Neutral Citation No.: [2003] EWHC 459 (Admin)
Royal Courts of Justice
Strand, London, WC2A 2LL
Before:
THE HONOURABLE MR JUSTICE STANLEY BURNTON
The Queen on the application of
Leonard Kelsall and others | Claimants |
- and - | |
Secretary of State for Environment, Food & Rural Affairs | Defendant |
Thomas de la Mare (instructed by Pannone & Partners) for the Claimants
Philip Coppel (instructed by Legal Department, DEFRA) for the Defendant
Hearing date: 26 February 2003
JUDGMENT: APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)
Mr Justice Stanley Burnton:
Introduction
In these proceedings the Claimants, who are ten former mink fur farmers, seek an order quashing the Fur Farming (Compensation Scheme) (England) Order 2002 made on 5th February 2002 and coming into force on 1st March 2002 (“the Order”). The Order brought into existence a scheme for compensating them for the loss of their fur farming businesses resulting from the Fur Farming Prohibition Act 2000 (“the Act”). In fact, the Claimants are all of the mink fur farmers who formerly carried on business in England. They constitute the membership of the Fur Breeders Association (“FBA”); Mr Kelsall, the First Claimant, is its chairman.
The Legislation
Section 1 of the Act prohibits the breeding or slaughter of animals for the value of their fur, and thus made the carrying on by the Claimants of the business of mink fur farming, which had previously been lawful, illegal. The prohibition came into force on 1 January 2003.
The Act contains provision for the assessment and payment of compensation to the fur farmers who lost their businesses as a result of the prohibition it introduced. Section 5 of the Act is, so far as material, as follows:
“5. (1) The appropriate authority may (and, in the case of the Minister of Agriculture, Fisheries and Food, shall) by order make a scheme for the making of payments by that authority to persons in respect of income and non-income losses incurred by them as a result of ceasing, by reason of the enactment or coming into force of section 1, to carry on their businesses so far as they consist of activities prohibited by that section.
(2) A scheme shall, in particular, specify –
(a) the description or descriptions of income losses and the description or descriptions of non-income losses in respect of which payments are to be made, and
(b) the description or descriptions of businesses in respect of which payments are to be made, but need not provide for the making of payments in respect of all income losses or all non-income losses or (as the case may be) in respect of all businesses.
(3) A scheme shall also, in particular –
(a) specify the basis or bases of valuation for determining losses,
(b) specify the amounts of the payments to be made or the basis or bases on which such amounts are to be calculated,
(c) provide for the procedure to be followed (including the time within which claims must be made and the provision of information) in respect of claims under the scheme and for the determination of such claims.
(4) Before making a scheme under this section, the appropriate authority shall consult such persons as appear to it to be likely to be entitled to payments under such a scheme and such organisations as appear to it to represent such persons.
…
(7) An order under this section shall be made by statutory instrument which, except in the case of an instrument made by the National Assembly for Wales, shall be subject to annulment in pursuance of a resolution of either House of Parliament.”
The meanings of “income losses” and “non-income losses” are not illuminated by subsection (8):
“(8) In this section –
‘income losses’ means losses of income, and
‘non-income losses’ means losses other than income losses.”
The Ministry of Agriculture, Fisheries and Food (“MAFF”) has been replaced by the Department for Environment, Food and Rural Affairs (“DEFRA”). A compensation scheme as envisaged by the Act was brought into existence by the Fur Farming (Compensation Scheme) (England) Order 2001, which was made on 3 December 2001 and came into force on 1 January 2002. It was replaced by the Order the lawfulness of which is in question in these proceedings. There is no material difference between the provisions relating to the assessment and payment of compensation contained in the 2001 Order and those in the present Order.
The Order contains provision for the payment (including interim payments) of compensation in respect of breeding stock and in respect of the profits of the fur farmers’ businesses. Schedule 1 of the Order includes the following provisions:
“SCHEDULE 1
INCOME LOSSES AND NON-INCOME LOSSES
Income losses
1
The income losses for which compensation shall be payable in accordance with the remaining provisions of this Order shall be net trading profits lost as a result of ceasing, by reason of the enactment or coming into force of section 1 of the Act, to carry on a qualifying business.
Non-income losses
2 Subject to paragraph 3 below, the non-income losses for which compensation shall be payable in accordance with the remaining provisions of this Order shall be the following—
(a) the residual breeding value of any breeding females;
(b) any statutory redundancy payments paid to employees formerly engaged solely or primarily in a qualifying business;
(c) any loss sustained on the sale or disposal of equipment used solely or primarily in a qualifying business where the proceeds of the sale or disposal are less than the discounted replacement cost of the equipment;
(d) the cost of removing and disposing of asbestos from any specialised building; and
(e) any contractual liability to a third party sustained as a result of having ceased to carry on a qualifying business.”
The provisions for the calculation of the compensation for the residual breeding value of any breeding females (i.e., the subject of paragraph 2(a) of Schedule 1) are contained in Schedule 3 to the Order. It refers to the Brown Rural Partnership (“Browns”), a firm of chartered surveyors and agricultural valuers who had advised DEFRA on the compensation scheme and had visited each of the Claimants in February 2001 in order to count their breeding stock. Schedule 3, in so far as material, is as follows:
“The amount of the interim payment due to an entitled person in accordance with article 6 and payable in respect of the non-income losses of the kind referred to in paragraph 2(a) of Schedule 1 shall be the amount produced by the formula (B × £40) ÷ X, where-
B equals the number of breeding females kept by the entitled person on 28th February 2001 or, if the entitled person’s premises were visited on behalf of the Minister by the Brown Rural Partnership on any other date in February 2001, the date of that visit; and
X equals, as the case may be-
(a) 1, where the entitled person ceased to carry on his qualifying business not later than 30th September 2001;
(b) 2, where the entitled person ceased to carry on his qualifying business on or after 1st October 2001 but before the date on which this Order comes into force; or
(c) 6, where the entitled person ceases to carry on his qualifying business on or after the date on which this Order comes into force but not later than 31st December 2002.”
The Claimants are all “entitled persons”, and their fur farms “qualifying businesses” within the meaning of the Order.
The drastic effect of a farmer continuing in business on and after 1 October 2001 or on and after 1 March 2002 (the date the Order came into force) on the amount of compensation payable in respect of “the residual breeding value of any breeding females” is obvious. The Order contained no provision for compensation in respect of “the residual breeding value of any breeding males”, and made no distinction between different breeds of mink.
The facts: (a) the business of mink fur farming
In order to understand the Claimants’ complaints, it is necessary to set out certain basic uncontentious facts concerning the business of mink fur farming.
Mink were farmed only for their pelts. They had a short mating season of about one month from the end of February to the end of March. The young mink or “kits” were born in mid- to late May and separated from their mothers in mid-July. The kits were pelted out in November when their fur was in its best condition, although those males and females chosen for breeding were set aside. Some breeding males were pelted out at the end of the mating season, although their pelts were then of less value, as the fur had declined from its peak condition. There was a window between November and January in each year when the fur was in peak condition. By March, after the breeding season, the value of pelts was considerably less, or even nil.
Breeding females (“dams”) were usually kept for a 3-year breeding cycle. They were generally at their best when 2 or 3 years old. Brown mink produce between 5 and 6 kits per dam each season. Male breeding mink mate with, on average, 4 females; they were generally pelted out after their first mating.
There are a number of mink varieties. Most farms reared brown or “wild” mink. However, two farms were involved in breeds that produce premium prices. Mr Cobbledick bred blue iris mink and Mr Shynn raised sapphire mink. These varieties attract premium pelt prices of up to 40 per cent more than brown mink, though they produce only 4 to 5 kits per dam compared to 5 to 6 for brown mink. They are also more susceptible to Aleutian disease, a disease that may be fatal to mink.
The Claimants’ evidence, which is not disputed, is that the cost of acquiring a new female brown mink averages about £60. Other breeds, such as blue sapphire, average about £120 per female. The average price of a brown breeding male is about £80, and that of a blue sapphire male about £140. A female brown mink pelt was worth about £13, and a male brown mink pelt about £24. Second or third year “proven” breeding females are worth more than first year females, and a pregnant female worth more.
The facts: (b) events leading to the making of the Order
In January 2001, MAFF appointed Browns to carry out a survey of English mink farms and to report with a recommended compensation scheme. During February 2001, Browns visited the Claimants’ farms and obtained information concerning their businesses.
On 26 February 2001, Mr Watts of MAFF responded to a letter from Mr Kelsall, written on behalf of the FBA. The farmers were concerned to know whether to mate and breed their stock, or to slaughter them before they bred. Mr Watts set out the proposed timetable for the compensation scheme, which he indicated would result in a statutory instrument being laid before Parliament in autumn 2001. He stated:
“The Act permits a fur farmer to close down at any time after Royal Assent (23 November 2000) and before the ban comes into force, without losing eligibility for compensation. This is a decision for each individual farmer. You asked about the timing of the valuation of a business in relation to the slaughter of breeding stock and the possible closure of the business. Clearly, as you say, the number of breeding stock is a very significant factor in the valuation of any business. In Brown’s report to us, we are expecting to be provided with a full picture of the industry and there will no doubt be other factors that will also influence the valuation of a business. These are issues that we will need to consider when preparing the compensation scheme and on which we will be consulting the industry.
We will expect fur farmers to mitigate their losses and, for that reason, it has not yet been determined whether the compensation scheme will include the additional value of any future breeding stock retained at the end of the 2001 season. It may be that fur farmers who do breed for the 2001 season, pending consultation on the compensation scheme, will have to decide whether or not to pelt all their animals, rather than retain the breeding stock. This decision will not need to be taken until November 2001, by which time we expect to have consulted on the details of the consultation scheme.”
Browns reported to DEFRA in April 2001. They had been given a considerable amount of information by the Claimants concerning their businesses. Browns summarised the relevant facts concerning mink farming, and no issue is taken with the accuracy of their summary. In relation to the value of breeding mink, they stated:
“Opinions on the market value of UK breeding animals vary widely, establishing, we believe, that there is little in the way of a market.”
That statement has to be read against the background that the Act made fur farming illegal in the UK, and the fact that UK breeding animals could not he sold abroad because of the risk of transmitting Aleutian disease.
Browns’ recommended scheme provided for payment of £40 each for breeding females at February 2001, and nothing for breeding males. That figure, for breeding females only, was accepted by DEFRA and incorporated in the compensation scheme, in Schedule 3 of the Order. The basis on which they had arrived at that sum, or the reason for the exclusion of a value for males, or for the provision of the same sum for all breeds, was not set out in their report. Browns did not recommend a reducing sliding scale of compensation for the value of breeding stock: that was a DEFRA initiative. With regard to income losses, they recognised that:
“There is no precedent for having a set multiplier for all business affected by an acquisition (sic) scheme.”
They nonetheless recommended a payment of 4 times average net profits. The report did not explain how the multiplier had been arrived at.
Browns subsequently explained the basis of the figure of £40 per breeding female in a letter to the Ministry dated 14 May 2001. It stated:
“I confirm that the figure of £40 per breeding female has been reached as follows:
Value post mating: say £100 for say 2 months
Therefore - £100 x 2/12 = 0.17 | £17.00 |
Value prior to mating: say £80 for say 3 months Therefore - £80 x 3/12 = 0.25 |
£20.00 |
Value for rest of year: say £37.50 Therefore – 37.5 x 7/12 = 0.58 |
£21.75 |
TOTAL | £58.75 |
Less pelt value: say | £15.00 |
£43.75 | |
say | £40.00 |
…
It could be argued that if breeding females are kept for two or three years, then in the year of their pelting, their value post kitting in their final year ought to be represented only by pelt value. There may be other approaches, and if you would like to discuss these, please do not hesitate to telephone.”
DEFRA published its draft scheme on 9 August 2001. By that date all but three of the farmers had slaughtered all their stock. By letter of that date, the Department sought comments from the Claimants and others, including organisations called the Coalition to Abolish the Fur Trade, Respect for Animals, the International Fund for Animal Welfare and the RSPCA, whose names appeared on a distribution list enclosed with the letter. The Claimants’ comments were submitted in October 2001 by the National Farmers Union on their behalf. Paragraph 2 of that response stated:
“We recognise that, although section 5(4) of the 2000 Act places a statutory duty on the Secretary of State to consult with the farmers and their representative organisations before making the compensation scheme, other persons or organisations may express views on the proposals. However we would submit our strongly held view that it would be inappropriate for regard to be had to the views of anyone other than those referred to in the statute. … Now that the principle of a ban on fur farming has been decided by Parliament passing government legislation for this purpose, the detailed terms of the draft compensation scheme should rightly only be a matter for discussion between the Government and those whose businesses are being terminated by law.”
The NFU contended that the proposed compensation for breeding stock was inadequate. They stated that the exclusion of compensation for males was wrong, and that in any event the values suggested by DEFRA were too low. The NFU suggested as minimum values £60 for each female and £80 for the males. In addition, they complained that a formula that reduced the amount payable on the basis of continuation of business after a date prior to the finalisation of the scheme was discriminatory and inconsistent with the statement in the letter of 26 February 2001 that farmers would not have to make a decision before November 2001, i.e. after consultation had taken place on a compensation scheme. In paragraph 32 of the document, the NFU stated that compensation for the extinction of the Claimants’ businesses on the basis of a multiplier of 4 of average net profits was insufficient. Mr Cobbledick made similar comments in his response to the draft compensation proposals.
Two of the organisations consulted by the Department, the Coalition to Abolish the Fur Trade and Respect for Animals, contended that no compensation should be paid to the fur farmers.
Two of the Claimants (Messrs Duxbury and Coupe) pelted out all of their stock at the end of November 2001. They thus received full value for the pelts of their mink, but only one half of the compensation for the value of their breeding females payable to those who had slaughtered their stock in the spring of 2001. Mr T T Smith slaughtered some of his stock at the end of March 2001 and the remainder at the end of November 2001. The remainder of the Claimants slaughtered their stock in March and April 2001. The pelts of their stock were therefore of no or little realisable value.
As mentioned above, the 2001 Order was made on 3 December 2001. The sums payable to the Claimants by way of compensation under the terms of that and the 2002 Order are set out in the annex to this judgment.
The Claimants’ contentions
The Claimants contend:
In consulting persons other than those referred to in section 5(4) of the Act (fur farmers and their representatives), the Secretary of State acted unlawfully: on its true construction the class of consultees to which it refers is exclusive.
The Secretary of State took into account the views of the Coalition to Abolish the Fur Trade and Respect for Animals that no compensation should be paid to the fur farmers. Those views were not a consideration that he could lawfully take into account.
The provisions of the scheme relating to compensation for the value of breeding stock are not rational or fair and are discriminatory by reason of the failure to compensate for the value of breeding males, the failure to recognise the additional value of special breeds, and the reduction in compensation according to the date of cessation of business. For these reasons the scheme, and therefore the Order, were unlawful at common law and in addition led to an infringement of the Claimants’ rights under Article 1 of the First Protocol to the European Convention on Human Rights.
The reduction in compensation for the value of breeding stock according to the date of cessation of business in Schedule 3 to the Order is inconsistent with the legitimate expectation engendered by the Department’s letter of 26 February 2001 and is on that account unfair and unlawful.
The Secretary of State disputes that any of these contentions is well-founded.
The Claimants do not impugn the provisions of the scheme for the payment to them of a multiple of 4 times their average net annual profits.
Was it permissible to consult with persons other than fur farmers?
Section 5(4) of the Act is not expressly exclusive. The entitlement of the persons referred to in that subsection to be the exclusive consultees of the Secretary of State is not obviously implicit in that provision, nor is it a necessary incident of the imposition of the obligation to consult a specified group of persons. The Claimants’ case involves reading the word “only” into section 5(4) when it is not there. As Mr Coppel submitted, to do so drastically affects the obvious purpose of the subsection, which was to ensure that those most affected by the compensation scheme should be consulted before it was made. I see no good reason why the Secretary of State should not consult anyone whom he considers might have something relevant and valuable to contribute to his decision. This head of the claim is unfounded.
The Secretary of State contended that in any event the Claimants were debarred from raising this ground of challenge to the Order by reason of their delay. The extract from the NFU paper cited in paragraph 18 above shows that the Claimants’ representatives were well aware who had been consulted. These proceedings were not commenced until 1 March 2002, more than 3 months after the NFU paper, let alone DEFRA’s letter of 9 August 2001. In view of my decision on the merits of this point, it is unnecessary to determine the issue of delay in relation to it. It presents formidable difficulties for the Claimants.
Was it permissible to take into account the views of persons who were opposed to the payment of compensation?
This head of claim was added by amendment, as a result of the Secretary of State’s statement in paragraph 3.5(2) of his original summary grounds for contesting the claim:
“In this case, the views expressed in the consultation responses as to the appropriateness and the appropriate levels of compensation varied widely, from the views expressed by the NFU and Mr Cobbledick (that the compensation package was insufficient) to those of the Coalition to Abolish Fur Trade and Respect for Animals (that no compensation at all should be offered). The Defendant was required to (and did) have regard to all these views, and to strike an appropriate balance between them.”
The Claimants submit that the views of those who considered that no compensation at all should be offered, being inconsistent with the provisions of the Act, which required compensation to be paid, could not lawfully be taken into account by the Secretary of State. “To strike an appropriate balance” between such views and those of the fur farmers necessarily involved reducing compensation below that which could be considered fair, and involved penalising the farmers whose businesses were, until the Act came into force, lawful.
The Secretary of State does not dispute that it would be unlawful in formulating a compensation scheme to take into account the views of those who believe that no compensation at all should be offered. His response to the Claimants’ amendment was to deny that he had given any weight to the views of those who contended that no compensation should be payable. Paragraph 2.3 of the amended summary grounds of defence is as follows:
“Therefore, although the Defendant had regard to all the views expressed in the consultation exercise, (he) placed no weight on those views calling for no compensation. In so doing, the Defendant struck an ‘appropriate’ balance between the views it received. The Order cannot be impugned on the basis that the Defendant had regard to views expressed in consultation to which it attached no weight.”
In addition, the Secretary of State’s evidence included the following paragraphs of the witness statement of Colin Heath of DEFRA:
“36. Having agreed to consult more widely, it was incumbent on DEFRA to at least consider all the consultation responses. However, the comments received from animal welfare organisation included a proposal by one of the organisations (Respect for Animals) not to pay any compensation to fur farmers at all.
37. DEFRA expressly recognised that there was no discretion over this because Section 5 of the Act clearly states that the Minister shall make a compensation scheme. Having been party to the discussions in relation to the levels of compensation to be provided, I am certain that no weight was attached to the proposal not to pay compensation, and that the views expressed by Respect for Animals on this issue had no bearing at all on the compensation scheme. Rather, the level of compensation offered was based upon the Brown Rural Partnership’s recommendations, as set out above.”
I have to say that I find it difficult to reconcile this statement with the original paragraph 3.5(2). To disregard a view is not to strike an appropriate balance between it and an opposing view. Mr Coppel submitted that I should prefer Mr Heath’s evidence to the original statement and contended that the Claimants had been unable to point to any provision of the compensation scheme that reflected the views expressed by Respect for Animals. Mr de la Mare riposted that the provisions for reducing the compensation payable in respect of breeding stock effectively penalised farmers who had continued in business beyond 30 September 2001; and he submitted that the Court should infer that those provisions resulted from the Secretary of State having taken into account the views of Respect for Animals.
The conflict between the original paragraph 3.5(2) of the summary grounds for contesting the claim and Mr Heath’s statement could only properly be resolved by disclosure of documents and cross-examination. I suspect that the original paragraph 3.5(2) of the summary grounds of defence was carelessly drafted. However, in view of my decision on the remaining grounds of challenge of the Order, I do not propose to determine this issue.
I turn to consider the substantive objections to the compensation scheme.
Is the compensation scheme unfair, irrational or discriminatory?
(1) General Considerations: (a) Reasons
The Claimants’ claim form sought to impugn the Order on the ground that the Secretary of State had failed to give reasons for his decision to adopt its provisions. The Secretary of State convincingly rejected this ground of challenge on the basis that the Order is a legislative act (although it affects only ten persons), and the Secretary of State is under no duty to give reasons for making it and presenting it to Parliament. Mr de la Mare sensibly did not pursue this head of challenge.
However, the Secretary of State has now explained the basis on which the provisions of the Order were formulated. While I accept that a compensation order that operates fairly and without unjustified discrimination would not be set aside because the reasons for some of its provisions were illogical, if those reasons do not bear scrutiny they add substance to the argument that the provisions of the Order are so flawed as to be irrational and unfair.
(b) Compensation for capital and income
Most profitable businesses are valued in the open market on the basis of a multiple of annual net profits. If the capital employed is worth more than the value of the profits, the business may have to be valued on a break up basis, i.e., by reference to the value of the capital employed in the business. However, to pay in addition to a fair multiple of profits the capital value of income-producing stock (such as the breeding stock of animals) will normally result in duplication of compensation: c.f. Cullinane v British “Rema” Manufacturing Co Ltd [1954] 1 QB 292.
The Order contains provision for both compensation for loss of profits and for the value of income-producing stock. The rationale for this has not been explained. The closest the evidence comes to it is Browns’ letter of 14 May 2001 to MAFF and their letter of 14 February 2003 to DEFRA. In their letter of 14 May 2001 Browns stated:
“It could be argued that the same principle should apply to paying for mink, on the one hand, and income on the other, as the mink are essentially the income generators. Indeed the mink are not being “acquired”. As you are aware, our recommended scheme does not provide for payment of the market value of the mink, but I did feel that some payment per female mink was necessary in order to provide a complete or rounded scheme.”
In their note on livestock valuation of 14 February 2003, written in response to the Claimants’ allegations, Browns stated:
“Quality of management and livestock is only discernible through pelt prices and, in the compensation scheme, that quality will find its way back to the farmer via the income multiplier. There is a persuasive argument to the effect that paying for the animal as well as the income loss represents double counting, particularly having regard to the phased timing involved in the prohibition process. Female mink usually have a three year life, and male minks are usually pelted out following their first mating. Our proposals for the compensation scheme included a payment in respect of breeding females more as a recognition payment in the context of fairness, rather than an established value derived from market evidence. Given that the females are the chief income producers, it appears to us that paying for males in addition fell outside what was appropriate and fair.”
Neither of these passages provides a sensible explanation of the provision for payment of compensation for breeding stock in addition to the payment for loss of profit. However, I do not know the basis on which the multiple of four times average net profits was chosen, and so I cannot assume that that multiple provides fair compensation of itself. I think that I must assume that the Secretary of State and Parliament considered that separate compensation for the value of breeding stock, stipulated in the Order, was necessary in order to provide fair compensation.
(c) Other preliminary considerations
On behalf of the Secretary of State, Mr Coppel made a number of prefatory submissions, which I by and large accept. He submitted that the Secretary of State was entitled to adopt a compensation scheme that was straightforward, would be simple and inexpensive to administer, and which would avoid difficulties or complexities of individual valuation. For that purpose, the Secretary of State was entitled to adopt a scheme that did not precisely value the business of each individual farmer, provided the scheme as a whole gave each farmer compensation that was fair. He further submitted that the Claimants’ allegations concerning the value of stock had to be viewed in context, and in particular in the light of the fact that compensation for breeding stock was only one element of the total compensation payable.
I accept those submissions.
However, Mr Coppel also submitted that the principal part of the compensation scheme was the payment for the loss of income, a sum representing a multiple of net annual profits with certain reductions. He described the payment of compensation for the value of female breeding stock as “the icing on the cake”, which also had to be considered in the light of the fact that the value attributed to each female breeding mink was generous.
I do not accept these submissions. For some farmers, the payment in respect of their breeding stock was not the icing on their cake, but a major part (in one case the major part) of the total compensation payable to them. For Mr Cartmell, it was nearly 4 times the sum payable for his loss of income; for Mr Kelsall it was 65 per cent of his compensation for loss of income. Even for Mr Coupe, for whom it was the lowest percentage of the sum for loss of income, it represented over 25 per cent of the loss of income payment. In any event, even adopting the metaphor of the icing on the cake, a scheme that gives some farmers iced cake and others plain cake may fail to meet the requirement of fairness, may be irrational and may be discriminatory.
Secondly, the evidence does not establish that the figure of £40 per breeding female, or the compensation for loss in income, is sufficiently generous to justify disregarding other substantial items (and in particular the value of breeding males). The rounding down of the figure of £43.75 to £40 is not suggestive of over-generous valuation.
Lastly under this head, in my judgment I should consider the alleged defects in the compensation scheme both individually and cumulatively. A number of minor defects, when considered together, may cause a scheme to operate unfairly or so as to discriminate between different persons without objective justification, even though the effect of each one considered individually may be sufficiently minor as to be disregarded.
(2) The specific alleged defects in the Order: (a) The absence of compensation for the residual breeding value of male mink
Mr Coppel initially sought to justify the omission of a value for breeding males on the basis that they formed a small proportion of the relevant stock: one male in 28 kits is generally kept for breeding, calculated as each female producing 5 kits per year over 3 years, multiplied by 3 or 4 on the basis that each male mates with 3 or 4 females. This calculation is not in evidence, and was not put forward in any document by DEFRA. It ignores the facts that at the relevant date, i.e. the date of Browns’ inspection and stock-count in February 2001, males formed approximately 20 per cent of the farmers’ stock, and that breeding males are more valuable than breeding females. Browns’ calculation of the £40 value per female mink makes no reference to the value of males. The only reason given by Browns for the omission is in the last sentence of paragraph 6 of their note on livestock valuation of 14 February 2003. Since the farmers’ income arose from breeding mink, and, to state the obvious, breeding requires both male and female animals, Browns’ justification is irrational. It also ignores the fact that male breeding mink are more valuable than female.
In paragraph 31 of his witness statement, Mr Heath suggested that the main value of male mink was considered to lie in their pelt value, which the farmers would be able to recover. That was true in relation to non-breeding stock, but not in relation to breeding stock, which are worth more than the value of their pelts. In any event, the value of the pelt can be fully recovered only if the mink is pelted out during the period around November of each year when pelts are at their peak. Most farmers slaughtered their stock outside this period, and the provisions of the Order reduced the compensation payable to those who waited until November 2001 to pelt out.
Mr Heath also suggested that any residual value of breeding males would be covered by those parts of the compensation scheme that dealt with loss of income. I reject this suggestion, for reasons that appear below under the next heading.
It follows that there is no sensible justification for the omission of compensation for the residual breeding value of male mink.
(b) The absence of increased compensation for more valuable breeds
It is not disputed that breeding stock of premium breeds, such as sapphire and blue iris mink, are substantially more valuable than brown mink. On the face of it, a compensation scheme that attributes the same value to premium breeds as to brown mink discriminates against farmers who reared premium breeds and is unfair.
The Secretary of State has put forward three matters to justify the lack of differential: (a) the fact that premium mink produce fewer kits; (b) the fact that they are more vulnerable to Aleutian disease; and (c) the contention that their premium value is covered by those parts of the compensation scheme dealing with loss of income.
It is obvious that the first two of these matters are reflected in the market value of breeding mink. To take them into account in order to arrive at a residual value for the purposes of compensation is to double count. It is unfair and irrational.
The contention that the premium value is covered by those parts of the compensation scheme dealing with loss of income is also flawed. Of course, other things being equal, one would expect higher value breeding stock to produce higher profits. The value of all breeding stock, apart from their pelts, lies in their capacity to produce profits for the farmer. It is because premium breeding stock produce higher profits for the farmer that they have higher value. Once one accepts that the farmers are to receive both compensation for loss of income and compensation for the value of their breeding stock (as the Order requires), it is illogical to reduce the latter because the former is higher. The same illogicality would justify reducing the breeding stock compensation for a farmer who has a large number of breeding stock on the ground that his greater number of breeding stock produced greater profits than a smaller number. Such a reduction would be inconsistent with the provisions of the Order. It seems to me to follow that the logic of the Order requires compensation for the value of breeding stock and for loss of income to be treated as separate heads of compensation. In any event, I have no sensible explanation of the relationship between the provisions of the Order concerning loss of income and those relating to the residual value of breeding stock.
The Claimants’ evidence graphically illustrates the results of the omission of compensation for male breeding stock and of an increased value for premium breeds. I quote from the first witness statement of Mr Megaw, the Claimants’ solicitor:
“12. The stock at (Mr Shynn’s) Bunts Hill Farm (in February 2001) comprised 214 brown female mink and 1,800 sapphire females with, in addition, 50 brown males and 435 sapphire males. On the basis of the scheme, compensation will be paid at the rate of £40 per female irrespective of breed. No compensation will be paid for males. The total compensation which Mr Shynn can therefore expect as a first stage interim payment for his loss of stock is £80,560. No further compensation in respect of loss of stock can be paid under the scheme.
13. Mr Shynn’s stock has been valued by Kenneth Barclay FRICS on the basis of the average values referred to … above of £60 per female for brown mink and £120 for sapphires, with £80 and £140 being the corresponding figures for males. The cost of acquiring new stock to replace Mr Shynn’s existing stock would have been £294,000. Making a discount of 30% to reflect the fact that the stock were not all new (although bearing in mind the practice of culling out poor performing stock) Mr Barclay’s view is that the value of the stock which was culled as a result of the Act was £206,000. The compensation scheme will result in Mr Shynn receiving compensation at the rate of 39.1% of the value of his stock.
14. The position of Mr Coupe’s farm is as follows. His stock of 5,192 female mink resulted in an entitlement to compensation (assuming they were culled before 30th September 2001) of £207,680. Mr Barclay, adopting the same approach as before, has estimated that the value of the stock, reflecting its age, was £284,000. Mr Coupe’s entitlement to compensation is at a rate of 73% of the capital value of his stock.”
It is not clear that the relevant values of stock to take are purchase prices rather than the prices that the farmers might obtain if they could sell, but I can disregard this complication, on the basis that it would affect all of Mr Megaw’s figures similarly. The discrepancy between 39.1 per cent and 73 per cent is so great as to amount to unfairness. The scheme discriminates between brown mink farmers and premium breed farmers without any reasonable justification.
I add that Mr Cobbledick has a further complaint that I consider to be justified. He lost a breeding season because his premium stock were wiped out by Aleutian disease. He therefore made no profits for the year in which he lost his stock. His stock’s vulnerability to Aleutian disease has been taken into account in his loss of income claim, because the 5 years which were relevant to the calculation of his average net profits included that year. By reducing his claim for the value of his breeding stock on account of that vulnerability, it has been taken into account twice. The duplication is illogical and is not justified.
Lastly, given that there were only two farmers with premium breeds, it cannot be said that a scheme that recognised their additional value would have been difficult to formulate or to operate.
(c) The reduction in compensation by reference to the date of cessation of business
The provisions of Schedule 3 to the Order reducing the compensation payable for breeding stock according to the date of cessation of business were not recommended by Browns. It was introduced by DEFRA for the reasons set out in paragraphs 19 and 20 of Mr Heath witness statement.
“19. DEFRA carefully considered the options contained in Report No. 2 and concluded that there was no reason to disagree with the recommended scheme, except in one limited respect. DEFRA considered that, for reasons of fairness, the compensation payment for breeding females should be on a reduced sliding scale, so that those fur farmers who had already closed received more than those who, by remaining in business until the ban came into force, would be able to continue to earn an income from the animals.
20. Initially, it was considered that the “cut-off” dates for the changes in the sliding scale should be tied to the breeding cycle. However, this would have resulted in a cut-off date which predated the consultation. DEFRA considered it more appropriate that the farmers should have prior warning of the cut-off date. The cut-off date was therefore set back to 30th September 2001. The rationale behind this was twofold: firstly, it would give the farmers nearly two months notice of the proposed cut-off, which was considered to be sufficient time in which to decide whether to pelt out before the cut-off, or to continue beyond it. Secondly, it was recognised that the pelt value of mink would be highest after the end of September 2001. Farmers who elected to wait until October or November to pelt out would therefore be compensated by the higher prices the mink would fetch. Conversely, there would be no disincentive to farmers who decided to pelt out before then.”
This evidence presents a number of difficulties. First, it treats the draft scheme, published on 9 August 2001, as constituting a warning of the cut-off date. That ignores the fact that the scheme published on that date was a draft for consultation, and the farmers were entitled to assume that the final scheme might differ from it as a result of their and others’ representations. In my judgment it is wrong and unfair for the government to treat the provisions of a draft scheme that is open to consultation as a warning requiring action by the citizen. To do so is to anticipate the results of consultation and to treat the consultation as ineffective. It was similarly unfair to require the citizen to make important decisions (to slaughter or not) before a final scheme had been published, i.e. before 3 December 2001. The unfairness is exacerbated by the assurance given by Mr Watts in his letter of 26 February 2001 that the decision “will not need to be taken until November 2001”.
Furthermore, this evidence has to be considered in the light of Brown’s explanation of the figure of £40 per breeding female, set out at paragraph 17 above. That figure was arrived at on the basis that the farmers would be able to sell the pelts for an estimated £15. But those farmers who pelted out not later than 30 September 2001 would be unable to sell their pelts, because it would not be until November that they could be sold at that kind of price. On the other hand, those who waited until November to pelt out would receive not £40 but only £20. No one, therefore, could receive what Browns advised they should receive.
Legitimate expectation
I have taken the letter of 26 February 2001 into account in considering the fairness of the scheme. In these circumstances it is unnecessary for me to consider this head of claim separately.
Conclusion
Given the defects in the compensation scheme to which I have referred, it is not surprising that it produces anomalies of the kind referred to in paragraphs 12 to 14 of Mr Megaw’s first witness statement and those shown by the annex to this judgment. The figures in the annex show very considerable variations between the proportions of the farmers’ total compensation represented by the compensation for the residual value of their breeding stock. Those variations have not been justified.
It was implicit in the duty imposed on, and the authority given to, the Secretary of State by section 5 of the Act that the compensation scheme should be fair and rational. The Secretary of State accepts that the Claimants’ businesses were possessions within the meaning of Article 1 of the First Protocol to the European Convention on Human Rights, and that they were deprived of those possessions by the Act. The Convention requires that compensation should be reasonably related to the value of the property taken: Lithgow v UK (1986) EHRR 329. The provisions for compensation must not be so inflexible that they fail to take account of substantially different situations: see the judgment of the European Court of Human Rights in Papachelas v Greece (1999) (application no. 31423/96).
The provisions of the Order as to compensation for the residual value of breeding stock fail on every count. By reason of the matters set out above; they operate unfairly as between different farmers and generally; they fail to take account of the different values of premium breeds and thus discriminate between brown mink farmers and farmers of premium breeds without justification; and they produce arbitrary effects. Reasons have been put forward to justify provisions of the order that do not bear scrutiny and are irrational. The consequences of the defects in the Order are too great to be contained within a permissible margin for workability or approximation.
The provisions of the Order relating to compensation for the residual value of breeding stock, viewed in isolation, do not comply with the requirements of the common law or those of the Convention. The parties are not agreed whether this finding should result in the quashing of the Order as a whole or only of those parts that relate to that element of the compensation scheme, i.e. paragraph 2(a) of Schedule 1 and the entirety of Schedule 3 to the Order. I shall therefore hear the parties as to the terms of the order to be made by the court.
I have not decided that the total sum payable to the Claimants together was inadequate. Whether the consequence of this judgment will be an increase in the total sum payable to the Claimants by way of compensation remains to be seen.