Supreme Court allows appeal dismissing plaintiff's claim for damages regarding delayed release of export refund securities.

THE SUPREME COURT

Keane C.J.

Denham J.

Murphy J.

McGuinness J.

Fennelly J.

87/96

BETWEEN

HMIL LIMITED (FORMERLY KNOWN AS HIBERNIAN MEATS INTERNATIONAL LIMITED)

PLAINTIFF/RESPONDENT

AND

THE MINISTER FOR AGRICULTURE AND FOOD

DEFENDANT/APPELLANT

JUDGMENT delivered the 24th day of January, 2002 by Keane C.J.

Introduction.

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.

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.

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.

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).

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.

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.

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.

The EEC Regulations.

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.

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

provided that

“The large tendons, cartilages, pieces of fat and other scraps left over from cutting [or] boning may not be stored.”

Article 2 (2) of those regulations provided

“Private storage can only be granted for meat classified in accordance with the community’s scale for the carcass

classification as laid down in Regulation (EEC) No. 1208/81....”

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

“The carcass shall be presented .....without cod fat.”

(Cod fat is a form of fat adjacent to the sexual organs of the male animal.)

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

“Individually wrapped boneless cuts from fresh or chilled hind quarters of adult male cattle shall, when the terms of this

regulation are complied with, qualify for special export refunds.”

Article 6 provides that

“Without prejudice to the application of the provision of Regulation (EEC) No. 2730/79, the grant of the special refund

shall be conditional, except in circumstances of force majeure, on exportation of the total quantity of meat produced by

boning covered by the above mentioned [provision].”

“The operator may, however, sell within the community bones, large tendons, cartilages, pieces of fat and other scraps

left over from boning.”

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.

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.

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.

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.

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.

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.

The Proceedings in the High Court.

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.

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,

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.

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:

“- all cartons found to contain trimming and cod fat are excluded from APS and Export Refunds and the 20% advance

payment premium is also deemed to be recoverable.

- all cartons found to contain non individually wrapped pieces of meat are excluded from Export Refunds and the 20%

advance payment premium is also deemed to be recoverable.

- the sampling results are extrapolated across the total plate, flank and mid-rib at the production units concerned, with

separate calculations for each production unit. In this connection your representations concerning separate treatment

for the plate, flank and mid-rib cuts are noted. However, from its examination of the production record of the plants

concerned, the department is satisfied that distinction is not warranted between these cuts for the purpose of

application or financial corrections.

- the extrapolation method for APS scheme is based on the exclusion from APS aid plus regulatory premium of the

percentage by weight of trimmings found relative to the weight of the cartons sampled.

- the extrapolation method for Export Refunds is based on the exclusion from export refunds plus regulatory premiums of

the percentage by weight of trimmings and non individually wrapped pieces found relative to the weight of the carton

sampled.

- where the weight of trimmings in any carton is greater than or equal to 3 kg the weight of the entire carton is included

in the extrapolation calculation. The basis for application of the 3 kg limit is the view that a trimming level per carton of

greater than or equal to 3 kgs cannot be justified on the grounds of poor de-boning alone

- where cod fat has been uncovered, the weight of the entire carton is included in the extrapolation exercise for APS and

Export Refunds.

- an average weight per carton has been established for each production unit and the exclusion of cartons and

extrapolation procedure has been based on the average weights.”

The letter went on to give details of the calculations of the disallowances and of the forfeitures of the securities.

The evidence in the High Court established that the actual method adopted by the Minister’s officials for the calculation of the

disallowances in both schemes was adopted following discussions by the officials concerned with officials of the EEC

Commission. However, the Minister’s officials also expressed their misgivings as to qualifications which the Commission insisted

on being made to the Minister’s methods. This related particularly to the introduction of the 3 kgs threshold. As Ms. Harvey’s

letter made clear, the calculations ultimately made were on the basis that, where any box was found to include more than 3 kgs

of trimmings, the weight of the entire carton, as distinct from so much of its contents as were trimmings, would be taken into

account for extrapolation purposes. The Minister was of the view that this would create

“Very great difficulties in determining appropriate and legally defensible corrections.”

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.

The High Court Judgment.

The High Court judge made it clear that, in interpreting the regulations, he was adopting the teleological or schematic approach

favoured in the law of the European Communities. So construed, and also in the light of the ejusdem generis and noscitur a

sociis principles, he concluded that the word “scraps” in the regulation should be interpreted as meaning leavings from the de-

boning process which were unfit for human consumption but which might have a minimal value, e.g., for tinning as animal food.

He was of the view that, so construed, the terms “scraps” in the relevant regulations did not include trimmings of edible meat,

whether large or small.

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.

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”.

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.

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.

The reference to the Court of Justice.

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.

QUESTION:

"1. Is Commission Regulation (EEC) 1964/82 and in particular Article 1 thereof to be construed as meaning that trimmings

of less than 100 grams when rolled up inside a cut of plate and flank from fresh or chilled hind quarters of adult male

cattle, which rolled up cut is then wrapped, do or do not qualify for special export refunds pursuant to the said

regulation?

2. Is Commission Regulation (EEC) 1964/82 and in particular Article 1 thereof, to be construed as meaning that [trimmings

- detached pieces of meat] of greater than 100 grams when rolled up inside a cut of plate or flank from fresh or chilled

hind quarter of adult male cattle, which rolled up cut is then wrapped do or do not qualify for special export refunds

pursuant to the said regulation?

3. Is Commission Regulation (EEC) 1964/82 and in particular Article 1 thereof to be construed as meaning that each piece

or cut of plate or flank must be individually wrapped or that, in addition, trimmings may be rolled up inside a piece or cut

of plate or flank and each rolled up piece or cut may then be wrapped.?

4. Is Commission Regulation (EEC) 2675/88 and in particular Article 4.4 thereof, to be construed as permitting or not

permitting the storage of trimmings of less than 100 grams resulting from the cutting and de-boning for the purpose of

obtaining private storage aid under contracts entered into pursuant to the said regulation?”

ANSWER:

"1. On a proper construction of Article 1 of Commission Regulation (EEC) No. 1964/82 of 20th July 1982 laying down the

conditions for granting special export refunds on certain cuts of boned meat of bovine animals, as amended by

Commission Regulation (EEC) No. 3169/87 of 23rd October 1987 amending Regulations (EEC) No 32/82 (EEC) No. 1964/82

(EEC) No. 74/84 in the matter of customs export formalities for certain beef on which special refunds are granted, every

piece of meat had to be individually wrapped, whatever its size, weight and nature, and without distinguishing, in

particular, between scraps and trimmings.

2 On a proper construction of Article 7 and 8 of the same regulation, the member states had the right to exclude from

entitlement to special export refunds trimmings whose weight was below a certain limit, such as a limit of 100 grams.

3 On a proper construction of Article 4(4) of Commission Regulation (EEC) No. 2675/88 of 29th August 1988 providing for

the grant of private storage aid fixed at a standard rate in advance in respect of carcass, half carcasses, hind quarters

and fore quarters from adult male bovine animals as amended by Commission Regulation (EEC) No. 3258/88 of 21st

October 1988, trimmings left over from cutting or boning, whatever their weight, did not qualify for private storage aid

under contracts entered into pursuant to that regulation.”

QUESTION:

“5(a) Where upon examination of one or more boxes of meat placed under customs control for the purpose of obtaining

special export refunds pursuant to regulation 1964/82, it is discovered that the contents of such boxes include trimmings

rolled within plate and flank or mid-rib and if the inclusion of such trimmings is contrary to Regulation 1964/82, do

Regulations 565/80 and 3665/87 permit the competent authority to reject the contents of the entire box as not qualifying

for special export refunds and to forfeit the security given for the advance payment made in respect of each box plus

20%?

5(b) Where upon examination of one or more boxes of meat placed under customs control for the purpose of obtaining

special export refunds pursuant to Regulations 1964/82 it is discovered that the contents of such boxes include separate

pieces of fat rolled within plate or flank or mid-rib contrary to Regulation 1964/82, do Regulations 565/80 and 3665/87

permit the competent authority to reject the contents of the entire box as not qualifying for special export refunds and to

forfeit the security given for the advance payment made in respect of such box plus 20%?

5(c) Where upon examination of one or more boxes of meat placed under customs control for the purpose of obtaining

special export refunds pursuant to Regulation 1964/82, it is discovered that the contents of such boxes include non

individually wrapped pieces meat contrary to Regulation 1964/82, do Regulations 565/80 and 3665/87 permit the

competent authority to reject the contents of the entire box as not qualifying for special export refunds and to forfeit the

security given of the advance payment made in respect of such box plus 20%?”

ANSWER:

“4. On a proper construction of Regulation No. 1964/82, of Council Regulation (EEC) No. 565/80 of 4th March 1980 on the

advance payment of export refunds in respect of agricultural products, as amended by Council Regulation (EEC) No.

2026/83 of 18th July 1983, and of Commission Regulation (EEC) No. 3665/87 of 27th November 1987 laying down

common detailed rules for the application of the system of export refunds on agricultural products, as amended by

Commission Regulation (EEC) No. 3494/88 of 9th November 1988 and Commission Regulation (EEC) No. 3993/88 of 21st

December 1988, where the competent authority establishes that a carton of meat subject to the scheme covered by

Regulation No. 1964/82 contains items prohibited by the legislation, whether trimmings rolled up within other pieces of

meat, separate pieces of fat rolled up within pieces of meat or non individually wrapped pieces of meat, those

regulations permit it to hold that the entire contents of the carton do not qualify for special export refunds and to forfeit

the security given for the advance payment made in respect of that carton plus 20%.”

QUESTION:

“6(a) Where upon an examination of one or more boxes of meat placed in store under Regulation 2675/88 for the purpose

of obtaining private storage aid, it is discovered that the contents of such boxes include trimming rolled within plate and

flank or mid-rib and if the inclusion of such trimmings [is] contrary to Article 4.4 of Regulation 2675/88, do Regulations

2220/85 and 2675/88 permit the competent authority to reject the contents of the entire box for the purposes of private

storage aid and to forfeit the security for the advance payment made in respect of such box plus 20%?

6(b) Where upon an examination of one or more boxes of meat placed in store under Regulation 2675/88 for the purpose

of obtaining private storage aid, it is discovered that the contents of such boxes include separate pieces of fat rolled

within plate and flank or mid-rib contrary to Article 40.4 of Regulation 2675/88 do Regulations 2220/85 and 2675/88 permit

the competent authority to reject the contents of the entire box for the purposes of private storage aid and to forfeit the

security for the advance payment made in respect of such box plus 20%?”

Answer:

“5 On a proper construction of Regulation No. 2675/88 of Commission Regulation (EEC) No. 1091/80 of 2nd May 1980

laying down detailed rules for granting private storage aid for beef and veal and of Commission Regulation (WEC) No.

2220/85 of 22nd July 1985 laying down common detailed rules for the application for the system of securities for

agricultural products, as amended by Commission Regulation (EEC) No. 1181/87 of 29th April 1987, where the competent

authority establishes that a carton of meat subject to the scheme covered by Regulation No. 2675/88 contains items

prohibited by Article 4(4) thereof, such as trimmings or separate pieces of fat rolled up within pieces of meat, those

regulations permit it to hold that the entire contents of the carton do not qualify for private storage aid and to forfeit

the security given for the advance payment made in respect of that carton plus 20%.”

QUESTION:

“7 Where upon such an examination of boxes placed under customs control, for the purpose of obtaining special export

refunds pursuant to Regulation 1964/82, it is discovered that a certain number of boxes contain ineligible material rolled up

inside a cut of meat and there is evidence of a deliberate persistent policy by the operator of rolling up such ineligible

material inside particular cuts of meat in particular production plants, is the competent authority authorised pursuant to

Regulations 565/80, 3365/87 and 1964/82 to extrapolate the results of the sample across the production of such cuts in

the particular production units and to reject as eligible for export refunds a quantity of meat based on such extrapolation

and to forfeit the security for the advance payment made in respect of such quantity plus 20% or is the competent

authority confined to extrapolating the results of the examination of boxes in one export refund bond across the

production of the relevant cuts within that export refund bond as the case may be?

8 Where boxes placed in storage under Regulation 2675/88 for the purpose of obtaining private storage aid have been

examined and a certain number of such boxes have been found to contain ineligible material contrary to Regulation No.

2675/88 and there is evidence of a deliberate and persistent policy of including such ineligible material rolled up inside

particular cuts in particular production plants, is the competent authority entitled pursuant to Regulations 2220/85 and

2675/88 to extrapolate the results of such examination across the production of such cuts in the particular production

plants and to reject as eligible for private storage aid a quantity of meat based on such extrapolation and to forfeit the

securities given in respect of the advance payments made on such quantities plus 20%, or is the competent authority

confined to extrapolating the results of the examination of boxes in one APS contract across the production of the

relevant cuts within that APS contract as the case may be?

9 Where there is evidence of a persistent and deliberate policy by an operator to include in boxes of particular cuts of

boneless meat in particular production plants, material which may not be stored pursuant to Article 4.4 of Regulation

2675/88 and the APS contract entered into by the operator with the competent authority and examination revealed

significant quantities of such ineligible material have been stored, does Regulation 1091/80 and in particular Article 5.2(c)

thereof, authorise the competent authority to forfeit the amount of the contract securities referable to the production of

the relevant cuts of meat in such production plants?”

ANSWER:

“6 On a proper construction of the Community Regulations, where checks relating to cartons of beef reveal evidence in

particular production plants of a deliberate and consistent policy of infringement of Regulations No. 1964/82 and No.

2675/88, the competent authority may extrapolate the results of those checks across the production of the production

plants in question.

7 Where the sampling checks have revealed evidence of a deliberate and persistent policy of storing material which does

not qualify for the private storage aid scheme by virtue of Article 4(4) of Regulation No. 2675/88, the competent

authority is permitted to refuse to grant private storage aid and to forfeit the security in its entirety, pursuant to Article

5(2)(c) of Regulation 1091/80 in respect of the whole of the material to which it has extrapolated the results of the

check”.

Submissions of the Parties.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Conclusions.

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.

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.

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:

“38 The court finds that it is sufficiently clear from the wording of Article 2(1) of Regulation No. 1964/82 that each piece

of meat had to be individually wrapped. The regulation provides for no exception in that regard, whatever the size,

weight or nature of the piece. In particular, it draws no distinction between scraps and trimmings.

“39 The prohibition on wrapping two different pieces of meat together is confirmed by the wording of the first paragraph

of Article 8 of Regulation No. 1964/82, according to which substitution of the products in question must be made

impossible by identification of each piece of meat.

“40 The practice of wrapping several pieces together, should its existence be proved, does not affect the interpretation

of that regulation, whose wording is clear. If an operator elects to receive subsidies granted pursuant to community

legislation, it is for him to comply with the conditions of grant laid down by that legislation.

“41 The argument that the objective of avoiding the substitution of pieces would still be achieved because the wrapping

and labelling operations are supervised by officers of the competent authorities cannot be accepted. The officers cannot

check each of those operations individually. Nor do checks on operations remove the need to comply with the letter of

Regulation No. 1964/82.”

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.

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.

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.

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.

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.

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.

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.

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:

“303 Q. So, it would seem, Ms. Cannon, that from 1988, through various representations that had been made during the

commencement of these proceedings up to when Mr. Quinn was testifying, that it was in the course of his testimony

that the department finally made a decision on the Iraqi force majeure claim and finally decided to write down the

guarantees to some £1.1 million?

“A. Yes, but I think the use of the term ‘1988’ is a little bit pejorative maybe because in 1988 the advance payments

would have been made, but there would have been no question in 1988 of the company having established their

entitlement to the amount in question because that did not happen of course until the beef was exported and the beef

was imported into a third country. So, perhaps ‘1988’ is a bit pejorative.

“Q. Yes, but, for example, late 1991 is a date mentioned by Ms. Finlay to being the sort of time that is suitable - would

you agree?

“A. Not entirely. I have difficulty in setting any dates.... by which any deadlines by which you were able to establish

entitlement to export refunds and release securities because there are so many problems that can arise. If I can give

you an example of the Iraqi force majeure claim, on which a decision was made in December 1993, I have to say that

around about May 1991, when I was in the export refunds division, I was very close to a decision on that Iraqi force

majeure, which does not accord with the decision taken in December 1993. [December 1993 was the date on which the

relevant securities were ultimately released.]

“305 Q. But a decision could have been taken in May 1991?

“A. Yes, and had it been taken in May 1991 we would have sent out a bill of £1.1 million to the company.”

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.

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