QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| The Queen on the application of Leonard Kelsall and others
|- and -
|Secretary of State for Environment, Food & Rural Affairs
Philip Coppel (instructed by Legal Department, DEFRA) for the Defendant
Hearing date: 26 February 2003
Crown Copyright ©
Mr Justice Stanley Burnton:
"5. (1) The appropriate authority may (and, in the case of the Minister of Agriculture, Fisheries and Food, shall) by order make a scheme for the making of payments by that authority to persons in respect of income and non-income losses incurred by them as a result of ceasing, by reason of the enactment or coming into force of section 1, to carry on their businesses so far as they consist of activities prohibited by that section.
(2) A scheme shall, in particular, specify –
(a) the description or descriptions of income losses and the description or descriptions of non-income losses in respect of which payments are to be made, and
(b) the description or descriptions of businesses in respect of which payments are to be made, but need not provide for the making of payments in respect of all income losses or all non-income losses or (as the case may be) in respect of all businesses.
(3) A scheme shall also, in particular –
(a) specify the basis or bases of valuation for determining losses,
(b) specify the amounts of the payments to be made or the basis or bases on which such amounts are to be calculated,
(c) provide for the procedure to be followed (including the time within which claims must be made and the provision of information) in respect of claims under the scheme and for the determination of such claims.
(4) Before making a scheme under this section, the appropriate authority shall consult such persons as appear to it to be likely to be entitled to payments under such a scheme and such organisations as appear to it to represent such persons.
(7) An order under this section shall be made by statutory instrument which, except in the case of an instrument made by the National Assembly for Wales, shall be subject to annulment in pursuance of a resolution of either House of Parliament."
The meanings of "income losses" and "non-income losses" are not illuminated by subsection (8):
"(8) In this section –
'income losses' means losses of income, and
'non-income losses' means losses other than income losses."
INCOME LOSSES AND NON-INCOME LOSSES
The income losses for which compensation shall be payable in accordance with the remaining provisions of this Order shall be net trading profits lost as a result of ceasing, by reason of the enactment or coming into force of section 1 of the Act, to carry on a qualifying business.
2 Subject to paragraph 3 below, the non-income losses for which compensation shall be payable in accordance with the remaining provisions of this Order shall be the following—
(a) the residual breeding value of any breeding females;
(b) any statutory redundancy payments paid to employees formerly engaged solely or primarily in a qualifying business;
(c) any loss sustained on the sale or disposal of equipment used solely or primarily in a qualifying business where the proceeds of the sale or disposal are less than the discounted replacement cost of the equipment;
(d) the cost of removing and disposing of asbestos from any specialised building; and
(e) any contractual liability to a third party sustained as a result of having ceased to carry on a qualifying business."
"The amount of the interim payment due to an entitled person in accordance with article 6 and payable in respect of the non-income losses of the kind referred to in paragraph 2(a) of Schedule 1 shall be the amount produced by the formula (B × £40) ÷ X, where-
B equals the number of breeding females kept by the entitled person on 28th February 2001 or, if the entitled person's premises were visited on behalf of the Minister by the Brown Rural Partnership on any other date in February 2001, the date of that visit; and
X equals, as the case may be-
(a) 1, where the entitled person ceased to carry on his qualifying business not later than 30th September 2001;
(b) 2, where the entitled person ceased to carry on his qualifying business on or after 1st October 2001 but before the date on which this Order comes into force; or
(c) 6, where the entitled person ceases to carry on his qualifying business on or after the date on which this Order comes into force but not later than 31st December 2002."
The Claimants are all "entitled persons", and their fur farms "qualifying businesses" within the meaning of the Order.
The facts: (a) the business of mink fur farming
The facts: (b) events leading to the making of the Order
"The Act permits a fur farmer to close down at any time after Royal Assent (23 November 2000) and before the ban comes into force, without losing eligibility for compensation. This is a decision for each individual farmer. You asked about the timing of the valuation of a business in relation to the slaughter of breeding stock and the possible closure of the business. Clearly, as you say, the number of breeding stock is a very significant factor in the valuation of any business. In Brown's report to us, we are expecting to be provided with a full picture of the industry and there will no doubt be other factors that will also influence the valuation of a business. These are issues that we will need to consider when preparing the compensation scheme and on which we will be consulting the industry.
We will expect fur farmers to mitigate their losses and, for that reason, it has not yet been determined whether the compensation scheme will include the additional value of any future breeding stock retained at the end of the 2001 season. It may be that fur farmers who do breed for the 2001 season, pending consultation on the compensation scheme, will have to decide whether or not to pelt all their animals, rather than retain the breeding stock. This decision will not need to be taken until November 2001, by which time we expect to have consulted on the details of the consultation scheme."
"Opinions on the market value of UK breeding animals vary widely, establishing, we believe, that there is little in the way of a market."
That statement has to be read against the background that the Act made fur farming illegal in the UK, and the fact that UK breeding animals could not he sold abroad because of the risk of transmitting Aleutian disease.
"There is no precedent for having a set multiplier for all business affected by an acquisition (sic) scheme."
They nonetheless recommended a payment of 4 times average net profits. The report did not explain how the multiplier had been arrived at.
"I confirm that the figure of £40 per breeding female has been reached as follows:
|Value post mating: say £100 for say 2 months
Therefore - £100 x 2/12 = 0.17
|Value prior to mating: say £80 for say 3 months
Therefore - £80 x 3/12 = 0.25
|Value for rest of year: say £37.50
Therefore – 37.5 x 7/12 = 0.58
|Less pelt value: say||£15.00|
It could be argued that if breeding females are kept for two or three years, then in the year of their pelting, their value post kitting in their final year ought to be represented only by pelt value. There may be other approaches, and if you would like to discuss these, please do not hesitate to telephone."
"We recognise that, although section 5(4) of the 2000 Act places a statutory duty on the Secretary of State to consult with the farmers and their representative organisations before making the compensation scheme, other persons or organisations may express views on the proposals. However we would submit our strongly held view that it would be inappropriate for regard to be had to the views of anyone other than those referred to in the statute. … Now that the principle of a ban on fur farming has been decided by Parliament passing government legislation for this purpose, the detailed terms of the draft compensation scheme should rightly only be a matter for discussion between the Government and those whose businesses are being terminated by law."
The NFU contended that the proposed compensation for breeding stock was inadequate. They stated that the exclusion of compensation for males was wrong, and that in any event the values suggested by DEFRA were too low. The NFU suggested as minimum values £60 for each female and £80 for the males. In addition, they complained that a formula that reduced the amount payable on the basis of continuation of business after a date prior to the finalisation of the scheme was discriminatory and inconsistent with the statement in the letter of 26 February 2001 that farmers would not have to make a decision before November 2001, i.e. after consultation had taken place on a compensation scheme. In paragraph 32 of the document, the NFU stated that compensation for the extinction of the Claimants' businesses on the basis of a multiplier of 4 of average net profits was insufficient. Mr Cobbledick made similar comments in his response to the draft compensation proposals.
The Claimants' contentions
(a) In consulting persons other than those referred to in section 5(4) of the Act (fur farmers and their representatives), the Secretary of State acted unlawfully: on its true construction the class of consultees to which it refers is exclusive.
(b) The Secretary of State took into account the views of the Coalition to Abolish the Fur Trade and Respect for Animals that no compensation should be paid to the fur farmers. Those views were not a consideration that he could lawfully take into account.
(c) The provisions of the scheme relating to compensation for the value of breeding stock are not rational or fair and are discriminatory by reason of the failure to compensate for the value of breeding males, the failure to recognise the additional value of special breeds, and the reduction in compensation according to the date of cessation of business. For these reasons the scheme, and therefore the Order, were unlawful at common law and in addition led to an infringement of the Claimants' rights under Article 1 of the First Protocol to the European Convention on Human Rights.
(d) The reduction in compensation for the value of breeding stock according to the date of cessation of business in Schedule 3 to the Order is inconsistent with the legitimate expectation engendered by the Department's letter of 26 February 2001 and is on that account unfair and unlawful.
Was it permissible to consult with persons other than fur farmers?
Was it permissible to take into account the views of persons who were opposed to the payment of compensation?
"In this case, the views expressed in the consultation responses as to the appropriateness and the appropriate levels of compensation varied widely, from the views expressed by the NFU and Mr Cobbledick (that the compensation package was insufficient) to those of the Coalition to Abolish Fur Trade and Respect for Animals (that no compensation at all should be offered). The Defendant was required to (and did) have regard to all these views, and to strike an appropriate balance between them."
"Therefore, although the Defendant had regard to all the views expressed in the consultation exercise, (he) placed no weight on those views calling for no compensation. In so doing, the Defendant struck an 'appropriate' balance between the views it received. The Order cannot be impugned on the basis that the Defendant had regard to views expressed in consultation to which it attached no weight."
"36. Having agreed to consult more widely, it was incumbent on DEFRA to at least consider all the consultation responses. However, the comments received from animal welfare organisation included a proposal by one of the organisations (Respect for Animals) not to pay any compensation to fur farmers at all.
37. DEFRA expressly recognised that there was no discretion over this because Section 5 of the Act clearly states that the Minister shall make a compensation scheme. Having been party to the discussions in relation to the levels of compensation to be provided, I am certain that no weight was attached to the proposal not to pay compensation, and that the views expressed by Respect for Animals on this issue had no bearing at all on the compensation scheme. Rather, the level of compensation offered was based upon the Brown Rural Partnership's recommendations, as set out above."
Is the compensation scheme unfair, irrational or discriminatory?
(1) General Considerations: (a) Reasons
(b) Compensation for capital and income
"It could be argued that the same principle should apply to paying for mink, on the one hand, and income on the other, as the mink are essentially the income generators. Indeed the mink are not being "acquired". As you are aware, our recommended scheme does not provide for payment of the market value of the mink, but I did feel that some payment per female mink was necessary in order to provide a complete or rounded scheme."
In their note on livestock valuation of 14 February 2003, written in response to the Claimants' allegations, Browns stated:
"Quality of management and livestock is only discernible through pelt prices and, in the compensation scheme, that quality will find its way back to the farmer via the income multiplier. There is a persuasive argument to the effect that paying for the animal as well as the income loss represents double counting, particularly having regard to the phased timing involved in the prohibition process. Female mink usually have a three year life, and male minks are usually pelted out following their first mating. Our proposals for the compensation scheme included a payment in respect of breeding females more as a recognition payment in the context of fairness, rather than an established value derived from market evidence. Given that the females are the chief income producers, it appears to us that paying for males in addition fell outside what was appropriate and fair."
(c) Other preliminary considerations
(2) The specific alleged defects in the Order: (a) The absence of compensation for the residual breeding value of male mink
(b) The absence of increased compensation for more valuable breeds
"12. The stock at (Mr Shynn's) Bunts Hill Farm (in February 2001) comprised 214 brown female mink and 1,800 sapphire females with, in addition, 50 brown males and 435 sapphire males. On the basis of the scheme, compensation will be paid at the rate of £40 per female irrespective of breed. No compensation will be paid for males. The total compensation which Mr Shynn can therefore expect as a first stage interim payment for his loss of stock is £80,560. No further compensation in respect of loss of stock can be paid under the scheme.
13. Mr Shynn's stock has been valued by Kenneth Barclay FRICS on the basis of the average values referred to … above of £60 per female for brown mink and £120 for sapphires, with £80 and £140 being the corresponding figures for males. The cost of acquiring new stock to replace Mr Shynn's existing stock would have been £294,000. Making a discount of 30% to reflect the fact that the stock were not all new (although bearing in mind the practice of culling out poor performing stock) Mr Barclay's view is that the value of the stock which was culled as a result of the Act was £206,000. The compensation scheme will result in Mr Shynn receiving compensation at the rate of 39.1% of the value of his stock.
14. The position of Mr Coupe's farm is as follows. His stock of 5,192 female mink resulted in an entitlement to compensation (assuming they were culled before 30th September 2001) of £207,680. Mr Barclay, adopting the same approach as before, has estimated that the value of the stock, reflecting its age, was £284,000. Mr Coupe's entitlement to compensation is at a rate of 73% of the capital value of his stock."
(c) The reduction in compensation by reference to the date of cessation of business
"19. DEFRA carefully considered the options contained in Report No. 2 and concluded that there was no reason to disagree with the recommended scheme, except in one limited respect. DEFRA considered that, for reasons of fairness, the compensation payment for breeding females should be on a reduced sliding scale, so that those fur farmers who had already closed received more than those who, by remaining in business until the ban came into force, would be able to continue to earn an income from the animals.
20. Initially, it was considered that the "cut-off" dates for the changes in the sliding scale should be tied to the breeding cycle. However, this would have resulted in a cut-off date which predated the consultation. DEFRA considered it more appropriate that the farmers should have prior warning of the cut-off date. The cut-off date was therefore set back to 30th September 2001. The rationale behind this was twofold: firstly, it would give the farmers nearly two months notice of the proposed cut-off, which was considered to be sufficient time in which to decide whether to pelt out before the cut-off, or to continue beyond it. Secondly, it was recognised that the pelt value of mink would be highest after the end of September 2001. Farmers who elected to wait until October or November to pelt out would therefore be compensated by the higher prices the mink would fetch. Conversely, there would be no disincentive to farmers who decided to pelt out before then."