QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| The Queen on the application of PARTRIDGE FARMS LTD
|- and -
|THE SECRETARY OF STATE FOR ENVIRONMENT, FOOD AND RURAL AFFAIRS
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Jason Coppel (instructed by Department for the Environment, Food and Rural Affairs) for the Defendant
Hearing dates: 9, 10 June 2008
Crown Copyright ©
Lord Justice Stanley Burnton :
Cattle TB is an infectious disease that is one of the most serious animal health problems in Great Britain today. The number of infected cattle has been doubling every four and a half years. The consequential growing cost of the disease to the taxpayer and to the farming industry is unsustainable. In "hot spot" areas where the prevalence of the disease is highest, the farming industry has reached a breaking point as the disruption to business in both human and economic terms has become unacceptable.
The "hot spot" areas are in South West England, South West Wales, Staffordshire and Derbyshire, and include the area of the Claimant's farm.
The provisions of the Order
The parties' contentions in summary
(a) Is there a prima facie obligation on the Secretary of State to value every animal slaughtered for TB on the basis of its individual market value if healthy, rather than to use an alternative measure, namely average sales price, having regard to the fact that the real value of a reactor animal is only salvage value?
(b) If there is a legal obligation to proceed from the starting point of the individual healthy animal's value, do the policy reasons put forward by the Secretary of State provide sufficient justification for departing from that starting point in the manner provided by the table valuation system?
Farmers received nearly £1,400 million in compensation and other payments for their slaughtered animals. The assessed values of animals rose threefold during the crisis, and with no functioning markets, the Department lacked a clear frame of reference to assess or influence the valuations against which compensation was paid. The Department allowed potential recipients of compensation to select and appoint the valuers. In future, systems of compensation to farmers for slaughtered animals need to give firmer control over the amounts paid. The Department needs better benchmarks for determining the rates paid for animals when markets are suspended; and it should not allow potential recipients of compensation to select and appoint the valuers.
Doubtless the fact that valuers were paid a fee based on their stock valuations also did not promote conservative valuations. Nonetheless, the Department said that there was no evidence of systematic overvaluation. According to the report:
It was difficult to overturn the valuations as there was no market to which the Department could refer, and the valuations were done by experts in the type of stock slaughtered. The valuers were able to refer to the history of the stock in question, and had much data on which to base their valuations. The Department had challenged 150 out of 10,000 valuations and found that, apart from one or two where there was obvious concern about collusion, the valuations were well supported by sale documents for similar stock, histories of the stock concerned or parallel information elsewhere in the herd.
This is not supportive of the Department's case before me.
The Department was actively pursuing ways of sharing the financial risk of animal diseases with the industry, whether through subsidised insurance schemes, or a joint industry-Government levy.
- veterinary officers' key function is disease control - consequently they may find themselves under pressure to include a limited amount of additional compensation if this facilitates the earlier removal of affected animals;
- valuers are chosen by farmers to act on their behalf, often because they buy and sell healthy animals through the valuer's market. Farmers therefore expect their nominated valuer to act on the facts of the market that confronts them, and may take their regular business elsewhere if the valuer does not. Valuers' businesses can also be affected in tuberculosis hotspots – gaining work valuing affected animals can attract new business; and
- valuations in the secondary market set a benchmark or floor for other valuations in the locality; such a process can lead to inflationary 'valuation creep' compared with underlying market values and add to the pressure on those valuing animals.
- a requirement for policy holders to disclose the maximum value of any animal in their herd when proposing a policy;
- referring unusual, or particularly high valuations to a panel of specialist valuers;
- requiring farmers to provide evidence in support of particularly high valuations, for example invoices of sale, evidence from the breeding society, show results;
- individual valuation of animals with a value over £3,000 (7 per cent of all tuberculosis valuations in 2002) by an expert in the breed concerned, rather than the policy holder's local auctioneer; and
- a general move towards a risk-based approach to cover, where insurance and premiums depended on biosecurity measures, farming systems and testing intervals, with reductions for farmers following best practice in these areas.
5.8 As in Great Britain, compensation in Northern Ireland is also based on full market value, although it operates under statutory instruments made in Northern Ireland. Average valuations in Northern Ireland have been lower than in Wales in recent years …
5.9 The key difference between arrangements in Northern Ireland and Wales is that in the former private valuers carry out only around one per cent of valuations. The Department of Agriculture and Rural Development (the Department) employs eight valuation officers, who value all animals in the first instance, regardless of whether they are subsequently valued by a private valuer. They attend markets, dispersal sales and auctions. [An alternative, of course, to direct employment would be to contract out valuations to an approved panel of valuers, who would be expected to work within very clear guidelines as to the process to be followed and their prime responsibility to the Assembly. … such a panel operates in the Republic of Ireland, where valuers receive very detailed weekly information about prevailing market prices.]
5.10 If it cannot agree a valuation with a farmer, the Department gives the farmer a choice of three valuers (selected on the basis of expertise relevant to the animals to be valued) from its panel of approved valuers. The Department is currently revising its conditions of panel membership. The independent valuer's findings are final and binding on both the farmer and the Department.
5.11 If an animal is valued above £1,500 (40 per cent of Welsh valuations in 2002 were above this level), the valuation officer or valuer in Northern Ireland has to complete a detailed form (with information on, for example, pedigree status, performance, value of progeny and show success) justifying the valuation. Where appropriate, valuation officers liaise closely with pedigree societies. For example, valuation officers have followed up issues such as pedigree certificates which did not match the animals being valued (leading to the farmer's expulsion from the breeding society); and an animal whose number of teeth did not match the year of birth recorded on the pedigree certificate (this matter proceeded to court).
5.12 There is a comprehensive information technology system in use to support the valuation process in Northern Ireland, containing thorough information about each animal, including the date of birth and movement history. This enables valuation officers to look for current valuations of similar animals, and trace the animal's history, prior to the valuation. The level of information is considerably more detailed than that available in Wales. In contrast to current practice in Wales, where animals have recently been brought onto the farm, the valuation officer finds out what the farmer paid for them (from their records of sales they attended, by asking the farmer, or by asking the auctioneer who sold the animal).
- the direct employment of valuation officers, or the use of a limited panel of approved valuers working within very clear guidelines;
- a fully independent second valuer (if this practice continues), including geographical independence;
- a preparedness to challenge valuations that appear too high, including recourse to arbitration or the courts in cases of clear disagreement;
- a requirement for fuller justification of valuations that differ markedly from the norm;
- routinely to request more documentary information on the animals valued, such as evidence of what the farmer paid for it; and
- a sophisticated management information system that facilitates proper monitoring by SVS and the Assembly.
21. The central aim of the Government's attempt to rationalise compensation for notifiable disease is to produce a simple, transparent system that is standardised enough to deliver predictable levels of compensation whilst taking account of significant differences in value between individual animals. We want to offer fair compensation to farmers and avoid over-valuations of livestock. The consequential losses that arise from the destruction of an animal will remain outside of the scope of these proposals, the compensation we make reference to is purely compensation for the value of animals slaughtered. The elements of the scheme set out in the Executive Summary are those of the scheme created by the Order, with one significant difference. The last element was: animals worth significantly more than the current market value for an animal in their category can be pre-valued and registered with Defra. In such cases the compensation payable will be equivalent to the current pre--valuation. This element, which would have been applicable to the Claimant's cows, does not appear in the Report. The consultation paper also stated: 17. Through experience of the development of other compensation schemes it is clear that any system adopted should, as far as reasonably practicable, recognize the individual circumstances of those affected. 18. Creating a compensation scheme that both reflects market trends and is also responsive to differences in the value of livestock kept by individual owners requires detailed knowledge of the livestock industries and the animals within it. In addition to the input of Defra experts and discussions with representatives from a broad range of industry sectors, we commissioned a study, by ADAS Consulting Ltd, to look into the detailed mechanics of the high value livestock markets. The ADAS report is an investigation into possible methods of producing a system for high value livestock through the use of standardised criteria that are used to establish the value of animals at market.
22. The rationalised scheme will categorise different types of animals within each species. Our aim is that the majority of animals to which compensation could apply would be covered by these categories. …. but we recognize that these categories will not be appropriate for certain high value animals, and paragraphs 30 to 33 set out our proposals in this regard. …
30. While we aim to encompass the majority of animals in a standard compensation scheme, we are aware that we will have to make arrangements for a significant minority of higher value animals. Through research, we have established that the complexities in the way the high value animal market operates makes any standardised approach very difficult. The distribution of prices is extremely wide and there are no characteristics or criteria with which to establish acceptable standard categorisation at the top end of individual livestock markets.
31. The comparatively small size of the high value livestock market also discourages an attempt at standardisation. Our studies have shown that 1-2% of most livestock species could be described as significantly above average in quality and value. This is more pronounced in the dairy industry, with about a third of animals being considerably above the average commercial values.
32. A standardised system for high value animals would also undermine our proposals for commercial animals. Further standard categories will increase the grey areas between individual categories and will reduce transparency and operational simplicity.
33. It is unlikely that a standard system, no matter how complex, would be able to forecast the true value of every individual animal. For these reasons the new arrangements would provide a mechanism for establishing the worth of high value animals.
Currently, compensation rates for notifiable animal disease control are calculated on a disease-by-disease basis. Existing compensation regimes have a variety of different mechanisms for calculating levels of payments. These range from individual valuation at point of slaughter to flat rate payments based on an average market price.
It is increasing[ly] clear that the existing mechanisms for calculating compensation offer low value to the farmers or the taxpayer. Some set very low compensation rates that require separate amendments to different orders to bring up to date. Others have poor controls over valuations which leads to over-compensation of farmers. Individual valuations, as in the case of Foot and Mouth disease (FMD) and Bovine Tuberculosis (bovine TB), have been very expensive and time consuming, accounting for significant amounts of taxpayer's money. In contract, some schemes are too simplistic and are now at risk of being challenged on Human Rights grounds, as they do not allow for the compensation of high value livestock.
The changes in compensation policy will, for the most part, impact on those livestock keepers who own high value animals, as they will need to pay valuers. Any change of policy in this area is likely to impact to a greater extent on the dairy sector. Generally speaking, there is a higher proportion of higher value herds in the dairy sector than in any other livestock sector, but every sector has a number of higher value breeding stock and pedigree breeds. However, it is important to bear in mind that compensation will continue to be paid at a fair rate, reflecting as closely as possible market prices, which ever disease an animal is affected by. Any rationalised approach will be fairer than the existing approaches.
Almost all respondents agreed that under the proposed system it was essential to have a scheme for high value animals, though some felt this area was already adequately covered through individual valuations.
Some stakeholders, while supporting the idea, were opposed to the mechanism (pre-valuation) that would implement it, citing the heavy cost, financial and physical, to an already overburdened industry.
One of the problems indicated was how to define "high value". …
…, some argued that farmers could insulate "elite" stock through private insurance, thus obviating the need for a "high value" provision. This would also reduce administrative costs for the Government and the potential for bureaucracy.
… this further consultation has been initiated because, in the light of the earlier consultation, the following changes have been made to the proposals:
- It was proposed that farmers could arrange for the pre-valuation of high-value stock. Comments from consultees, together with further exploratory work, have shown that difficult problems need to be overcome before a workable pre-valuation system could be introduced and that this would delay ongoing efforts to rationalise cattle compensation and improve disease control measures; and
- Ten cattle categories to determine compensation rates were proposed in the original consultation. In the light of comments received, it is now proposed that the number of cattle categories be increased to 29 by introducing separation between beef and dairy cattle, and pedigree and non-pedigree animals.
Under the heading "What is proposed -- short term? The document stated:
18. Table valuations for animals slaughtered under disease control measures for four cattle diseases will be introduced irrespective of the disease status of the animal concerned. Compensation paid to farmers with compulsorily slaughtered animals will be equal to the table valuation which will be determined by the animal's age, sex, pedigree status and sector.
- Bring compensation rates in line with current legislation by ensuring compensation payments reflect market values.
- Would avoid inconsistent approaches to valuations and inequitable compensation payments.
- Increased transparency would allow farmers to know in advance what level of compensation to expect in the event of a disease outbreak,
- Remove the use of 'point of slaughter' valuers, thus speeding up removal of diseased stock.
- The enhanced system transparency would provide greater assurance for taxpayers that public money was being used prudently
- Compensation payments will more accurately reflect market values, and reduce the risk of over-valuations.
The aim is to introduce a sufficiently robust table of categories (with data collected from a wide range of sources) to ensure the determined valuation levels provide realistic and fair valuation/compensation levels. Inevitably, when calculating a compensation payment based on average prices achieved for similar types of animal, some animals may (under the new system) be over-valued and some under-valued. Though the net effect, it is expected, will be compensation payments that more accurately reflect 'real market prices'.
The Small Business Service will be consulted as part of the public consultation. Responses from farms, valuation and auctioneering sectors, will better inform us on the potential impact to business. Meetings have already been scheduled with major stakeholders in order to explain the reasoning behind the proposed scheme and to discuss the technical difficulties of implementing Rationalisation of Compensation, which, when resolved, will incorporate pre-valuations for high value animals.
Q5. Has Defra given up on the idea of a pre-valuation system for high value animals?
A. No. However, it has become clear that devising a robust and practical pre-valuation system is not straightforward. It may be that the proposed valuations advisory group could help in the design and early implementation of such a system. Certainly we still envisage operating a pre-evaluation system when full rationalisation of compensation is introduced.
The categories offered are too narrow, too few and in some cases, blatantly incorrect (for example, the category for non-pedigree male dairy animals, which are, in essence, beef animals). In particular, the categories being proposed do not take account of organic premises, productivity, gestational status or breed.
Introduction of this (table valuation) system, with its clear inequities, is likely to lead to non-co-operation, possibly on a massive scale. … Farmers will also have an incentive to delay removal as they await an animal's transition to the next value band. In such cases, disease control will suffer.
Practical suggestions included:
- Pedigree animals should continue to be valued, with commercial animals being valued by table. This would, in fact, maintain goodwill with valuers in the event of a serious exotic disease outbreak;
- Tables should indicate maximum values, with individuals being responsible for applying judgement and discretion;
- Defra could employ one or more valuers to work for us directly;
- Introduction of a Government-run levy system would overcome the inequality of not being able to insure animals in areas with high disease incidence;
- A pre-evaluation scheme under which animals were identified and certified as being of high value (but not HOW much) could act as registration scheme for animals which would be exempt from the table valuation system. They would be permitted professional valuation if removal became necessary.
I note the suggestion that individual valuations should be continued for pedigree animals only. This is certainly an option that we have considered, and we will consider to bear in mind in the light of the responses to consultation – though introducing such a two tier system would not fully address concerns over the current system abuses…
1. Simplify valuation arrangements for cattle by introducing a table valuation system based on price data collected continuously from a wide range of sources.
2. Ensure that compensation payments will more accurately reflect market value and address the problems of inconsistent compensation levels, which have arisen under existing systems.
Figure 2 set out comparisons of sales data against actual compensation valuations for all commercial (i.e., non-pedigree) bTB culled cattle over 16 months in February, March and April 2005. It showed that in February and March 2005 compensation valuations were more than twice figures derived from actual sales; the differences in April were not as great, but nonetheless very substantial. These figures indicate a high degree of over-valuation by valuers for the purposes of compensation. Not surprisingly, the Assessment stated that there would be substantial savings to the taxpayer, of around £9 million a year, as a result of ending the excessive compensation paid under the existing system and its replacement by valuations are based on sale prices. It added:
For exceptionally valuable animals, the onus will fall on farmers to privately insure animals (where possible), if they feel the table valuations would not provide adequate compensation. It is also expected that more farmers will pay greater attention to the bio-security measures.
The introduction of table valuations would significantly decrease the volume of work that valuers currently undertake on behalf of the Government.
Insurance companies might try to fill the gap in table valuations, by offering insurance packages to those farmers who wish to further insulate their cattle. These insurance packages are likely to be competitive, though it is understood that insurance is difficult to obtain in TB "hotspot" areas.
The Final Regulatory Assessment says nothing more about the availability of insurance or its cost in TB hotspot areas.
Option 2 – Introduce table valuations for commercial categories first, and a new system for pedigree animals at a later date.
Given the current lack of market data on which to make an evidence based decision, this looks the most plausible option.
The emphasis is in the original.
A table valuation system will result in winners and losers.
- The winners are those that will be compensated for stock worth less than the average market price (generally poor quality stock)
- The losers are those that will be compensated for stock worth more than the average market price (and generally better quality stock)
A table valuation system is most effective when there is little price variability within a category (i.e., the numbers of winners and losers are minimised -- hence the value of most stock within that category is close to the average value of that category).
Mr Lonsdale gave figures illustrating the discrepancy arising from the application of table valuations to pedigree stock:
To give the most extreme example based on the MLC that is available, MLC market data for pedigree diary females, calved over 36 months old for May 2005 shows that:
Number of sales in the month = 636
Average sale price = £1,225
Minimum sale price = £253
Maximum sale price = £17,000
Clearly, a cow worth £17,000 is of a very high pedigree, whereas one worth £253 is of poor quality pedigree. Compensation of £1,225 would result in a significant "loser" and a significant "winner" respectively.
Will any dispensation be allowed for the significant losers (e.g. the £17,000 animal that would have been compensated at £1200)? The average market price clearly does not reflect the market value of high quality stock.
This paper follows two consultations by Defra, the first in the autumn of 2003 and the second in the autumn of 2004. The NFU understands that questions on which opinions were sought by Defra were roundly rejected by those that responded on both occasions. The industry remains totally opposed to a table based system of valuation, on the grounds that the median price this gives will under compensate some animals and in some instances over compensate others. Such a system is unacceptable to our members who see it as unjust and not within the spirit of partnership and co-operation that Defra are so keen to promote.
The NFU and the remainder of industry is (sic) of the view that it is essential that Defra enter into further dialogue with the industry if the Department does not wish to alienate itself further from the agricultural industry. On this basis below we set out why a table valuation system will not achieve Defra's intended objectives and an industry supported proposal in an effort to reach a mutually agreeable stance, which could practically and justifiably be implemented by Defra and would be preferable."
It is likely that such a panel would consist of about 10-15 valuers. The panel to be drawn more on expertise than geographical spread. The chairman of the panel to be elected from the SVP members. The panel would require an expert for each sector, initially Diary and Beef. It would require one expert valuer whose primary income is derived from valuation of stick in that sector, two or three valuers with a close knowledge of different parts of the pedigree sectors, and finally one or two commercial diary valuers. The same format could be applied to the Beef sector. By using such a system it could readily be expanded to cater for other species.
Individuals from the SVP would be expected to attend valuations unannounced and randomly (say 10% annually) to assess the work of the approved valuers.
The SVP would also make binding decisions on valuation disputes whether initiated by Defra or the farmer. Where there are gross or persistent disputes arising from the work of an approved valuer the SVP would have the power to warn and then remove an approved valuer from the list.
(a) of cost;
(b) because it involved effectively the government to regulate the valuers' profession;
(c) that the monitor panel would consist of valuers who had previously carried out TB valuations "so government could not be assured that they would introduce greater control over valuations through a monitor panel";
(d) because the panel would rarely be able to successfully challenge an over valuation, particularly when the animal would no longer be alive, and it would be practically difficult, due to the large numbers of TB affected animals culled (around 1000 a month) to operate such a system and deliver the disease control objective of removing affected animals from farms swiftly.
(a) Pre-valuations would be unreliable, in the same way that individual valuations had already proved to be.
(b) It would be difficult to define high value objectively.
(c) There would be a large number of pre-valuations each month;
(d) There was no method of lodging pre-valuations with government; and
(e) Pre-valuations would have to be repeated in line with market fluctuations.
The underlying assumption is that the value of stock sold at market is representative of the value of all stock.
But this tells us nothing about whether the average market value is representative of the value of any individual animal. He also states:
Defra statisticians concluded that the sales data was not of such a high variability that a reliable price could not be generated, i.e. the new categories (of animals under the Order) were reasonable.
Apart from the question whether the last proposition is a non sequitur, the Claimant's evidence shows that this is simply not the case. It is also impossible, and certainly very difficult, to reconcile with the statement of Mr Lonsdale, himself a Defra statistician, cited at  above.
89% of cattle prices are within one and a half times the average price, and that 94% are within double the average price.
He also stated:
24. Obviously TB affects different regions to different degrees. Furthermore, not all cattle are tested each year … At an England level, the statistics … demonstrate that in any one year, any bovine animal has a 0.3% chance (19,350 as a percentage of 5,597,000, or a 1 in 290 chance) of being compulsorily slaughtered for TB reasons. Obviously, that percentage change would increase or decrease depending upon whether an animal was located in a low risk or high risk TB area. Given that, as the graph demonstrates, very few cattle are in the "high value" tail for the category shown, it is reasonable to assume that the chances of an extremely high value animal being compulsorily slaughtered in any one year, in the compensation category illustrated in the report, are very low indeed. The prospects are perhaps lower still when one takes into account that the owners of these animals might be expected to adopt more stringent bio-security arrangements in order to protect them from the risk of testing positive for TB.
25. The (first) report (of Professor Yarrow and Tim Keyworth) concludes that "… for a small but significant proportion of animals, compensation can be expected to fall a very long way below market value…". However, my assessment is that the distributions demonstrated in the report show a very small proportion of animals worth significantly above the average market price. Given that the number of these animals that could be expected to be compulsorily slaughtered approximated to 1 in 290, I do not think that the actual proportion of animals for which "compensation can be expected to fall a very long way below market value" can fairly be described as significant.
The underlining is in the original. Mr Lonsdale does not specify what bio-security arrangements he had in mind, and does not address the question whether the Claimant's farm is in a high risk area. In a similar vein, Mr Lonsdale said:
32. … However, as I have previously stated, in my opinion the charts quite clearly show that the vast majority of animals have a value close to the average value. Only 6% of animals shown in the graph were worth more than double the average price. It can clearly be seen that there are only a very small number of high value animals in the long part of the tail of the graph. If one of these animals was slaughtered as a TB reactor, the compensation received from Defra would be significantly less than the value of the animals (although there may be private insurance arrangements in place). However, the statistics above clearly demonstrate that this is a scenario which is highly improbable."
33. I am quoted from my paper "Can table valuations be applied to pedigree stock?" as stating that:
"The average market price clearly does not reflect the market value of high quality stock."
This statement is clearly correct and not a matter of dispute. The average market price does not reflect the market value of low quality stock either – that is the nature of an average price. The real issues are whether the taxpayer should be required to pay the entire value of high quality stock or whether owners of such stock should be left, in part, to make their own arrangements and whether the advantages of compensation based on average values outweigh the disadvantages for the owners of the small number of high quality animals for which compensation will be claimed.
The introduction of the table value system represents, in part, a policy decision that some of the risks associated with the loss of diseased animals should be shifted form the taxpayer to the owners of the animals themselves.
Under the table value system, it now also falls to farmers who own exceptionally valuable animals to take steps to protect themselves against their loss, including, if they choose to do so, by taking out insurance to ensure that they obtain what they believe to be the full value for them in the event of their compulsory slaughter.
He asserted that there is a wide range of insurance providers who offer insurance cover against loss of diseased animals. In relation to the suggestions that dairy cattle could be valued by reference to Productive Life Index registered with National Milk Records or information collated by the Centre for Dairy Information, his most radical objection was that:
Defra considers that it would not be acceptable to introduce changes which would not be equally applicable to the dairy and beef sector.
Mr Hackett did not explain the basis of this objection.
Over the past 10 years, the frequency of TB cases increased and with it has the insurance claims payments thus reducing Insurers appetite for this market. Unlike other insurable risks, TB has a geographical bias. Farmers in at risk areas have an overwhelming demand for the product whereas farmers in clear areas do not and hence the available pool from which equitable premiums can be drawn is therefore smaller at the same time that there a heightened risk of a TB breakdown. Understandably Insurers would given these circumstances seek to reduce their exposure where at all possible. In addition, Insurers are unable to "underwrite" these risks. As there is very little they can insist the prospective policyholder does to reduce the risk of a breakdown, they are left to consider increased terms in the form of animal excess or not write the business at all.
Whilst we could not comment on individual Insurer/Underwriters' underwriting strategy, collectively, it is rare that they would issue a new policy in an at risk area. I would find it difficult to believe that an Insurer would grant cover if the herd is under a breakdown or has had a breakdown in the recent past. Consequently, I would conclude that far from TB insurance being freely available, its availability is restricted, and in some cases impossible to obtain.
Again, costs of the cover available will vary and I would not be able to provide you with specifics. However, if Insurers are unable to grant cover it is because there is no commercially acceptable level that premium can be charged for the increased risk they are being asked to carry.
The underlining is in the original.
32. As noted above, Mr Hackett bluntly now states that "there is a range of insurance providers who offer insurance cover against loss of diseased animals. Usually policies cover various different diseases including TB." In the light of my enquiries outlined above, and in the context of the statements by the Under-Secretary of State, I consider such views to be both highly misleading and lacking in candour.
33. It is misleading in that there evidently is not such a range of providers who will offer coverage against TB. While there is no consistency of insurance pattern or scheme in the United Kingdom as a whole, my survey of the agricultural insurance market suggests that (1) private insurance for TB is very hard to come by and practically impossible in at-risk areas; and (2) where insurance for TB can be found, it is principally directed at recovery for consequential losses rather for the value of the slaughtered animal. The notion advanced in DH2 that farmers should just insure their high value assets like any other business should is unsustainable given that insurance schemes to cover the same are simply not available. This is particularly the case for Mr Partridge in that his farm is in a TB hot-spot area with a very high incidence of TB and furthermore Mr Partridge informs me that, if the Government were to agree to a cull on wildlife with a view to curbing the spread of TB (in particular badgers), the area in which Mr Partridge's farm is located has been identified as an area where such a cull would be carried out. Both facts would be disclosable to any insurer.
The Claimant's Skeleton Argument also asserts that it is now the Defendant's case that it "was entitled to ignore the issue of high value animals on the grounds that the risk of high value animals being slaughtered is insignificant" (§ 8). That would also be a fact of some significance if it were true, but it is not. My second statement (§5) and the statement of Ian Lonsdale (§ 23-25) make the point that the numbers of so-called high value cattle which are affected by the table valuation system are very small in absolute terms and that the importance of this issue within the system overall should not be exaggerated. But Defra has never stated that it ignored and was entitled to ignore the issue of high value animals for that or for any other reason. On the contrary, the issue was given anxious consideration and for the reasons I have previously expressed it was dealt with within the table valuation system itself rather than by some separate system of individual valuation for these animals.
The points made in my second statement with regard to the availability of insurance were made on the basis of recent enquiries with sources within the insurance industry. In particular, I or my colleagues spoke with a representative from the Association of British Insurers (who in turn discussed the situation with a small group of insurance companies who are active in the agricultural market), and also with a representative of Heath Lambert Associates who have experience of providing TB related insurance cover. My statement accurately reflects the outcome of these enquires. We also carried out research via the internet into policies offered by insurance companies in respect of TB.
(During the course of argument I criticised this paragraph, as lacking in specificity. It is unclear as to whether it was Mr Hackett or his unnamed colleagues who spoke to their informants, and it does not identify their informants. Such evidence is unhelpful, since it cannot be investigated by the other party.) Mr Hackett stated that the material obtained by Mr Russ did not support his conclusion that it is "virtually impossible" or "practically impossible" to obtain TB cover in at-risk areas, but:
I would, however, accept that the Claimant would have encountered serious difficulties in obtaining insurance during periods when it was subject to movement restrictions on grounds of TB infection.
6 In its first question the national court essentially asks whether the prohibition of discrimination laid down in Article 40(3) of the EEC Treaty precludes a Member State from choosing 1981 as the reference year within the meaning of Article 2 of Council Regulation no 857/84 of 31 March 1984, if the implementation of that option in its territory leads to discrimination between producers in the Community.
7 The applicants in the main proceedings maintain that, as a result of the development of the Luxembourg market in milk products since 1981, the choice of 1981 as the reference year has the effect of favouring the biggest purchaser, that is to say Luxlait, to the detriment of the other purchasers. For its part, the Luxembourg Government argues that in opting for 1981 as the reference year it took account of the fact that dairies in Luxembourg are structured differently as regards the milk production of their producers. In its view, the application of either formula for allocating the quotas is bound to have the effect of distributing the burdens unevenly amongst the various operators, depending on the stage of development of the businesses concerned. The Commission points out that the possibility for member states to opt for one of several reference years enabled them to choose the most appropriate year in the light of production and collection structures in their territory.
8 Under Article 40(3) of the EEC Treaty the common organization of the agricultural markets to be established in the context of the common agricultural policy must 'exclude any discrimination between producers or consumers within the community'. That provision covers all measures relating to the common organization of agricultural markets, irrespective of the authority which lays them down. Consequently, it is also binding on the Member States when they are implementing the said common organization of the markets.
9 That finding is borne out by a consistent line of cases (judgments of 19 October 1977 in joined cases 117/76 and 16/77 Ruckdeschel & Co. and Hanse Lagerhaus Stroh & Co. v Hauptzollamt Hamburg-st. Annen (1977) ECR 1753, and in joined cases 124/76 and 20/77 SA Moulins et Huileries de Pont-à-Mousson v Onic (1977) ECR 1795), in which the court held that the prohibition of discrimination laid down in Article 40(3) of the EEC Treaty is merely a specific enunciation of the general principle of equality which is one of the fundamental principles of community law. That principle requires that similar situations shall not be treated differently unless differentiation is objectively justified.
10 Consequently, where Community rules leave Member States to choose between various methods of implementation, the Member States must comply with the principle stated in Article 40(3). That principle applies, for instance, where several options are open to the Member States as in this case, where they may choose as the reference year 1981, or, subject to certain conditions, either 1982 or 1983.
11 It follows that in such circumstances a Member State may not choose an option whose implementation in its territory would be liable to create, directly or indirectly, discrimination between the producers concerned, within the meaning of Article 40(3) of the Treaty, having regard to the specific conditions on its market and, in particular, to the structure of the agricultural activities carried out in its territory.
12 For those reasons it should be ruled in answer to the national court's first question that the prohibition of discrimination laid down in article 40(3) of the Treaty precludes a Member State from choosing 1981 as the reference year pursuant to article 2 of Council Regulation no 857/84 of 31 March 1984 if, owing to the particular conditions on the market of that state, the implementation of that option in its territory leads to discrimination between producers within the Community.
 The first question to be examined is whether Regulation 1111/77, in establishing the production levy for isoglucose, infringed the prohibition on discrimination laid down on the second subparagraph of Article 40(3) of the Treaty.
 In this respect inquiry must be made whether isoglucose and sugar are in comparable situations.
 The second recital in the preamble to Regulation 1111/77 states that 'isoglucose is a direct substitute for liquid sugar obtained from sugar-beet or cane' and the seventh recital states that isoglucose is 'a substitute product in direct competition with liquid sugar'.
 As the Council has subsequently recognised in the third recital in the preamble to Regulation 1298/78 of 6 June 1978 amending Regulation 1111/77, as the markets in sugar and isoglucose are closely linked and there are structural surpluses in the Community sugar sector, any Community decision on one of those products necessarily affects the other.
 Nevertheless it must be pointed out that isoglucose manufacturers and sugar manufacturers are treated differently as regards the imposition of the production levy.
 In fact, in contrast to the production levy provided for in Article 27 of Regulation 3330/74, which only affects Quota B sugar, the levy applied by Article 9 of Regulation 1111/77 is applied to the whole of isoglucose production.
 Within the limits of Quotas A and B sugar manufacturers enjoy a guarantee of marketing at the intervention price and are entitled to the benefit of the export refund system whereas isoglucose manufacturers do not enjoy any similar advantages.
 Even when account is taken of the fact that in pursuance of Article 9 (2) of Regulation 1111/77 the amount of the production levy on isoglucose was limited for the period from 1 July 1977 to 30 June 1978 to the maximum rate of 5 units of account per 100 kg, a rate which was maintained in force for the marketing year 1978/79 by Regulation 1298/78, the difference in treatment still exists as the isoglucose manufacturers do not enjoy the marketing guarantees provided for manufacturers of normal sugar.
 However, it is still necessary to inquire whether that difference of treatment as regards the imposition of the production levy is objectively justified.
 According to the Council and the Commission isoglucose, without being subjected to the production constraints imposed on sugar, benefits from the hypothetical difference, estimated at 15 per cent, between the intervention price fixed at a level which took account of the higher prices applied in the member-States before the setting up of the common organisation of the market in sugar and the prices which, in the absence of the quota system, would have had to be fixed to regulate the production of sugar in the Community.
 It has been claimed that hence, as the price of isoglucose tends to align itself on the intervention price for sugar, the intervention system confers on isoglucose a competitive advantage in relation to sugar of roughly 15 per cent of the intervention price for the latter, which corresponds more or less to 5 units of account, namely to the provisional amount of the production levy for isoglucose.
 This argument cannot be accepted.
 In fact, even if it were admitted for the sake of argument that the advantage enjoyed by isoglucose manufacturers as a result of the intervention system for sugar could be estimated at 15 per cent of the intervention price for sugar, such an advantage applies equally to certain sugar manufacturers, in particular those in possession of modern factories favourably situated.
 The Commission and Council further claim that the production levy of 5 units of account imposed on isoglucose is essentially comparable to the charges borne by sugar.
 By way of demonstration the Commission at the request of the Court produced a table showing a series of examples based on the production figures for modern sugar factories producing considerable quantities of C sugar.
 According to the Commission these calculations show that sugar manufacturers bear charges varying from 3.81 units of account to 13.52 units of account per 100 kg.
 The Commission has worked out the above-mentioned charges for each factory by a calculation based on the total production of A, B and C sugar for the sugar marketing year 1977–78; it has subsequently estimated the value of that production by attributing to A sugar the intervention price, to B sugar the intervention price less the levy involved and to C sugar an estimate of the world price.
 By dividing the total value thus obtained by total production the Commission reaches an average price expressed in units of account per 100 kg.
 On the basis of these calculations the average charge borne by each 100 kg of sugar produced is the difference between the said average price and the intervention price for the same quantity.
 However, it is acknowledged that under the common organisation of the market for sugar roughly 60 per cent of the average charge involved in the production levy is borne by sugar-beet growers for whom the minimum price of beet is substantially reduced for beet used for B and C sugar, that is to say, for sugar produced outside the basic quota.
 By omitting to take this factor into consideration in its calculations, the Commission has considerably overestimated the charges borne by sugar manufacturers.
 It is also important to note that it emerges from the Commission's calculations that each increase in the total production of sugar outside the basic quota has the effect of increasing the average charge to be borne by the manufacturer so that the latter is in a position to reduce the amount of the said charge by limiting his production whereas for the isoglucose manufacturer a limitation on production remains without any effect as regards the amount per unit of weight of the production levy brought into force by Regulation 1111/77.
 Moreover the Council and the Commission emphasise the practical difficulties which certain alternative solutions would have presented, in particular the establishment of a quota system for isoglucose, regard being had to the fact that the latter is a product newly arrived on the Community market and that its production is in the process of increasing rapidly.
 However, inconveniences of the type alleged cannot justify the imposition of a charge which is manifestly unequal.
 Accordingly the provisions of Regulation 1111/77 establishing the production levy system for isoglucose offend against the general principle of equality of which the prohibition on discrimination set out in Article 40(3) of the Treaty is a specific expression.
 The answer must therefore be that Regulation 1111/77 is invalid to the extent to which Articles 8 and 9 thereof impose a production levy on isoglucose of 5 units of account per 100 kg of dry matter for the period corresponding to the sugar marketing year 1977–78.
On 20 March 1996 an announcement was made in the United Kingdom House of Commons that there was a possible link between Bovine Spongiform Encephalopathy (BSE) and Creutz-Feld Jakob Disease in humans. To mitigate the effects of this development on the beef market, provision was made within the European Community under Regulation 1357/96 for payments to be made to compensate producers for losses arising out of the BSE crisis. Under that regulation specific sums were allocated by the Commission to each affected Member State, but it was left to Member States themselves to devise a system for disbursing the sums to producers in difficulty within their own region. The system devised by the Irish Agricultural Ministry provided that a subsidy of £50 per animal would be paid on cattle marketed between 25 March and 9 June 1996. However, in the case of animals exported live, the payments would only be made in respect of 90 animals in total. M. was a farmer who both reared steers for export and acted as a dealer in buying steers to fill export orders. Between 25 March 1996 and 9 June 1996, he sold 2,125 steers for export and 168 steers to factories in Ireland. Finding that he was only entitled to claim for 90 of the 2,125 animals sold for export, he brought proceedings before the national court claiming that this restriction constituted discrimination between producers who exported live steers and producers selling live steers to factories contrary to Article 40(3) E.C.. He also argued that the seeming requirement, in the case of animals exported live, for them to have been reared on the producer's farm up to the 25 March 1996, where there was no such restriction in the case of animals sent to factories, also constituted discrimination. The Irish authorities challenged M.'s submissions on the grounds that since the steers produced for live export were lighter and leaner than those slaughtered at home they were not the same product so that the producers of each were not competing producers for the purposes of Article 40(3).
 The respondent argues that there were two basic justifications for any discrimination which existed. First, they argue, quite correctly, that the purpose of the regulation is to benefit producers, not dealers in cattle. They argue that if payment was only made on 90 head of steers being exported, it would effectively exclude dealers as they would be exporting in much larger numbers. I do not doubt that this was an objective of the respondent, but in fact it was not successfully implemented. Dealers could sell to the factories in Ireland, without limit, while a large producer such as the applicant was restricted. While I have no doubt that the applicant could have been classified as a dealer in respect of some of the 2,125 steers which he sold for export, nevertheless, he was a producer, and all the evidence showed that he has the capability to keep and fatten a large number of cattle. Therefore, the restrictions which were imposed by the respondent did not in fact achieve their object, and accordingly could not be objectively justified.
 It is also said that there were administrative problems brought about by the very short time which the respondent had to set up the Scheme, and, of course, the fact that it was retrospective. Again, I fully accept the extremely difficult position in which the respondent found itself, particularly as all the money had to be disbursed within a period of just over two months. However, the question of practical problems was raised in the Royal Scholten-Honig case and ruled upon as follows at page 2081:
He cited paragraphs 81 and 82 and continued:
 While I appreciate that the comment there relates to the particular problems of that case, nevertheless I do think that in general administrative problems ought not to be an objective justification for discrimination. Indeed, I would have thought that the administration of the entire scheme would have been much simpler if there had been no discrimination, and all producers had been paid in respect of all steers sold during the relevant period. It is argued that as there was a limited amount of money to be disbursed, the effect of this might well have been that the payment would have to have been lower than £50, and I accept that. However, that is a matter primarily relevant to the question of damages, and not to the issue of justifying discrimination.
 Accordingly, in my view, there has been discrimination in this case which is not objectively justified.
 The difference between Wednesbury and European review is that in the former case the legal limits lie further back. I think there are two factors. First, the limits of domestic review are not, as the law presently stands, constrained by the doctrine of proportionality. Secondly, at least as regards a requirement such as that of objective justification in an equal treatment case, the European rule requires the decision-maker to provide a fully reasoned case. It is not enough merely to set out the problem, and assert that within his discretion the Minister chose this or that solution, constrained only by the requirement that his decision must have been one which a reasonable Minister might make. Rather the Court will test the solution arrived at, and pass it only if substantial factual considerations are put forward in its justification: considerations which are relevant, reasonable, and proportionate to the aim in view. But as I understand the jurisprudence the Court is not concerned to agree or disagree with the decision: that would be to travel beyond the boundaries of proper judicial authority, and usurp the primary decision-maker's function. Thus Wednesbury and European review are different models—one loser, one tighter—of the same juridical concept, which is the imposition of compulsory standards on decision-makers so as to secure the repudiation of arbitrary power.
Is the Secretary of State under a legal obligation to pay healthy market value?
1. Table valuation addresses a serious problem of over-compensation by removing the subjectivity inherent element in individual valuation.
2. It contains "bright line" rules which are simple, clear and easy to administer.
3. It contributes to biosecurity by enabling cattle to be removed very quickly after they are diagnosed.
4. The principles on which the system is based are well-established, and tried and tested in many jurisdictions.
5. It produces a valuation for the vast majority of cattle which is a reasonable approximation of their true market value if healthy.
6. For some animals, the valuation is more than their market value when healthy ("over-compensation") but the problem is small compared with the previous system and is not such as to give rise to disincentives to bio-security.
7. For some animals, the valuation produced is less, maybe significantly less, than their market value when healthy ("under-compensation"), however:
(1) There is no legal obligation on the Secretary of State to pay compensation on the basis of individual market value when healthy.
(2) The true value of the animals concerned is actually very low, on account of their diseased status, and much lower than their table valuation.
(3) There are significant difficulties involved in establishing a system which deals separately with "high value" animals (given in particular the difficulties inherent in individual valuation).
(4) The system does deal, to some extent, with exceptional animals.
(5) Significant "under compensation" affects only very small numbers of animals.
(6) Measures can be taken to protect valuable animals.
(7) Private insurance can be available to fill some or all of the "valuation gap".
8. Overall, the table valuation system represents a complex policy judgment as to the appropriate use of public money to compensate for diseased animals and as to the extent to which the taxpayer should act as an insurer for diseased animals.
(a) (1) and (2) seem to me to be irrelevant, for the reasons I have given at paragraph 69 and following.
(b) I shall consider (3) below.
(c) I accept (4). The compensation in relation to the Claimant's bull is an example. But the system only deals with exceptional animals "to some extent", and not the majority of such animals.
For exceptionally valuable animals, the onus will fall on farmers to privately insure animals (where possible), if they feel the table valuation sum would not provide adequate compensation.
It thus admitted that private insurance might not be possible, but made no suggestion as to any relief for farmers who could not insure.
Title, commencement and application
(1) This Order may be cited as the Cattle Compensation (England) Order 2006 and shall come into force on 1st February 2006.
(2) This Order applies in England only.
2.In this Order-
"average market price" means-
1. (a) in respect of a non-pedigree bovine category, for any given month, a price calculated in accordance with paragraph 1 of Schedule 1;
2. (b) in respect of a pedigree bovine category, for any given month, a price calculated in accordance with paragraph 2 of Schedule 1;
"market value" in relation to a bovine animal slaughtered for brucellosis, tuberculosis or enzootic bovine leukosis means the price which may reasonably have been obtained for it at the time of valuation from a purchaser in the open market if the animal was not an affected animal or a suspected animal;
"non-pedigree animal" means a bovine animal of the genus Bos which has not been issued with a pedigree certificate by a recognised breed society, or an animal for which, by the day of the assessment of the category into which the animal falls, the pedigree certificate has not been presented to the Secretary of State or an agent acting on her behalf;
"non-pedigree bovine category" means a bovine category consisting of non-pedigree animals;
"pedigree animal" means a bovine animal of the genus Bos in respect of which a pedigree certificate has been issued by a recognised breed society and presented to the Secretary of State or an agent acting on her behalf by the day of the assessment of the category into which the animal falls;
"pedigree bovine category" means a bovine category consisting of pedigree animals;
"reactor" means, in relation to tuberculosis or brucellosis, a bovine animal which gives rise to a reaction to a relevant test which is consistent with its being affected with tuberculosis or brucellosis.
Compensation for bovine animals slaughtered for brucellosis, tuberculosis or enzootic bovine leukosis
(1) Subject to article 6, where the Secretary of State causes a bovine animal to be slaughtered under the powers conferred by section 32 of the Animal Health Act 1981 in its application to-
(b) tuberculosis, or
(c) enzootic bovine leukosis,
compensation is payable in relation to those animals which are identified by means of eartags and a cattle passport in accordance with the requirements of the Cattle Identification Regulations 1998 and shall be determined in accordance with the following provisions of this article.
(2) The compensation payable by the Secretary of State in respect of buffalo or bison shall be at the level of its market value as ascertained under the Individual Ascertainment of Value (England) Order 2005.
(3) Subject to paragraph (7), the compensation payable in respect of a bovine animal of the genus Bos shall be at the level of the average market price for the bovine category into which that animal falls at the relevant date.
(4) The Secretary of State shall determine the bovine category into which a bovine animal of the genus Bos falls at the relevant date and, for the purposes of that determination, the date of birth of that animal shall be as shown on its cattle passport and the age of the animal shall be calculated accordingly.
(5) For the purposes of this article, the relevant date means-
(a) in respect of animals slaughtered for brucellosis or enzootic bovine leukosis, the date on which a notice requiring the slaughter of the animal is served pursuant to article 19 of the Brucellosis (England) Order 20007 or article 12 of the Enzootic Bovine Leukosis (England) Order 2000 respectively;
(b) in respect of affected animals or suspected animals slaughtered for tuberculosis-
(i) the date on which a positive or inconclusive skin test for that animal is read;
(ii) where the skin test is negative, or no skin test has been carried out, the date on which a clinical sample is taken from that animal for the purposes of any other relevant test; or
(iii) where no other relevant test has been carried out, but the animal has been slaughtered because it has been exposed to infection as a result of contact with, or close proximity to, an affected or suspected animal, the same date as the relevant date for that affected or suspected animal.
(7) In any case where, in accordance with paragraph 1(3) or paragraph 2(3) of Schedule 1, the Secretary of State considers that sales price data for any particular bovine category in any given month are inadequate, or such data are unavailable, she may opt to pay compensation at the level of the market value of the animal in question, as ascertained under the Individual Ascertainment of Value (England) Order 2005.
Articles 2 and 3
(1) The average market price for each non-pedigree bovine category shall be calculated in respect of each month from data collected in Great Britain relating to the sale prices of animals of that category in the preceding month.
(2) Subject to sub-paragraph (3), it shall be the amount obtained by dividing the sum of those sale prices by the total number of animals of that category for which sale price data have been collected.
(3) Where, in respect of any non-pedigree bovine category in any given month, the Secretary of State considers that the sale price data collected pursuant to sub-paragraph (1) are inadequate, or where no such data are available, the average market price for the month shall be the most recently ascertained average market price for the same category, where one has been previously calculated.
(1) The average market price for each pedigree bovine category shall be calculated in respect of each month from data collected in Great Britain relating to the sale price of animals of that category in the preceding six months.
(2) Subject to sub-paragraph (3) it shall be the amount obtained by dividing the sum of those sale prices by the total number of animals in that category for which sale price data have been collected.
(3) Where, in respect of any particular pedigree bovine category in any given month, there is no available sale price data for any of the preceding six months or the Secretary of State considers that the available data for every one of these months is inadequate, the average market price for the month shall be the most recently ascertained average market price for the same category, where one has been previously calculated.
3.The sale price data referred to in paragraphs 1 and 2 shall be collected from store markets, prime markets, rearing calf sales, breeding sales and dispersal sales.
Table of Bovine Categories
|Beef Sector - non-pedigree animal|
|Up to 3 months||Up to 3 months|
|Over 3 months up to 6 months||Over 3 months up to 6 months|
|Over 6 months up to 9 months||Over 6 months up to 9 months|
|Over 9 months up to 12 months||Over 9 months up to 12 months|
|Over 12 months up to 16 months||Over 12 months up to 16 months|
|Over 16 months up to 20 months||Over 16 months up to 20 months|
|20 months and over||20 months and over|
|Breeding bulls 20 months and over||Calved|
|Dairy Sector - non-pedigree animal|
|Up to 3 months||Up to 3 months|
|Over 3 months up to 6 months||Over 3 months up to 6 months|
|Over 6 months up to 12 months||Over 6 months up to 12 months|
|Over 12 months up to 16 months||Over 12 months up to 16 months|
|Over 16 months up to 20 months||Over 16 months up to 20 months|
|20 months and over||20 months and over|
|Beef Sector - pedigree animal|
|6 months up to 12 months||6 months up to 12 months|
|Over 12 months up to 24 months||Over 12 months up to 24 months|
|Bull 24 months and over||24 months and over (not calved)|
|Calved under 36 months|
|Calved 36 months and over|
|Dairy Sector - pedigree animal|
|Up to 2 months||Up to 2 months|
|Over 2 months up to 12 months||Over 2 months up to 10 months|
|Over 12 months up to 24 months||Over 10 months up to 18 months|
|Bull 24 months and over||18 months and over not calved|
|Calved under 36 months|
|Calved 36 months and over|