations did not require a claimant to have legal title. In terms of art.3(b) a holding for SCP purposes was one that was managed by the claimant. It was not realistic to apprehend that one holding might be managed by two different persons. It followed that if animals were registered on CTS as being on that holding then they could not be claimed for SCP purposes by anyone other than the person managing that holding. That constituted an additional legal safeguard against double-claiming.

[87] The fact that in the M.A.F.F. case the Court had not considered it disproportionate for a 20% error to lead to the loss of all aid provided no relevant guidance for the present case, where failure to make notifications in respect of 2% of the stock was said to lead to a loss of 50% of the entitlement and, if repeated in respect of the CTS, would lead to a loss of all aid. At para. 53 in that case the Court had spoken of the consequence being justified because the loss of entitlement reflected the extent of the error committed. That was not so where an innocent oversight in respect of 6 heifers led to loss of 50%. M.A.F.F. was authority for the proposition that proportionality enjoined the authority to require no more than was “necessary” to achieve the relevant purpose.

[88] Although the respondents submitted that art.37(2) required identification numbers, that was to read into it a very specific requirement which it did not state.

[89] The references in the Notes for Guidance to ‘heifers calving’ were flawed by the subsequent reference to “loss” as if it only meant death or sale, and by reference to replacement being necessary if the number of heifers remaining fell below 5%, which, expressed as it was as a further consideration over and above the fact that a heifer had calved, rendered the meaning of ‘heifer’ critical, while reference to ‘a calved heifer’ was consistent with the view that a heifer could have a calf and remain a heifer.

[90] As matter of arithmetic the ‘scaling back’ was, no doubt, proportionate to the number of heifers that had become ineligible. However, the fact that the number of animals that ceased to count for the calculation of the premium was an arithmetical function of the number in respect of which the claimant made an error did not satisfy a proper test of proportionality.

[91] Art.44 related to penalties and contained nothing to imply that it qualified the discretion about waiving requirements for the provision of information in art.10(3).

[92] The suggestion that the appellant’s approach would negate any incentive to submit factually correct information did not follow from the modest suggestion that retrospective information was no less reliable than contemporaneous notification, in a situation in which a claimant could not mislead because it was already recorded and could be checked in the same way as that given in the original claim. It was not correct to say that the appellant’s approach would reduce the incentive to keep 5% of heifers. The hypothesis was that that was indeed done. The issue was about the means of checking. The appellant’s approach was a secure means of checking and maintaining the incentive.

[93] The appellant’s point about Commission Note AIN 6 was that, on the respondents’ approach, notification to the CTS still left a discrepancy between animals declared and animals determined. Yet the Commission said that notification to the CTS should suffice to exclude the application of art.38. There was no reason why it should not equally exclude the application of art.36. It was not clear what information on the CTS. the Commission would hold sufficient to avoid a penalty.

[94] Counsel amplified his submissions on proportionality and dealt with the detail of certain passages in Toeters and Schilling and Nehring. He contended that there was no authority for the view that a different approach to issues of proportionality was needed in relation to CAP cases. This was not even hinted at in either Craies or Bennion. There was no reason why the principle should not be applied to interpretation as well as to validity.

[95] In relation to “obvious error” he said that the appellant could rely on the caveats in the Commission’s Guide. There could be obvious subjective errors as well as clerical errors. Mr Stephen’s omission was an obvious error. In answer to a suggestion by the Court that the fundamental error in this case had been Mr Stephen’s thinking that calving was irrelevant, counsel said that while that may have been Mr Stephen’s error, the relevant error was in not sending off the replacement forms. That was the practical error, preceded by a mental one. An error of omission could be an obvious error within the meaning of art 12. The greater the error was, the more likely it was to be obvious. The fact that he had repeated the same error in respect of six animals simply showed his good faith.

[96] It may be added for completeness at this point, that Mr Upton made it clear that certain of the lines of argument disclosed in the Grounds of Appeal were not, in fact, to be advanced. He confirmed that he did not seek to argue that the requirement to notify replacements in terms of art. 37 was confined to newly acquired animals. He was not advancing any argument on the basis of “legitimate expectation”. He was not making any case based on reparation or set off. He was not seeking to argue that any of the Regulations could be set aside as invalid on the grounds of proportionality or lack of clarity. These concepts were relied on only in relation to construction.

[97] In relation to the question of a reference, this was a matter for discretion of the Court. The matter could be left over for the Inner House if there was any appeal. He moved the Court to reserve the question of expenses.

Discussion

[98] Although the debate covered a great deal of ground, the respondents’ position can be put in simple terms. Producers were entitled to receive a grant only if they complied with the provisions of the scheme. One provision was that the claim had to include a minimum of 5% heifers, held for the retention period. Only 5 of the claimed animals remained as heifers for the whole period. Accordingly, the appellant had not complied with the condition which would have entitled him to payment in respect of 215 animals. The claim had to be adjusted to reflect the limited number of eligible heifers in the claim. They said there was no basis upon which other animals could be taken to be included so as to make up the shortfall.

[99] The basis of the respondents’ submission was Regulation 1254/1999, art.6(2) which, as amended by Regulation 1512/2001, provides:-

2. The suckler cow premium shall be granted to any producer … provided that he keeps, for at least six consecutive months from the day on which the application is lodged a number of suckler cows at least equal to 60% and of heifers at most equal to 40% of the number for which the premium was requested.

However, for the years 2002 and 2003 the number of heifers to be kept shall be equal to at least 15% of the total number of animals for which premium is requested”.

In theUnited Kingdom, the obligation to keep a minimum number of heifers is not applicable in 2002 and is limited to 5% in 2003.

[100] These provisions plainly recognised the special needs of the UK in light of the Foot and Mouth epidemic. However, the underlying policy was an attempt to change the structure of suckler herds without reduction in aid and with the intention of reducing the number of beef calves born. We are satisfied that it is unnecessary for us to make any findings as to how far the means adopted were likely to achieve that end. It is sufficient that they were clearly set out in the Regulations.

[102] We did question whether the amended provisions of art. 6 were open to the construction that the percentage could be assessed by reference to animals “kept” as opposed to animals claimed. Mr Upton responded by saying that the article required only that animals were kept and not that they were claimed. That, he said, was a short answer to the respondents’ whole argument. However, he had not advanced that construction in his opening submission and did not attempt to advance any positive argument in support of it. He may have thought that he could not make more of the point having regard to the terms of the Joint Minute. Parties were agreed that the rules governing SCPS 2003 required SCP claims to contain a minimum of 5% of eligible heifers.

[103] We are satisfied that on a proper construction, the percentages set out above were intended to be determined by reference to animals claimed. As Ms Poole submitted, art.6 expressly refers to animals “for which the premium was requested” and we have no doubt as to the intention. As it is clear that such provisions in European legislation require a purposive construction it may be unnecessary to say more. It may be noted that this construction is also implicit in the guidance note, AIN-6, published by the Commission. Although that may not have any weight, in itself, we are satisfied that it reflects the obvious construction.

[104] We consider that this is a point of some importance to the proper approach to the appeal and it may, therefore, be added that we are satisfied that this construction is supported by certain other provisions relating to the IACS. Commission Regulation 2419/2001 art. 10 provides that:

1. A livestock aid application shall contain all information necessary to establish eligibility for the aid, in particular: …

(c) the number of animals of each type in respect of which any aid is applied for and, for bovines, the identification code of the animals …

[105] Constituent percentages cannot be determined without knowing the total numbers and, accordingly, it is clear that the heifers involved had to be disclosed in the application. The reference in art.6 to “keeping” them has a full and important content. It relates to the practical obligation of retaining the identified animals for a specified period.

[106] We are satisfied that we are dealing with a claim for a certain percentage of heifers and the matching percentage for cows and that these animals must be shown in the application. Art.37 of Regulation 2419/2001 does allow replacements to be made after submission of an aid application. It may be noted, however, that the first provision of that article sets out explicitly the underlying rule. It provides that: “Bovine animals present on the holding shall only be regarded as determined if they are identified in the aid application.”

[107] The first paragraph goes on to make provision for replacements: - “ However, suckler cows or heifers in respect of which aid is claimed in accordance with article 6(2) … of Regulation No. 1254/1999 … may be replaced during the retention period within the limits provided … without the loss of the right to the payment of the aid applied for.

2. Replacements pursuant to paragraph 1 shall occur within 20 days following the event necessitating the replacement and shall be entered in the register not later than three days after the day of replacement. The competent authority to which the aid application was submitted shall be informed within ten working days after the replacement.

The provisions clearly cover animals brought onto the holding in substitution for an animal claimed. Such new animals must be entered in the farm register. But we see no basis for restricting this provision. We are satisfied that the intention of the Regulation is simply that animals used as replacements are to be both registered and notified. If such animals are already on the register, no further registration can be required. It is well within our experience, as an expert Court, that producers commonly make a claim for fewer animals than their actual stockholding. There are various reasons for this. One is to allow scope for replacement from within their own holding. Such stock will already be on their register. Although something was made of the potential for confusion in the term “replace” we understood it to be accepted that the provision was wide enough to cover substitution by animals already on the farm. As we see it, the important part is the provision for intimation to the competent authority. That is the stage at which the change in the identity of the animals for the purposes of the aid application is completed.

There can be no doubt that these provisions envisage certain positive steps. The animals are only to be taken to be “determined” if identified in the application. The provisions relating to “replacement” must be read in that context. They allow a means of identifying new animals in the claim after the application has been lodged, where these animals are in substitution for animals identified in the original application.

We are satisfied that these various provisions support the basic position of the respondents. The grant of SCP 2003 was conditional upon there being a minimum of 5% claimed heifers throughout the retention period. Mr Stephen’s claim for 215 animals did not meet that condition. At its simplest, failure to meet the condition might have led to the claim being refused. The respondents did not take that approach. They accepted that the effect of failure to meet the condition was that the claim was not necessarily completely excluded. They allowed payment on animals which could be taken to fall within the percentage condition. In other words a number was allowed, calculated by reference to the eligible heifers on the claim. Payment was made in respect of 109 animals.

[108] The reasoning behind this approach was not made entirely clear to us. However, it was consistent with the Commission Guidance in AIN-6 in which reference was made to various regulations. Art.36 of 2419/2001 deals with the ‘Basis of calculation’ and provides, inter alia, that:-

1. Where an individual limit or individual ceiling is applicable, the number of animals shown in the aid applications shall be reduced to the limit or ceiling set for the farmer concerned.

2. In no case may aid be granted for a number of animals greater than that shown in the aid application.

3. Without prejudice to articles 38 and 39, if the number of animals declared in an aid application exceeds that determined as a result of administrative … checks, the aid shall be calculated on the basis of the animals determined.

[109] The respondents’ approach can be justified as based on the number of animals determined and forming a total which matched the necessary percentage of heifers determined. Where there had been no direct intimation to the respondents for the purposes of the SCPS but there had been indirect notification through the CTS, animals were able to be treated as having been removed from the claim. So there was no penalty, whereas if they were not notified at all they would be deducted with penalty. In any event, in light of the Commission’s guidance, there was no need for them to take the view that the whole claim fell because of failure to meet the 5% figure for the whole. The respondents are free from any concern that they might have made an over-payment. Premium was granted for the total number of animals kept throughout the retention period in accordance with the upper and lower regulatory limits.

[110] In short, we consider that the position taken by the respondents fits the apparent requirements of the Regulations. We are satisfied that the respondents are not free simply to waive compliance with the European Regulations to meet hard cases. For the appellant to succeed it is necessary for him to rely on some provision or combination of provisions which demonstrates an error in the respondents’ approach or a failure by the respondents to take account of some other remedy open in the circumstances. Although Mr Upton presented his arguments attractively and left no stone unturned in his efforts for the appellant, we are not satisfied that there is any basis upon which the appeal can succeed. As we have seen, article 37 provides explicitly that bovine animals present on the holding shall only be regarded as determined if they are identified in the aid application. The appellant seeks to have the percentage calculated by reference to animals which were never identified on the aid application. Article 37 goes on to make express provision for an exception to the general rule. Animals identified on the application can be replaced within specific times. The appellant’s argument seems to us to involve the implicit proposition that, in addition to the express provision for replacement there is an implied right to notify fresh stock after checks have shown that the original application does not comply. We have no doubt that such an implied right would be a surprising feature in the context of the IACS. We are not satisfied there is any warrant for it.

[111] Before looking at some of the detail of his contentions, it may be salutary to restate the essential elements of the matter in bald terms. Art. 10 requires a claim to specify individual animals. Provision is made for animals to be replaced. The concept is clear. It is implicit that one animal is substituted for another in the claim. The appellant claimed for 215 identified animals. He made no relevant change to his claim. He would have been paid for them all if the respondents’ checking procedures had not revealed that due to circumstances not disclosed in the claim, the ratio of heifers to cows did not meet the conditions of the SCP 2003 Scheme.

[112] The appellant had a number of maiden heifers. He might have chosen to include such animals in his initial claim. He might have decided to change the claim by replacing the heifers when they calved. He did not do so. The respondents recognised that the appellant could easily have complied with the minimum percentage condition laid down by the European regulators but their position was that there was nothing in the Regulations to allow them to make a payment calculated as if he had complied with the condition when he had not.

[113] The bulk of the debate related to the issue of whether, and if so, precisely how, the information held by the CTS on behalf of the Scottish Ministers could be relied upon by the appellant. There was at least a hint of a suggestion that there was something unfair in the idea of the respondents being able to use information to check a claim without being able to use the same information to support or validate a claim. But, the issue is not one of validating a claim. The information held by the CTS on behalf of the respondents did not show anything about the claim. If the condition to be complied with related to claimed animals, information relating to some other animals could not, of itself, validate the claim.

[114] The start point of the appellant’s contentions was the discretion given by art.10(3) of Commission Regulation 2419/2001. That provides: “The member states may decide that some of the information referred to in paragraph (1) need not be included in the aid application, where it has already been communicated to the competent authority”. It is accepted that the Scottish Ministers are the “competent authority” for the purposes of the I & R provisions. They have arranged for the functions to be carried out on their behalf by an appropriate cattle tracing system. It is not disputed that they have access to the information held by the CTS. The information held indicated that the appellant would have been in a position to meet the 5% condition. It could not positively confirm this because the requirement of eligibility necessitated compliance with provisions about ear-tags and the farm register. It appeared initially to be suggested that, as the respondents had to be taken to hold the information albeit indirectly, it was in some way wrong for them to insist on notification by the appellant. However, as discussed below, the appellant ultimately accepted that some notification was necessary. The respondents did not need to interrogate the database held by their agents in every case of apparent failure in order to see whether suitable alternative stock was held. They only had to do so if the appellant intimated that he had such stock.

[115] It seems to us that this concession makes it impossible to rely on the provisions of art 10(3) in the way the opening argument was presented. It further seems to us that there is a fundamental difference between making a claim and being in a position to make a claim. The fact that a paying body had available to it all the information necessary to show that a claim, if made, would be successful would not give rise to any obligation to make payment if no claim was actually made. In the present case, no claim was ever made for any payment in respect of the maiden heifers. As we have seen, the claim was made in respect of 215 individually identified animals: some identified in the original application and some by notified replacement. Of the qualifying animals claimed by the appellant and held throughout the retention period, only 5 were heifers, as defined for the purposes of the scheme. Payment was calculated by reference to them.

[116] At the heart of the appellant’s submission is the characterisation of the issue as relating to “an omission to send information”. It was contended that Mr Stephen complied, in fact, with the conditions of the scheme and that all that stood between his case and full compliance was the “want of postage of a list of six identification numbers”. The respondents’ position was criticised as being no more than insistence on formal notification of matters already on record.

[117] The respondents did not accept that the nature of the breach could properly be characterised as a mere failure to notify them in the correct way of information which they already had. But, Ms Poole did not treat this as an important point and we do not wish to suggest that this case turns on a legal technicality - as might be suggested by reference to terms such as “characterisation of the breach”. The respondents’ main line of argument sought to show that the contention that registration with CTS was sufficient to meet the article 37 obligations was not well founded in fact. We accept that argument. However, we are satisfied that it is confusing and misleading to look at the matter as if the problem was no more than the want of posting of some notices. As we have said the essential problem was a failure to meet one of the conditions of the claim. That related to the animals claimed, not to some other animals of which no notice was given.

[118] The proposition advanced was that the appellant had sufficient heifers to “comply with the 5% rule”. This was based on an assertion that he was not alleged to have “broken the 5% rule as such”. But, the percentage requirement was simply a condition of entitlement to SCP. It was not a rule which had to be obeyed “as such”. There was no such rule under the provisions for I&R. The matter only arises in connection with the SCPS 2003. We think that the proper approach is to recognise that the underlying concept, given effect by art. 37, is that the farmer is “allowed to replace” the stock for which he has made a claim. It is misleading to treat that provision as laying down a rule about notice.

[119] Essentially, the appellant’s position was that he should be allowed to add the “spare” animals to the claim at a stage after checking had disclosed that they were initially omitted. But a claim at that stage would be out of time in terms of art. 13 and, of course, outwith the time allowed for replacements. A claim could not be made without identifying the animals: art.10, of Commission Regulation 2419/2001.

[120] Mr Upton relied on the discretion given by art.10(3). As we have seen, that provides the member states may decide that some information need not be included in the aid application, where it has already been communicated to the competent authority. The provision goes on to deal with a particular situation by reference to the computerised database: “The member states may in particular introduce procedures by which data contained in the computerised database may be used for the purpose of the aid application provided that the computerised database offers the level of assurance and implementation necessary for the proper management of the aid schemes involved”. It is not disputed that the computer database in question is that held by the CTS. We accept that this specific provision need not be read as limiting the more general opening provision. That does appear to allow to the Member State a discretion to accept any application which did not include express information which they already had. For example, although we did not hear submission on the point, it might be that if a particular farmer had previously been in discussion with the respondents agreeing his “individual ceiling” or his “milk reference quantity” it would not be necessary to insist that this information was re-stated in the application. However, there is nothing in the information held by CTS which could be used to show which animals were being claimed. Reference to the CTS would not enable a distinction to be drawn between claimed and unclaimed animals. Some further specification would be required. We accept Ms Poole’s submission that the need for such distinction is implicit in the whole scheme, including the penalty provisions in articles 38 and 39.

[121] It may be said that we did not find persuasive the respondents’ arguments in relation to the absence of accreditation by the EU authorities. There is no formal requirement of accreditation in terms of art.10(3). The fact that a paymaster has determined that a system is not “fully operational” is not, in itself, a reason for saying that such paymaster would not accept that information which was in fact held on the system was valid. We heard no evidence as to which aspects of the system were still regarded as inadequate. On the contrary, the direct evidence was to the effect that the respondents had been able to satisfy themselves on the basis of the CTS data that the appellant did have at least six unclaimed heifers on his holding throughout the retention period. These could be identified by number. Their status was later checked on the holding.

[122] However, we accept the evidence that the appellant’s approach would give rise to adverse administrative consequences. The respondents presented argument on this head on the basis that placing the obligation on the Scottish Ministers, rather than the farmers, to search for and identify replacement heifers, would render the aid schemes unworkable when considered against the background of the numbers involved in the schemes as a whole. In response, Mr Upton stressed that he accepted that the onus was on the farmer to notify the authority. He had to tell the respondents that he had sufficient potential replacements. They could then check the veracity of his statement by cross-checking in the same way as they would carry out any check of claimed animals.

[123] Although Mr Upton was at pains to concentrate his argument on the specific circumstances of the present case, it seems clear that a similar argument could be applied to many situations where, on cross-checking, there was found to be an apparent deficiency. In other words, whether the shortage of heifers was due to animals dying, being moved off the holding or ceasing to be heifers, there would, on his approach, be no need for farmers to tell the authorities in time for the initial administrative cross-checking operation. There would be no need for this to be disclosed in time to meet any random “spot-check” within the retention period. The farmer could wait until the respondents had completed this work and communicated the result. He could wait until they had taken time and effort to make a calculation of the payment due based on the numbers found to be established by the check. In practice, we understand that the respondents would normally first seek explanation of any unexpected deficiency and that is an entirely sensible approach. In any event, at that stage, the appellant’s argument would allow him to make some sort of claim by reference to other animals. The respondents would be obliged to engage in a whole new administrative process to carry out a second cross-check to see if these animals could be verified. They could go on to carry out a check on the farm. It may be noted in passing that it would seem that this would not have the characteristics of a “spot check” in that the farmer would be aware of the specific problem in advance and have ample time to ensure that all books and tags were in order in relation to the specific animals in issue. In short, he would have the benefit of a different type of farm check from that envisaged by art 17 of Regulation 2419/2001. However, we heard no submissions on that point and attach no weight to it.

[124] Mr Upton made a point that the guidance given in the Commission’s Note AIN-6 supported the view that there was no insuperable, practical, difficulty about accepting that the provision of information to the CTS could be accepted as “indirect notification”. But indirect notification that particular identified animals had changed category, is quite a different thing from notification that certain other animals are to be taken to be included as part of the application. There is nothing in the CTS data which could show that a claim was to be made for particular animals.

[125] As we have said, the appellant accepted the need for notification by him of the presence of the animals. He did not, ultimately, rely on any indirect notification as sufficient or on the proposition that it was unnecessary to give any intimation of information which had already been communicated to the competent authority. The argument appeared to involve the proposition that although intimation of availability of a replacement was necessary, this could be done informally at any stage. The apparent requirements of art.37(2) could be ignored because the informal method was just as reliable and practicable.

[126] We cannot accept this. We are satisfied that where an explicit provision is made for intimation within time limits, it is implicit that intimation outside these time limits comes too late. On any view, we are satisfied that an explicit requirement for intimation before the checking process is carried out, precludes acceptance of informal intimation at some later stage. An important feature of the regulations relating to the whole IACS is the need for administrative efficiency. A second stage of cross-checking might be practicable in the sense that it could be carried out effectively to produce a reliable result. But it would be inefficient in administrative terms. Such a process would be avoided by compliance with the art. 37(2) procedure. We are satisfied that, having regard to the overall scale of the administrative process involved in the IACS schemes, conditions or rules designed to avoid administrative inefficiency are entitled to great weight.

[127] We consider it irrelevant that the difficulty in the present case was said to arise from “an apparently exceptional (and ephemeral) provision in this particular aid scheme”. The precise terms and conditions of aid schemes do change. In the present case the guidance issued by the respondents drew specific attention to the changes but, even without such warning, we consider that there is no justification for farmers making any assumption that the conditions applying to one scheme continue to apply to a new one, or that conditions applying to a particular scheme in one year will not change in a subsequent year.

[128] We have considerable sympathy for the position farmers find themselves in. The schemes are inevitably complicated. The rules set out in the many relevant articles of the different Regulations are daunting even to lawyers. But neither sympathy nor “common sense” can be used by us to ignore rules or create new ones. The very emphasis on the difficulty arising from this new provision tends simply to confirm that the problem was due to a failure by the farmer to take time to understand the conditions of the scheme. The problem did not relate in any sense to the mechanics of communication. Plainly the appellant could, and would, have intimated individually identified replacements without difficulty if he had realised he needed to do so. We well understand that, for a practical farmer, many matters may press for attention before paper work. But it must be recognised that entitlement to the substantial payments involved is a matter which requires a high degree of care and attention to detail.

[129] Stripped of the elegance of Mr Upton’s careful submissions, the underlying proposition can be stated in somewhat stark terms. The essential contention is that where an applicant has not made any positive effort to comply with a particular term of a scheme because he has not properly understood it, he should be allowed to operate an informal system of late intimation which could show, if the administrators put in hand an additional administrative process to deal with it, that he could have complied with the scheme if he had tried. We can find no justification for this. Such argument is inconsistent with the acceptance under the European jurisprudence of the need for strict compliance with the regulations.

[130] We are therefore satisfied that discussion of the nature and quality of the information held by the CTS is irrelevant. We can accept the appellant’s contentions to the effect that it would be possible for the respondents, by retrospective examination of that data, to satisfy themselves that the appellant held animals in respect of which a claim could have been made and that such an exercise might not have been much more difficult, in any individual case, than the checking exercise which was in fact carried out. But it would, on any view, have required an extra layer of administrative checking. It would not have shown which animals were to be taken as part of the appellant’s application for aid.

[131] We have no doubt that it is more convenient for administrators to have to deal with an application – amended in terms of the replacement provisions if appropriate – which sets out specific animals which can be checked positively as part of the routine checking process rather than having to carry out a double process, first confirming the claimed animals and then going through a similar process for a second time after it has been drawn to their attention for the first time that some other animals should be involved in relation to the claim. Duplication of effort is to be avoided if possible. The provisions of the IACS scheme were designed to facilitate an administrative exercise on an extremely wide scale. It is unnecessary for us to refer to the detail of the various authorities cited to us. We found Ms Poole’s submission persuasive on this matter. We are satisfied that the European jurisprudence supports the proposition that the various terms and conditions are to be applied strictly and that it is for farmers to play a full part in the administrative exercise. We cannot find anything disproportionate in a construction which requires the farmer to specify the animals on which his claim is to be calculated and notify the authority of these animals timeously.

[132] A point was made that the supposed difficulties in obtaining information from the CTS were entirely due to the arrangement made by Scottish Ministers to have the I&R function carried out by an agent on their behalf. But the respondents were entitled to do this. It must be assumed that this was administratively convenient having regard to the wider scheme of things. This cannot be ignored to fit the needs of one farmer. In any event the appellant’s suggestion involves a separate checking process and that, if repeated on a larger scale would be likely to impede efficient administration. As we have said, it is clear that a major aim of the IACS was to promote administrative efficiency. Even small benefits in administrative terms are important having regard to the overall scale of the financial support involved in respect of the agricultural industry as a whole.

[133] There was some criticism of the use, by the respondents, of the terms “supported” and “unsupported”. It was suggested that the need for the respondents to create such terms when they were not based on any specific legislative provision showed a wrong approach. However, the concept of one element of a claim being dependent on, or supported by, another element is not unique to the SCPS. A similar approach can be found, for example, in relation to set aside areas.

[134] We are satisfied that there is no substance in the arguments presented under reference to the principles of clarity and certainty. The Regulations defined heifers. They specified the 5% requirement in unambiguous terms. They told farmers that animals could be “replaced”. It was not suggested by the appellant himself that there was any ambiguity about this word. In light of the Notes for Guidance there could have been no doubt that replacement was appropriate when a heifer changed status. The fact that he may have proceeded on some misunderstanding as to when that change would occur is irrelevant to the issue.

[135] On the face of it, the option of replacing an identified animal which had ceased to be suitable, for whatever reason, with another suitable identified animal within specified time limits was every bit as clear and precise as the alternative contended for by the appellant. The approach contended for would have the result that it would not be possible to say which animals a claim related to until some indeterminate date after the results of any cross-checks were intimated and the farmer had responded by reference to some further stock.

[136] The argument based on proportionality was expressed in wide terms. It was not contended that either the 5% provision or any other Regulatory provision was invalid on the basis of lack of proportionality. It was not said that one specific construction of an ambiguous provision should be preferred to another because it provided a more proportionate result. The argument was that Regulations 1254/1999 and 2419/2001 should be construed in accordance with the principle of proportionality and that a construction was open which would allow the appeal to succeed. There was a contention that the omission to waive the need to submit identification numbers of animals already held offended against the obligations to administer Regulation 2419/2001 in a manner which was proportionate. Insofar as that submission related to an issue of construction it seems to us that it must have been intended to relate to article 10(3). However, we consider the proposition, as put, to be too wide to be of any assistance as a guide to construction of that provision.

[137] The Grounds of Appeal did not give notice of any intention to argue that the circumstances disclosed any “obvious error” which might be corrected in terms of art. 12 of Regulation 2419/2001. The appellant sought leave to amend to add such a plea. This was resisted on the basis that it came too late to allow Ms Poole to respond properly. However, it was seen to be advantageous to have this matter determined, if possible, as this was seen as a test case and, in the event, she was able to provide some material dealing with this issue. We allowed the amendment. As will be seen we have felt able to deal with it, for the purposes of the present case, without further response from the respondents.

[138] Art. 12 provides: “An aid application may be adjusted at any time after its submission, in cases of obvious errors recognised by the competent authority”. We accept that this makes it clear that it is for the competent authority to take the decision as to whether or not the error is “obvious”. We can also accept, for present purposes, that the article does not require the error to be obvious on the face of the application. The authority may well be entitled to take account of background circumstances. However, in that case, there would clearly be a distinction to be drawn between a situation where an officer instinctively suspects an error and can check with a simple enquiry and one where the error only emerges in course of formal checking procedures. We need not attempt to define the difference but we would expect that any situation where the “error” cannot be discerned on the face of the application will require careful consideration and we would not expect to find art. 12 capable of application where any significant degree of investigation was required to disclose it.

[139] It is sufficient to say that we are entirely satisfied that this is not a case of “obvious error” within the meaning of the article. It is not easy to identify the relevant “error” with any degree of confidence and it is accordingly hard to say that it is “obvious”. It seems clear that the appellant did not realise that if a heifer calved it would cease to be a heifer for the purposes of the scheme. That was the fundamental error. That was not an error of a type which could be corrected by “adjusting” the application as received. The first practical error which followed this underlying “error” was that the appellant did not attempt to ensure that he included in his claim only heifers which were unlikely to calve within the retention period. It is not disputed that he held a number of maiden heifers. It must be taken that he could have claimed for them. But the respondents plainly could not have treated that as an “error” and “adjusted” his application to include additional animals just to meet a risk of the claimed animals calving. His next opportunity to remedy matters was to replace the calved animals using the procedures in art. 37. Mr Upton suggested that the relevant error was in “not sending off the replacement forms” a formulation which tends to give the impression of a man who had completed the forms and simply forgotten to do anything with them. The failure to intimate formal replacement for whatever reason might be described as an error but even if this could be treated as a separate error it can hardly be described as obvious. There was nothing on the face of the application to allow such error to be identified. Indeed, the failure to intimate a replacement was not an error which would be obvious even after the first cross-checks had been completed. It was not until subsequent enquiries with the appellant disclosed that he had reserve stock which could have been used in the claim, that it could be seen that his failure to do so could possibly be described as an error. In any event, it was not an error which could be cured by adjusting the application – other than by limiting the claim to 109 animals.

[140] We have reached this view of the question of “obvious error” without requiring to rely on any particular aspect of the guidance afforded by the Working Document AGR 49533/2002. It seems to us that the circumstances of the present case are far removed from those contemplated as potentially relevant errors in that document. It follows that we need express no view on any specific aspect of that guidance.

[141] We accept that neither the Regulations, nor the “Notes for Guidance” published by the respondents, provided a clear picture of the consequences of failure to comply with the percentage condition. Indeed, the Commission recognised the need to provide guidance on the matter and specific examples of how it would apply: Note AIN-6. However, we do not accept that lack of clarity as to the precise consequences justifies the result contended for by the appellant. If a grant is said to be conditional on a particular circumstance, the farmer is put on warning that failure to fulfil the condition might lead to loss of the whole grant. He may well have a personal view that a particular condition would not be sufficiently important to justify complete loss of grant but farmers should be able to recognise that they will seldom be in a position fully to understand the weight behind a particular policy and the rules giving effect to it. The concept of a grant being entirely conditional on compliance with a particular condition is far from novel. But, as we have seen, it is possible to treat the application as valid and effective to the extent that it did comply.

[142] It may be regrettable that the particular consequence could not readily be spelled out from the Regulations and that the Notes for Guidance could have put the matter more clearly. We have no doubt they were misleading in their reference to “penalties”. A failure to comply with a condition means that a person does not qualify for payment rather than that they are being penalised for fault. However, the practical effect to the farmer is much the same and we do not think that anything turns on this particular point. If the Guidance had spelled things out we might have expected something to the effect that failure to comply with the condition relating to the percentage of heifers to be retained would not lead to loss of the whole claim but that the grant would be scaled back in some way. We would not expect any farmer to have been confused into thinking that failure to comply with the condition would not have any consequences and we cannot see a sound basis in any of the attempts to set up an effect more favourable to the appellant than the one applied by the Ministers.

[143] As we have seen, Mr Upton relied to some extent on the proposition that the essential “non-compliance” was the failure to “notify” individual replacement. On that basis he constructed an argument based on the potential replacement animals. But, as we have seen, the non-compliance at the root of the problem related to a condition which applied to the animals in respect of which an application for aid had been made. It did not relate to anything done or not done in relation to other stock. We might consider the position of a farmer who lost a few heifers through accidental causes and did not go out to buy more. He might contend that he had had ample funds to do so and that there was no shortage of available animals in the market. We do not think that situation radically different from the situation in which Mr Stephen found himself. He could easily have replaced the claimed animals had he chosen to do so.

[144] The number of cows claimed exceeded 95% of the claimed stock which qualified by being held for the whole retention period. It is no doubt correct to say that no individual cow could be identified as the particular animal concerned in that excess. But it is equally clear that at least 195 animals - the original cows - were concerned in the excess.

[145] Other examples can readily be figured. All the heifers might have calved. The farmer might have had no other stock. The claim would then relate to over 200 “eligible” animals. There would have been no question of making distinction between “supported” and “unsupported” stock. Could it be argued, in that situation, that the consequences of failure to comply with a condition should be calculated by reference to the missing 5% of heifers? This would be to calculate on the basis of “non-compliant” animals which were entirely theoretical.

[146] Mr Upton’s argument was based in part on the provisions of recital 34 of Commission Regulation 2419/2001 However, we accept Ms Poole’s submissions on this issue. Article 36(3) does not refer to animals with “irregularities”, but to animals “determined”. That is a defined term: “an animal for which all conditions laid down in the rules for the granting of the aid had been met” - (Article 2(s)). In any event, we think that Mr Upton’s argument requires too much to be read into the recital. It may be tolerably clear that irregularities in relation to a particular animal lead to the ineligibility of the animal but there is nothing particularly surprising in having that said expressly in a recital. It is not an inevitable proposition. The fact that this has been made an express provision is hardly a basis for an assumed intention that no other reason for ineligibility is effective. If we have understood it correctly, his argument would make it impossible for any general overarching conditions to be applied to a scheme. The implications would not be limited to ratios for the purposes of SCPS. For example, conditions such as those involving average stocking density apply in circumstances where it cannot realistically be said that any particular animal has caused the failure to comply.

[147] We recognise that the loss of premium appears disproportionate to the immediate cause of the difficulty in this case where that is viewed as the calving of six heifers affecting a claim based on 215 animals. However, we accept the submissions to the effect that the loss is not imposed as a penalty. The Notes for Guidance may be a little confused in that respect but it is plain that the deduction arises from a failure to meet a stipulated condition. Loss of grant in such circumstances will often be disproportionate to fault but it has to be assessed against the purpose of the condition and its place in the whole IACS. We are unable to be satisfied that it is disproportionate in that context. We note that the ECJ has on several occasions accepted that it is proportionate that subsidies are lost when farmers have available appropriate animals but fail to comply with administrative requirements. The respondents cited Nilsson, Schilling and Nehring, and Toeters.

[148] In any event, we are not satisfied that any view of proportionality would allow a different construction of any relevant provision to be applied to produce a different basis of calculation of premium due.

Reference

[149] Although there have been difficulties in our approach to this decision arising from the range of issues raised and points taken, we have had no ultimate difficulty in the conclusion we have reached. We see no need for any reference to the European Court in terms of the provisions of Article 234 of the EC Treaty. If we have erred, the matter can be corrected on appeal to the Inner House. Where the need for a reference is disputed, we would normally think it appropriate for the matter to go forward to that body rather than exercising our discretion to refer. It would be for the Inner House to apply, to any issue of construction which seemed unclear to them, the appropriate tests as discussed in RV International Stock Exchange and Booker Acquaculture Ltd v Secretary of State forScotland.

Decision

[150] For the reasons discussed above we are satisfied that this appeal must be refused. We recognise that the consequences for the appellant arising, apparently, from a misunderstanding as to the significance of the term “heifer” appear hard. However, we have been unable to find anything in the Regulations which allow us to ameliorate the consequences of his failure to comply with an essential condition of the relevant aid scheme. We certify the cause as fit for the employment of counsel and express again our admiration for the work they put in to the creation and presentation of their arguments. As requested, we reserve the question of expenses.

of which intimation is hereby made.

“I STEEL”
Depute Clerk