Milk quotas — High Court decision on transfer of quotas following division of a holding — Arbitration under Dairy Produce Quotas Regulations 1984 — Appeal under section 1(3) of Arbitration Act 1979 from arbitrator’s award — Correct interpretation of the expression ‘areas used for milk production’, which has been carried over from EEC provisions into the domestic regulations — A holding consisting of two farms, each of which had a dairy unit, was divided by the transfer of one of the farms by the present applicants to the respondents — The respondents objected to the share of the milk quota which was allocated to them by the minister under the scheme contained in the above regulations and, in default of agreement, the matter was referred to arbitration, as the regulations provided — The findings of the arbitrator were challenged for different reasons by both parties, but one of the matters in dispute was resolved by a concession made by the respondents whereby it was agreed that the arbitrator had been in error in taking into account, as a factor in the division of quota, the stocking rate of cows — The main issue remaining was between a narrow interpretation put forward by the respondents of the expression ‘areas used for milk production’ and a broader interpretation submitted by the applicants and accepted by the arbitrator — The respondents’ interpretation would have confined the scope of the expression to an area used to support animals which were actually lactating — The applicants’ interpretation, held by the court to be correct, was that the expression included areas used to support the dairy herd and accordingly dry cows during the interval between lactations, heifers necessary to secure continuance of milk production, and dairy bulls bred to enter the production herd and not for sale, were properly to be taken into account — The arbitrator had come to the correct conclusion on this issue, except for the minor omission to include the buildings and yards of a dairy unit
In the
proceedings the applicants, Puncknowle Farms Ltd, appealed and the respondents,
Mr and Mrs Kane, cross-appealed from the award of an arbitrator appointed under
the Dairy Produce Quotas Regulations 1984 to determine objections to the Minister
of Agriculture’s division of the milk quota arising from the transfer of
Berwick Farm from the applicants to the respondents. Prior to the transfer
Puncknowle Farm, at Dorchester, and Berwick Farm, at Bridport, constituted a
single holding.
Christopher
Priday (instructed by Robbins Olivey & Blake Lapthorn, agents for Burges
Salmon, of Bristol) appeared on behalf of the applicants; Paul Morgan
(instructed by Lemon & Co) represented the respondents.
Giving
judgment, MR P J CRAWFORD QC said: The court has before it two motions, by way
of appeal and cross-appeal, from an award by an arbitrator appointed pursuant
to para 6 of the Second Schedule to the Dairy Produce Quotas Regulations 1984.
The appeals are brought under section 1 of the Arbitration Act 1979, leave to
appeal pursuant to section 1(3) having been given by Leggatt J on April 26
1985.
The question
at issue is, essentially, short, although I am told that a good deal may turn
on it, in relation both to this case and others. The question relates to the
proper construction of the phrase ‘areas used for milk production’ in the
context of the United Kingdom legislation providing for the allocation and
transfer of wholesale milk quotas in the application of the common agricultural
policy of the European Community.
Before turning
to the particular facts and submissions, it is necessary to say a word or two
about the legislative framework which, in the circumstances, is complex. The
legislation derives from the decision of the European Community to limit production
of cows’ milk by the imposition of quotas, and the concomitant imposition of a
punitive levy for production in excess of the quotas. The relevant Council
Regulations are 856 and 857 of 1984. Council Regulation 857 of 1984, by article
6(1), provided that each producer milk and milk products is to be assigned a
reference quantity, which is the origin, at several removes, of the quotas
which are now applied. By article 7(1) of the same regulation, where an
undertaking is sold, leased or transferred by inheritance, all or part of the
corresponding reference quantity shall be transferred to the purchaser, tenant
or heir, according to procedures to be determined.
By Commission
Regulation no 1371 of 1984, it was provided by article 5 that for the purposes
of applying article 7(1) of the Council Regulation to which I have just
referred (and I omit irrelevant parts):
1 Where an entire holding is sold, leased or
transferred by inheritance, the corresponding reference quantity shall be
transferred in full to the producer who takes over the holding.
2 Where one or several parts of a holding is
sold, leased or transferred by inheritance, the corresponding reference
quantity shall be distributed among the producers operating the holding in
proportion to the areas used for milk production or according to other
objective criteria laid down by Member States.
It is in this
paragraph of that article that there first appears the phrase ‘areas used for
milk production’, which is carried over into the domestic legislation to which
I am about to refer.
The provisions
as to quotas in the Community legislation appear to have come into operation on
or about April 2 1984, and they were carried into effect, so far as the United
Kingdom was concerned, by the Dairy Produce Quotas Regulations 1984 (SI 1984,
no 1047), which came into operation on July 24 1984. By regulation 5(1) of
those regulations, wholesale quotas for producers are to be established in
accordance with those regulations and the Community
relevant words):
Schedule 2
shall apply in respect of the allocation, transfer and surrender of wholesale
quota in any region in respect of which either Formula A or Formula B is
implemented . . .
I need not discuss
the meanings given in the legislation to the expressions ‘Formula A’ or
‘Formula B’. By that regulation 5(6), the domestic legislation takes up
articles 6 and 7 of the Council Regulation, and article 5 of the Commission
Regulations, to which I have referred.
I turn now to
Schedule 2 to the Dairy Produce Quotas Regulations (to which I shall refer
hereafter simply as ‘the regulations’). Paras 1, 2 and 4 provide for the
identification of holdings — that is to say, production units — by reference to
a date, April 2 1984. The Schedule then proceeds to provide for the
determination of primary wholesale quotas in respect of such holdings by
reference to a base year; namely, the calendar year 1983. In the majority of
cases, the quota is the quantity of dairy produce delivered from a holding in
1983, less 9%, as provided by para 4(c). Accordingly, provision is made in that
way for the determination of holdings and quotas as at April 2 1983.
The
regulations must then make provision for circumstances in which a production
unit which constituted a single holding on April 2 1984 had been divided into
two or more units in the period between that date and the operative date of the
regulations; namely, July 24 1984. That is to say, the domestic legislation
must provide for the procedures to be determined as foreshadowed in the
Community legislation.
The scheme
adopted by Schedule 2 to the regulations for this purpose is to begin by
various presumptions, as set out in para 3 of the Schedule. The presumptions
make provision first for what is described as ‘holdings including an area
occupied under a minor interest’ (to which I need make no further reference);
second, by para 3(1)(b), to a change where the holding has been, and remains, a
single dairy unit; this again is irrelevant for the purposes of this appeal,
and which I do not discuss further; and finally, by para 3(1)(c), to other
circumstances, namely those which are relevant to this appeal. By that
paragraph it is provided that:
. . . dairy
produce delivered by wholesale delivery from a holding during any period shall
be presumed to have been delivered proportionally —
(i) from each part of the holding, and
(ii) during each part of the period
By para 4 of
the Schedule, it is provided that the minister shall calculate a quota in
respect of each applicant by reference to that presumption. Then, by para 5(4),
the minister is to serve on each applicant who has applied for a quota a
statement of the minister’s estimate of his primary wholesale quota; and then,
under para 6(1), provision is made for the service of written objection to the
minister’s calculation of the quota. By para 6(2):
If the
Minister is of the opinion that any written objection referred to in
the preceding
sub paragraph
could only be
met by transferring primary wholesale quota of another person to the objector .
. .
it is
provided, in effect, that the statements and notes setting out each party’s
quota are to be served on the other,
together with
a statement that the aggregate of the estimates of their primary wholesale
quotas must be divided between them by agreement . . . or, in default of such
agreement, by arbitration,
which is to be
pursuant to the Arbitration Act 1950.
Then, by para
6(3)(e), it is provided that:
an
arbitrator’s award shall be determined in accordance with the preceding
paragraphs of this Schedule except that, if he
that is to
say, the arbitrator
is of the
opinion that the presumptions in paragraph 3(1)(b) and (c)
and I have
already read para 3(1)(c), which is the relevant one in the circumstances of
this appeal,
do not
accurately reflect findings made by him (if he is able to make such findings)
as to areas used for milk production in the five years preceding the
arbitration, he shall use such findings in place of those presumptions.
And it is upon
that subpara of Schedule 2 that this appeal turns.
The arbitrator
is called upon, first, to consider whether he is of the opinion that the
presumptions in para 3(1)(b) and (c) do, or do not, accurately reflect the
findings made by him (if he is able to make such findings) and, if he does not
so consider, he shall use such findings in place of those presumptions. But the
basis of his findings must be the areas used for milk production.
Now, the
facts, so far as they are relevant to this appeal, can be very shortly stated
and, as I understand it, they were not in issue before the arbitrator. They are
that on the relevant date (that is to say April 2 1984) the holding comprised
two farms, namely, Puncknowle Farm, Dorchester, and Berwick Farm, Bridport;
and, on that date, there was a dairy unit on each farm. (I should mention that
I have been informed that ‘Puncknowle’ is to be pronounced as if it were spelt
‘Punnel’.) On April 10 1984 — that is to
say during what is termed the pre-operative period in the regulations — Mr and
Mrs Kane (to whom I shall refer as ‘the transferees’), began occupation of part
of the holding, namely, that part known as ‘Berwick Farm, Bridport’. Puncknowle
Farm remained in the occupation of Puncknowle Farms Ltd, to whom I shall refer
as ‘the transferors’. It was agreed that during 1983 the total sales from what
was then the holding, amounted to 1,687,623 litres of milk, of which 568,546
litres had been delivered from the dairy unit on Puncknowle Farm, and 1,119,077
litres had been delivered from the dairy unit on Berwick Farm. Accordingly, the
wholesale quota for the whole holding was that total figure of 1,687,623
litres, minus 9%, giving 1,535,737 litres.
On the
application of the automatic presumption in para 3(1)(c) of Schedule 2 to the
Regulations, the minister divided the wholesale quota as to 1,020,891 litres to
Puncknowle Farm and as to 514,846 litres to Berwick Farm. The transferees duly
objected to the minister’s division of the quota, within the time-limit
specified by para 5(4) of the Schedule, and subsequently, in default of
agreement, the arbitration took place.
The arbitrator
published his reasoned award on March 18 1985, and his findings, so far as
relevant, were that the
‘areas used
for milk production’ are the forage areas used by the dairy herd and to support
the dairy herd by the growing of grass and any fodder crop for the milking
dairy herd, dry cows and all dairy following female youngstock (and home bred
dairy or dual purpose bulls for use on the premises, if applicable), if bred to
enter the production herd and not for sale. In this case, maize, silage, hay,
and grass, were the fodder crops, but consideration would have been given to
corn crops, or part of corn crops, grown for consumption by the dairy herd or
youngstock, including the use of straw, had agreed evidence been produced.
That finding is
challenged by the transferees.
The other
finding to which I must make reference is that which is set out in para 4 of
the award, where the arbitrator held:
The basis of
my Award is the average area of land used for milk production on Berwick Farm
in the five years preceding Arbitration, with the balance of Quota being given
to Puncknowle Farms Ltd. A further basis of the Award is the stocking rate of
cows expected to be found on Berwick Farm, and the average milk yield of a herd
of Friesians, which is unrelated to the yield of the herd which was on Berwick
Farm prior to the occupation of Mr and Mrs Kane. I therefore find that the
average area used for milk production on Berwick Farm in the five years
preceding the Arbitration was 199.74 acres, at 1.35 acres a cow = 148 cows, at
5,500 Litres = 814,000 Litres, less 9% = 740,740 Litres.’
That finding is
challenged by the transferors.
I deal first
with the latter paragraph, para 4 of the award, which is challenged (as I have
said) by the transferors. It is challenged on the ground that it does not
comply with either the presumptions in para 3(1)(c) of the Schedule or the
criteria in para 6(3)(e) of the Schedule and is therefore, it is said,
impermissible. This contention on behalf of the transferors was accepted before
me on behalf of the transferees.
It was
conceded by Mr Morgan on behalf of the transferees that the arbitrator was in
error in law in the latter part of the finding in para 4, to the extent that he
took into account the stocking rate of cows. In my judgment, that concession
was inevitable and, accordingly, that part of the award must be remitted to the
arbitrator for further consideration.
I turn now to
the question which, as I indicated at the beginning of this judgment, was the
material one argued before me, namely the arbitrator’s finding concerning the
areas used for milk production. The submissions made by the parties can be
summarised as follows. On behalf of the transferees it was submitted that an
area is used for milk production if it is used for the current production of
milk. Accordingly, on that submission, an area is not used for milk production
if its use is intended to provide for either future milk production or past
milk production. It follows again, from that submission, that an area of land
which is being used to support animals which are not lactating is not land used
for milk production.
that the reference to ‘following female youngstock’ and ‘bulls bred for use on
the premises’ was erroneous because land used to support those animals was not
land (and therefore not an area) ‘used for milk production’.
The submission
on behalf of the transferors was that the construction sought to be put on this
phrase on behalf of the transferees was too narrow and that ‘area used for milk
production’ must be construed in a broader sense, namely, the area which,
taking the annual cycle of agriculture, is used for the support of the dairy
herd. It was contended on behalf of the transferors that animals which come
into production and go out of production in an annual cycle must be taken into
account and that, accordingly, dry cows which are being supported, being
nourished, during the interval between lactations are part of a dairy herd,
and, therefore, it is said that the land which supports them is properly to be
counted as an area used for milk production.
Similarly, by
the same process of argument, it was contended that land used to support the
heifers was land used for milk production, in that the heifers are necessary to
ensure the continuance of the production of milk, and that all those areas, and
the forage grown on them, are areas used for milk production.
In substance,
the court is faced with the choice between the narrow construction urged on
behalf of the transferees, and the rather broader construction urged on behalf
of the transferors. As was accepted on both sides in the course of argument,
the phrase is not capable of prolonged exegesis, and the submissions, once the
legislative background had been opened, were relatively short.
In substance,
I accept the submissions on behalf of the transferors. In my judgment, it is
unreal to restrict the phrase ‘an area used for milk production’ (or the plural
form in which the phrase appears in the regulations) as simply meaning the area
used from day to day, or even from week to week, to support cows which are
actually lactating. In my judgment, ‘an area used for milk production’ includes
the areas which are used to support the dairy herd by the maintenance of
animals between one lactation and another and to support the animals which are
destined for inclusion in the dairy herd on any holding. Of course, land used
for milk production may be used concomitantly for other purposes in the rural
context. Land may be used for a number of simultaneous purposes; for example,
sporting purposes come to mind in a farming context. But, in my judgment, an
arbitrator, skilled in this field, would have no difficulty in deciding whether
land constitutes an area used for milk production in accordance with the
principles as I find them to be.
In substance,
as I understand it, that is sufficient to dispose of these appeals, though I
should add that in para 2(b) of his award the arbitrator does not refer
specifically to the buildings and yards of a dairy unit. It would follow,
however, from my opinion of the proper interpretation of the phrase, that such
land, if of sufficient size to be material, is properly to be regarded as an
area used for milk production. So, also, is land used, as the arbitrator found,
for dairy or dual purpose bulls, if bred to enter the production herd and not
for sale. In my judgment, it is a matter for an arbitrator, on evidence, whether
agreed or contested, to make findings on the extent to which calves or bulls
may have been bred for inclusion in a dairy herd or for sale, in which case
they would not properly be so included.
I find,
therefore, that, subject to the relatively minor addition of a reference to
yards and buildings, the arbitrator adopted the proper approach in para 2(b) of
his reasoned award, and that that part of the award does not require
reconsideration.
As I
understand it, the parties think it likely that it would be possible to reach
agreement on the figures, having regard to the principles which I have
attempted to enunciate.
The
applicants were awarded the costs of the present proceedings and of the
application before Leggatt J, the arbitrator’s award as to costs being left
undisturbed.
