Stody Estate Ltd v Secretary of State for Environment, Food And Rural Affairs

Factual and Procedural Background

The European Union operates a voluntary single farm payment scheme ("SPS") providing direct support to farmers who meet eligibility criteria, administered in the UK by the Rural Payments Agency ("RPA"). Farmers must comply with statutory management requirements ("SMRs") to conserve wildlife and maintain land condition, with penalties for breaches ("cross compliance breaches").

The Plaintiff, a company owning and managing a large estate in North Norfolk ("the Estate"), employed an individual ("Employee") responsible for estate security, animal husbandry, and vermin control. The Employee was convicted in 2014 of intentionally poisoning wild birds on the Estate, constituting a breach of SMRs.

In 2015, the RPA held the Plaintiff vicariously liable for the Employee's actions and applied a 75% reduction to the Plaintiff's 2014 SPS payment. The Plaintiff appealed to the Independent Agricultural Appeals Panel ("IAAP"), which found the Employee's actions intentional but not attributable to the Plaintiff, recommending a 20% reduction instead.

The Secretary of State for the Environment, Food and Rural Affairs ("SoS") issued a decision in January 2017, communicated via the RPA, concluding the Employee's intentional acts were attributable to the Plaintiff as the farmer, applying a 55% payment reduction considering mitigating factors. The Plaintiff challenged this decision.

Permission to proceed was granted by a High Court Judge in August 2017, with the National Farmers' Union ("NFU") joined as an intervener.

Legal Issues Presented

1. Whether the Minister was entitled under relevant EU law to impose a penalty on the Plaintiff for a cross-compliance breach resulting from intentional acts of its employee.
2. How the concept of "direct attribution" under Article 23 of Council Regulation (EC) No 73/2009 applies to breaches committed by employees versus third parties such as independent contractors.
3. The proper interpretation of liability and fault assessment under the SPS penalty regime in relation to intentional killing of wild birds by an employee.

Arguments of the Parties

Plaintiff's Arguments

• Liability for non-compliance caused by third parties requires a direct connection based on the fault of the farmer (Plaintiff) itself.
• The penalty regime requires assessment of the Plaintiff's own culpability; the Minister erred by relying solely on the Employee's convictions without investigating the Plaintiff's fault.
• The imposition of penalty based on vicarious liability contradicts the CJEU decision in Van der Ham, which rejects vicarious liability for European legislation in this context.

Intervener's (NFU) Arguments

• A breach of the SMR forbidding intentional killing of wild birds can only be committed by the farmer personally, not by employees.
• The Employee was not in a position of responsibility to be considered the "directing mind and will" of the Plaintiff for this purpose.
• Only senior management persons such as the Managing Director or Estate Manager could be equated with the farmer; as neither committed or encouraged the acts, no breach by the Plaintiff occurred.

Secretary of State's Arguments

• Restricting liability to acts personally committed by the farmer would create unjust and anomalous situations allowing avoidance of penalties through delegation or company structuring.
• The concept of direct attribution involves assessing fault of the farmer by reference to the role and authority of the person committing the breach within the farming operation.
• The Employee had significant autonomy and responsibility, thus his intentional acts are properly attributable to the Plaintiff under a "functional" approach.
• Analogies with competition law demonstrate that acts of employees can be attributed to companies for penalties, supporting attribution here.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by affirming the clarity of the Van der Ham decision, which requires penalties for cross-compliance breaches to focus on the culpability of the farmer themselves, not automatically attributing third parties' acts. The Court rejected a narrow interpretation that would confine liability only to acts personally committed by the farmer, noting this would undermine the regulatory scheme's flexibility and effectiveness.

The Court considered the argument that the term "third party" in Van der Ham should be limited to independent contractors, concluding instead that the term is generic and includes employees. It emphasized the importance of uniform interpretation across EU Member States despite differences in domestic law regarding employees and contractors.

The Court declined the SoS's proposed "functional" approach that automatically attributes the acts of an employee with responsibility to the farmer, identifying this as effectively vicarious liability, which Van der Ham rejects. The Court found the analogy to competition law unpersuasive due to the differing purposes and legal frameworks.

Regarding the specific SMR forbidding intentional killing of wild birds, the Court noted it is phrased in terms of intentional acts, with no apparent scope for negligence. Nevertheless, the Court held that the presence of intentional killing on the farmer's land engages the penalty regime, but whether a penalty applies depends on the farmer's own culpability.

The Court concluded that the SoS erred by treating the Employee's convictions alone as sufficient to satisfy the requirement of "direct attribution" under Article 23. The Court held that further inquiry into the Plaintiff's own fault was necessary. Without a finding of fault on the Plaintiff's part, there was no proper basis for imposing a penalty.

Holding and Implications

The Court's final decision is to QUASH the Minister's penalty decision reducing the Plaintiff's 2014 single farm payment.

This decision directly affects the parties by overturning the imposed penalty on the Plaintiff due to insufficient demonstration of the Plaintiff's own fault under the regulatory framework. The Court did not establish new precedent beyond interpreting the existing EU regulations consistent with the Van der Ham ruling. The ruling underscores the necessity for a fault-based assessment of the farmer's own conduct before penalties for cross-compliance breaches can be imposed.