Supreme Court of Ireland Decisions

1. This case has a very long history dating back to 1988. It arises out of the operation by the defendant (hereafter “the Minister”) as the intervention agent in Ireland of the European Economic Community of two schemes relating to the storage and export of meat. The plaintiffs, who were at the time engaged in the export of beef to a number of countries, including destinations outside the EEC, received sums from the Minister under both schemes.

2. The first scheme was the Aid for Private Storage scheme (“APS”). The second scheme was the Export Refund scheme. Both schemes were intended to ease the problems encountered by beef producers arising out of the surplus of beef in the community. Under the APS scheme, payments at a specified rate were made to persons who kept beef in storage for a certain period. In contrast to the intervention schemes also operated by the Minister on behalf of the EEC, the beef in storage remained the property of the person concerned and could be disposed of by him at the end of the storage period. Under the Export Refund scheme, the Minister paid to a person exporting beef to specified territories outside the EEC the difference between the market prices of beef sold within the EEC and the lower market prices obtainable in the specified areas. Advance payments were made by the Minister to the person concerned who was required to furnish certain securities to the Minister.

3. During the 1988 season, the plaintiff was paid a sum of £5,344,605.11 under the APS scheme and £16,270,139.96 under the Export Refund Scheme. Following the carrying out by the Minister of a sampling exercise of the beef products stored by the plaintiff in respect of which such payments had been made, the Minister informed the plaintiffs that, because of what was said to be a failure to comply with the regulations governing the scheme, disallowances of a total of £240,021.03 in respect of the APS scheme and £1,135,957.93 in respect of the Export Refund scheme were being made and the relevant securities were also being forfeited.

4. The plaintiffs thereupon instituted these proceedings in which they claimed declarations that the Minister’s purported disallowance of these sums and forfeiture of the securities were invalid and damages for negligence and breach of duty. Those proceedings came on for hearing in due course before the High Court (Barr J).

5. In a reserved judgment delivered on the 8th February 1996, the learned High Court judge granted the declarations sought and also found that the plaintiff was entitled to damages in respect of the negligence and breach of duty of the Minister. From that decision, the Minister appealed to this court.

6. At the end of a hearing which lasted 5 days, this court decided that the determination of the issues between the plaintiffs and the Minister raised questions as to the interpretation of certain EEC regulations and, accordingly, pursuant to the then Article 177 of the Treaty of Rome, referred those questions to the Court of Justice of the European Communities for a preliminary ruling. The further hearing of the appeal was adjourned until after the Court of Justice gave its ruling on these questions.

7. On 30th November 2000, the Court of Justice delivered its preliminary ruling on the questions referred by this court. It was submitted on behalf of the Minister that, in the light of the answers to the questions as set out in the judgement of the Court of Justice, the appeal of the Minister should be allowed in its entirety. It was submitted on behalf of the plaintiffs that, while in the light of those answers the Minister was admittedly entitled to succeed in respect of some of the grounds of appeal set out in his notice of appeal, the appeal should be dismissed insofar as it related to the remaining grounds and the action remitted to the High Court for the assessment of damages.

8. Since the central issue in the case was as to whether the Minister was entitled to make the disallowances in question and to forfeit the securities because of the failure of the plaintiff to comply with the relevant regulations, it is at this point necessary to consider in more detail the nature of the alleged breaches.

9. Commission Regulations (EEC) No. 2675/88 governed the operation of the APS scheme. Article 4(4) of those regulations provided that

10. Article 2 (2) of those regulations provided

11. Article 2(2) of Council Regulation (EEC) No. 1208/81, determining the Community’s scale, states,

12. The regulations governing the Export Refund scheme were Commission Regulations (EEC) No. 1962/82. Article 1 provided that

13. Article 6 provides that

14. In the 1988 season, the plaintiff entered into 138 private storage contracts pursuant to Regulation No. 2675/88 in respect of approximately 13,000 tonnes of beef. As already noted, it received £5,376,259.13 under the APS scheme in respect of those contracts. The storage was not carried out directly by the plaintiff, but by a number of different subcontractors. The plaintiff applied for export refunds under the Export Refund scheme pursuant to regulation No. 1964/82 in respect of the same 13,000 tonnes of beef and, as already noted, received £16,270,139.96 in respect of such refunds.

15. This beef could be kept in storage for up 9 months. Between April and September 1989, the Minister and the Revenue Commissioners carried out examinations of cartons of de-boned beef to which the two schemes applied in order to ascertain whether there had been compliance with the terms of the regulations. Among the cartons examined were 2,400 cartons of beef being stored by the plaintiff. The results of the examinations showed that, in seven of the production plants operated by subcontractors acting for the plaintiff, some of the plaintiffs’ cartons included scraps or trimmings which had not been individually wrapped and also included fat, alleged by the Minister to be cod fat.

16. The cuts of meat in question were what are described as “plate and flank or mid-rib” and, in the case of the cartons in question, these trimmings or scraps, instead of being individually wrapped ,were included with the plate or flank before the cut was wrapped in polythene.

17. Since a sample only of the cartons was examined by the Minister’s officials, the sampling results were extrapolated across the total plate, flank and mid-rib production at each of the production units of the plaintiff, separate calculations being made for each unit. The manner in which that extrapolation exercise was carried out is of importance and will be considered in more detail at a later point. The amount of the disallowances made by the Minister were calculated by reference to the results of the extrapolation.

18. As already noted, in respect of both the APS scheme and the Export Refund scheme, the Minister called in the securities provided by the plaintiff to guarantee the performance by it of its obligations under the scheme.

19. There was no suggestion that the examination by the Minister’s officers disclosed any failure by the plaintiff to comply with appropriate food health standards and regulations.

20. The evidence in the High Court established that the plate and flank cuts were recognised internationally in the beef trade as the cuts of lowest value. They were sold to the ultimate consumer as mince meat, beef burgers, sausages, salami and other low quality meat products. The evidence of Mr. John Quinn, the managing director of the plaintiffs at the relevant time was that, while these cuts were being prepared for packaging, small portions or “trimmings” were left on the table. Such trimmings were perfectly fit for human consumption and he did not regard them as “scraps” within the meaning of the regulations which could not be included in the cuts being packaged for storage or export, as would be the case with trimmings which fell on the floor during the process or with cartilages, tendons, etc,. Since the meat would ultimately reach the consumer, not in the form of an identifiable cut such as sirloin or fillet, he considered it a pointless exercise to wrap these trimmings individually, however small they might be.

21. Mr. Quinn conceded, however, that this to his knowledge was not the interpretation adopted by the Minister’s officials of the relevant regulations. He accordingly did not disclose to the Minister’s inspectors that the plate and flank cuts, as individually wrapped in the different plants, included these trimmings which, under the department’s construction of the regulations, should have been individually wrapped,

22. Expert evidence was given on behalf of the plaintiff, and not challenged on behalf of the Minister, that the practice adopted by the plaintiff accorded with a long established practice in the Irish meat trade and that it was also followed in other beef producing countries, such as Argentina, France and Italy.

23. On the 17th May 1991, Ms. Mary Harvey, an officer of the Minister, wrote to the plaintiff a letter in which she conveyed the Minister’s decision to make certain disallowances in respect of both the APS scheme and the Export Refund scheme as it affected the plaintiff. She explained that the following criteria had been adopted by the Minister in calculating the amount of the disallowances:

24. The letter went on to give details of the calculations of the

25. The evidence in the High Court established that the actual method

26. The Minister had, in addition, adopted a practice of treating any trimmings less than 100 grams in weight as scraps and only trimmings in excess of 100 grams as requiring individual wrapping. It was acknowledged on behalf of the Minister that this approach was not expressly authorised by the regulations and was devised by the Minister's officials themselves.

27. The High Court judge made it clear that, in interpreting the regulations,

28. The trial judge concluded that, in the light of the fact that the plate and flank cuts were not sold as such but reached the ultimate consumer in the form of mince meat, hamburgers, etc., and of the general practice in the Irish and international meat trade, the edible trimmings should not have been regarded as “scraps” nor should the regulations have been interpreted so as to impose on the plaintiff the obligation individually to wrap all trimmings.

29. He was also of the view that the Minister has not discharged the onus which rested on him of proving on the balance of probabilities that the pieces of fat discovered in April 1989 on the first day of sampling was, “ cod fat” which should have been removed in the abattoir before weighing in, but was more probably “rose fat”.

30. As to the methods of calculation employed by the Minister in determining the amount of the disallowances and the extent of any forfeiture of the securities which should follow from the alleged breaches of the regulations, the trial judge found that, while the Minister was entitled to adopt a sampling and extrapolation procedure, the adoption by him of the 100 gram level for distinguishing between scraps and trimming and the 3 kg threshold for determining whether the entire weight of a carton should be taken into account in the extrapolation exercise was not authorised by the regulations. The trial judge was of the view that the individual box was not the appropriate unit for measuring financial corrections: the Minister should have taken the individually wrapped parcel of meat as the appropriate unit.

31. In the result, the trial judge found that the financial disallowances and the forfeitures imposed by the Minister on the plaintiff were not authorised by the regulations and, in the light of what he considered to be their penal nature, were disproportionate. He was also of the view that the Minister had been negligent in adopting a system of financial corrections which his own officials perceived to be “fundamentally flawed” and that the plaintiffs were entitled to damages for the negligence and breach of duty so found.

32. The Minister having appealed from the judgment and order of the High Court, this court, as already noted, on the oral hearing of the appeal, decided to refer a number of questions to the Court of Justice for a preliminary ruling. I now set out those questions and the answers thereto of the court.

33. On behalf of the Minister, Ms. Mary Finlay SC., submitted that, in the light of the answers of the Court of Justice, the appeal should be allowed. She said that the case in the High Court, and the judgment in favour of the plaintiff in that court, had proceeded on what had been found by the Court of Justice to be an entirely erroneous construction of the regulations. The Minister was correct in construing the regulations as not permitting trimmings from these cuts to be treated as scraps and also requiring them to be individually wrapped. The court had also made it clear that it was within the power of the competent authority of the member state, i.e., the Minister, to adopt a procedure under which trimmings which were less than 100 grams in weight could be treated as scraps and did not require to be individually wrapped.

34. As to the 3 kg threshold, Ms. Finlay submitted that it was clear from the answers given by the Court of Justice that the Minster was correct in treating the individual carton as the appropriate unit, rather than the individual parcels, in determining whether there had been compliance with the regulations. It was also clear from those answers that, in the case of any carton where there had been any degree of non compliance with the requirement as to the individual wrapping of trimmings, the Minister was entitled to hold that the entire contents of the carton did not qualify either for the export refund scheme or the APS scheme. It followed that the 3 kg threshold adopted by the Minister was in ease of the plaintiff: if the Minister had done what the Court of Justice said he was entitled to do, on the proper construction of the regulations, a significantly greater quantity of cartons would have been held dis-entitled to payments under either scheme.

35. As to the various criticisms which had been made of the system of extrapolation and which had found favour with the trial judge, Ms. Finlay, submitted that, in the light of the answers given by the court that, where there had been a deliberate and persistent policy of infringement of the relevant regulations, the Minister was entitled to extrapolate the results of those checks across the production of the production plants in question, Ms. Finlay submitted that such criticisms as were made were now of no significance. The evidence on behalf of the plaintiff itself in the High Court had been that there was a deliberate policy on its part to contravene the regulations and, in the result, the extrapolation procedure adopted by the Minister could not be said to have been in any way unfair to the plaintiff.

36. As to the disallowance of cartons on the basis that they contained cod fat, Ms. Finlay submitted that the regulations made it clear that, although advance payments could be made to the plaintiff, it was for the plaintiff to satisfy the Minister that there had been compliance with the regulations which entitled it to the payments in question. At the least, the evidence established that the Minister was entitled to hold that, in the case of the cartons in question, the plaintiff had not established that it was entitled to the relevant payments.

37. On behalf of the plaintiffs, Mr. Paul Sreenan SC and Mr. Rory Brady SC submitted that it was clear from the judgment of the European Court that it was for the national court to establish whether, in the present case, the sampling actually adopted by the Minister was sufficient and reliable and whether the extrapolation method was valid. They submitted that the finding of the High Court that the checks were not sufficient and reliable and that the extrapolation method employed was invalid, was based on credible evidence and should not be set aside by this court on appeal.

38. It was further submitted that, since the methods adopted by the Minister had not been notified to the plaintiff in advance but had been devised by him at a subsequent stage, it had no legal basis in domestic law and the result constituted an unlawful penalty imposed by the Minister on the plaintiff without statutory authority and in breach of the rules of legal certainty.

39. It was further submitted that, having regard to the admitted difference between the plate and flank cut and the mid-rib cut, the Minister was not entitled to combine these two cuts for extrapolation purposes.

40. It was further submitted that the answers of the European Court of Justice to the questions were preconditioned on evidence of “a deliberate and persistent policy of infringement”. The High Court had not found that such a policy was in existence: it had made it clear that the policy to wrap “lean trimmings” in plate and flank arose from the plaintiff’s bona fide interpretation as to what the regulations meant and, it was urged, this was not an unreasonable interpretation in the circumstances of the regulations.

41. It was further submitted that, while the findings of the Court of Justice upheld the possibility for extrapolation, this did not relieve the Minister from the obligation of putting in place a statistically reliable form of sampling and extrapolation and this had not been done. It was also submitted that the finding of fact by the High Court that cod fat was not in fact found by the Minister during the sampling exercise was one which could not be overturned by this Court.

42. It was further submitted that the system of financial corrections adopted by the Minister failed to take into account the fact that the aid scheme was premised on a maximum de-boning yield of 75%. In the event, a 2% excess yield had been obtained by the plaintiff, but this had been ignored and some credit should have been allowed in that regard. This had not been made the subject of any finding by the Court of Justice.

43. It was further submitted that the operation by the Minister of the 3 kg threshold and the failure by him to recognise the difference between the plate and flank and mid-rib cuts had resulted in this case in the infliction of penalties which were disproportionate. It was also submitted that the defects in the methodology adopted by the Minister were such as to justify a finding by the High Court that the Minister has negligently exercised his powers.

44. As to the delay on the part of the Minister in releasing the securities, it was submitted that there was no appeal from the finding that the Minister had an obligation to act without delay, that he had not acted without delay and that as a result loss had been sustained by the plaintiff in servicing the securities.

45. In reply, Ms. Finlay submitted that the evidence clearly established that in practical terms, so far as the contracts at issue in these proceedings were concerned, there was no distinction between the plate and flank cuts and the mid-rib cut and that, in the result, the Minister was fully entitled to extrapolate the results of the sampling across the production of all three cuts.

46. As to the claim based on delay, she submitted that the evidence of the relevant department official had been that, although the securities had not been finally released until the 10th December 1993, while the case was at hearing, if the plaintiff’s entitlement to have the securities released had been determined in May 1991, the plaintiff would have been required to pay a further sum of £1.1 million.

47. The learned High Court judge in this case was concerned with what he saw as a rigid and literal interpretation of the EEC Regulations by the Minister, which he described as “an exercise in bizarre bureaucracy of ultimate absurdity”. In particular, he regarded the requirement that trimmings from the plate and flank cut should be individually wrapped as creating wholly unnecessary problems for the exporter, the purchasers and others.

48. That is an understandable view. However, the fact remains, as the evidence in the case made clear, that these requirements reflect the huge quantities of meat which were the subject of the relevant schemes and the significant community funds which were being made available to the exporters. Meticulous adherence to the requirements of the regulations as to the packaging and labelling of individual cuts of meat was clearly regarded as of paramount importance in order to prevent wholesale evasion of the requirement that only cuts of meat of a particular quality, separately packaged and labelled, attracted the payment of the significant sums by way of subsidy involved.

49. Those considerations are, however, now nihil ad rem , because the preliminary ruling by the Court of Justice, which must, of course, be given full and unreserved effect by this court, has made it clear that the interpretation by the learned High Court judge of the relevant regulations in this context was erroneous. The relevant paragraphs of the judgment of the court state as follows:

50. A problem undoubtedly arose from a strict adherence to the regulations: a requirement that every trimming, however small, should be individually wrapped would be clearly impractical and might even defeat the object of the regulation. It was in that context that the Minister adopted the policy of excluding from entitlement to special export refunds trimmings the weight of which was less than 100 grams and excluded such trimmings from the APS scheme. The operation by the Minister of both schemes in accordance with those criteria has now been expressly approved of by the Court of Justice as a proper interpretation of the relevant regulations.

51. As to the threshold limit of 3 kgs which was adopted by the Minister, following discussions with the EEC Commission, and as a result of which boxes containing in excess of that amount of unwrapped trimmings were treated as ineligible under the APS scheme or the Export Refund scheme, the position is as follows. It is clear from the answers given by the Court of Justice to the questions referred by this court that, where a carton contains trimmings which are not individually wrapped or separate pieces of fat, the entire contents of the carton may be held to be ineligible under both schemes. (As has been seen, the High Court judge erroneously treated the individual parcels as the appropriate unit for this purpose). The adoption by the Minister of the 3 kg threshold was, accordingly, more favourable to the plaintiff than the approach he would have been entitled to adopt under the regulation as interpreted by the Court of Justice. It was beyond argument that, if the Minister had adopted the more stringent interpretation of the regulations now found appropriate by the Court of Justice, a significantly greater quantity of cartons would have been treated as ineligible as a result of the extrapolation exercise.

52. As to the extrapolation exercise itself, the Court of Justice in its judgment and in the answers furnished to the question referred by this court makes it clear beyond doubt that such an extrapolation exercise was perfectly legitimate. It was criticised on a number of grounds, but, in the light of the candid evidence of Mr. Quinn that a policy had been adopted of including the lean trimmings in the wrapped up parcels of flank and plate, because of a disagreement with the department as to the correct interpretation of the regulations, the result of the extrapolation exercise could not have been in any way unfair to the plaintiffs: particularly in the light of the adoption by the Minister of the 3 kg threshold, the overwhelming probability was that it erred on the side of generosity to the plaintiff.

53. It is accordingly, unnecessary to consider in any detail the defects alleged to have existed in the sampling procedure. Since, however, much emphasis was laid upon it in the written and oral submissions of the plaintiff, it should be pointed out that the contention that the Minister's extrapolation procedures were flawed because it treated the mid-rib cut on the same basis as the plate and flank cuts does not appear to have been borne out by the evidence. As Ms. Bridget Cannon, the officer of the department who gave detailed evidence on this matter pointed out, the tables showing the boneless yield by the plant, as broken down between the mid-rib and the plate and flank, indicated in one instance that there had been no yield from the mid-rib, but a 35.4 total yield from the plate, flank and mid-rib. That was clearly consistent only with the plate and flank being treated on the same basis by the plaintiff as the mid-rib.

54. As to the claim that the Minister had devised the methodology of extrapolation ex post facto and that this offended both domestic law and EEC law since it was lacking in legal certainty, it is clear that, while the Minister was entitled to make advance payments to exporters such as the plaintiff, the obligation was entirely on the plaintiff to satisfy the Minister, as the agent of the EEC, that all the requirements of both schemes had been complied with when the beef was ultimately exported to the third countries concerned. When the Minister’s officials encountered evidence of non-compliance on a significant scale with the requirements of the regulations, they were clearly entitled to put in place a sampling and extrapolation procedure in order to determine the probable extent of the non compliance. Nor, in the context of the overall payments made to the plaintiff in respect of both schemes, could the disallowances and forfeiture of the securities be regarded as a disproportionate response to the violation of the regulations which was involved. Since the findings by the High Court that the Minister had been negligent and in breach of duty in the manner in which he had conducted the sampling and extrapolation exercise were based on an erroneous interpretation of the regulations, it also follows that the plaintiff was not entitled to succeed in the claims brought by it under that heading.

55. While the question as to whether cod fat was present in some of the cartons sampled was canvassed at some length both at the hearing in the High Court and on the appeal, it appears in fact not to have been a matter of any great significance. There was undoubtedly evidence as to the presence of individual items of fat - whether cod fat or rose fat - and that, of itself, irrespective of whether it was properly described as cod fat, would have entitled the Minister to reject the entire of the carton concerned and to use that as a basis for extrapolation across the rest of the production.

56. It is also no doubt the case that the scheme was premised on a maximum de-boning yield of 75% . However, the suggestion that the 2% excess yield achieved by the plaintiff should have been taken into account in calculating the disallowance in respect of the APS scheme is unsustainable. Since the calculation of the disallowances which had to be made in respect of the APS scheme was, on the findings of the Court of Justice, over generous to the plaintiff, there is no basis for the suggestion that it should have been given credit for the 2% excess yield which the plaintiff had achieved.

57. There remains the question of delay in the release of the securities. The oral and documentary evidence on this matter in the High Court was voluminous. It established beyond doubt that, given that the securities could not be safely released by the Minister until the exporting procedures had been fully complied with and all the necessary proofs to that effect furnished to the department, there was, as indeed was conceded on behalf of the plaintiff, an inevitable delay in obtaining the release of the securities. As to whether the delay in the present case is excessive, the following exchange in the course of cross-examination of Ms. Cannon is of significance:

58. In the light of that unequivocal evidence that a decision in May 1991 would only have been taken on the basis that the plaintiff refunded £1.1 million to the Minister - and, while it was suggested that this might subsequently have been reassessed by the department, it was not claimed that Ms. Cannon’s evidence on this matter was other that perfectly truthful - there was no basis for a finding that the failure by the Minister to release the securities before December 1993 was wrongful.

59. I would allow the appeal and substitute for the order of the High Court an order dismissing the plaintiff’s claim.