Farm Subsidies: Penalties for breaches committed by employees

The High Court decision in the case of Stody Estate Ltd v Secretary of State for Environment, Food and Rural Affairs [2018] has shed interesting light on the question of whether, under EU subsidy schemes, a farm business is responsible for cross compliance breaches committed by one of its workers.

The case

The Stody Estate, a farming company, owns and manages some 4200 acres of land and forestry in North Norfolk.

The company has an Estate manager who is responsible for the day to day management, assisted by 15 full-time employees.

Allen Lambert had been employed as keeper on the Estate since 1990 and lived in a tied cottage. His job included acting as gamekeeper and rearing 2500 pheasant and partridge poults each year.

In April 2013 Mr Lambert was arrested on suspicion of poisoning 10 buzzards and 1 sparrow-hawk on the Estate and he was later convicted of criminal offences under the Wildlife Conservation Act 1981 arising from this poisoning.

In September 2015, the RPA notified The Stody Estate that it was to be held “vicariously liable” for Mr Lambert’s actions in killing the wild birds, which constituted a breach of the applicable cross-compliance statutory management requirements (“SMR”) under the Single Payment Scheme. The RPA applied a reduction of 75% to the Estate’s payment for 2014, on the basis that the killing of the raptors had been an “intentional” breach.

The Stody Estate appealed to the Independent Agricultural Appeals Panel (“IAAP”). Following a hearing, the IAAP decided that Mr Lambert’s intentional actions could not be attributed to The Stody Estate, following the European Court of Justice (“ECJ”) decision in the case of Van der Ham v. College van Gedeputeerde Staten van Zuid Holland (“Van der Ham”). The IAAP instead recommended a 20% reduction.

The IAAP’s decision and recommendation was referred to the Secretary of State, who revised the reduction from

75% to 55%, concluding that the intentional acts of Mr Lambert, acting within the scope of his employment, were to be treated as those of the farmer (the Estate), subject to the mitigating circumstances available to the Estate (the reasonable steps it took to prevent non-compliance and its approach to environmental issues).

The Estate then applied for judicial review of this decision.

The law

The relevant legislation governing penalties for breaches of SMRs is found in article 23 of Council Regulation (EC) No 73/2009 which provides that where there is non compliance with an SMR which is “the result of an act or omission directly attributable to the farmer who submitted the aid application …….the total amount of direct payments granted …….shall be reduced or excluded in accordance with the detailed rules laid down in Article 24.”

The Estate argued that holding it vicariously liable for the gamekeeper’s actions was contrary to the decision in Van der Ham and that an assessment was required of its degree of culpability in connection with the killing of the birds by the gamekeeper, whereas the decision had simply relied on the gamekeeper’s conviction.

The decision

In quashing the decision of the Secretary of State to impose a penalty reduction on the Single Payment Scheme payment, the High Court noted the following:

• Meaning of “directly attributable to the farmer”: Under Article 23 a farmer is only subject to a penalty if the act of non-compliance is “directly attributable” to him/her or it. In determining whether a penalty was to be applied for a cross-compliance breach, the focus had to be on the level of culpability of the beneficiary of aid, namely the farmer – Van der Ham followed.
• Contractor v employee: In the Van der Ham case the third party in breach was an independent contractor and not an employee. The Court found that there was no uniform understanding across Member States of the distinction between employees and independent contractors. The Van der Ham decision could therefore apply equally to breaches carried out by an employee and an independent contractor.
• The “farmer”: Article 23 did not require the acts comprising non-compliance to have been committed by the farmer.
• The penalty regime: The SMR banning the intentional killing of wild birds is supported by EU regulations, under which the farmer “shall respect” the requirements. “If there was intentional killing of wild birds, by anyone, on the farmer’s holding, then the regime for the imposition of a penalty for a cross- compliance breach was potentially engaged. Whether a penalty was properly levied under the regulations would thereafter depend on an assessment of the farmer’s culpability.”
• Examples: Obvious examples given by the Court of circumstances in which poisoning wild birds might be said to be “directly attributable” to the farmer were: a positive instruction/encouragement given by the farmer to an employee to kill the birds; a failure to provide reasonable instruction or training; or a failure to take steps to end the activity on becoming aware of killings taking place, Van der Ham followed.

The Court found that the gamekeeper’s conviction alone did not satisfy the art. 23 requirement that cross-compliance breaches were “the result of an act or omission directly attributable to the farmer”. The

Court did not find any fault on the part of the Estate in connection with the gamekeeper’s actions, so the decision to impose a penalty under art. 23 was quashed.

Application

Although this decision related to the Single Payment Scheme, the reasoning will apply to cross-compliance breaches under the Basic Payment Scheme (“BPS”), which are subject to an analogous administrative penalty scheme. The BPS rules use the same reference to non- compliance as “the direct result of an act of omission directly attributable” to the BPS claimant, although one of two additional qualifying criteria must be met before a penalty can be applied, namely:

1. the non-compliance must be related to the agricultural activities of the BPS claimant; or;
2. the non-compliance must concern the BPS claimant’s holding.

The Stody case would have fallen within limb (ii) of that additional test.

The decision may also be relevant to breaches arising under future subsidy schemes, depending on the wording of new UK legislation applying to any relevant post Brexit subsidy scheme.

For more information please contact Josie Edwards, Senior Associate in the Agriculture Team.