Twenty fruit and vegetable growers from Angus have a right to reparation from the Scottish Government over withdrawal of recognition of their producer association for an EU financial aid scheme, a Court of Session judge has ruled.

Lord Tyre in the Outer House held that the group, together with their organisation Angus Growers Ltd, met the legal tests under European Union law for claiming state liability, one of these being that the "incoherent and inconsistent" approach of the Government's Rural Payments Agency amounted to a sufficiently serious breach of the law.

The dispute arose out of the EU's Producer Organisation (Fresh Fruit and Vegetables) Aid Scheme, which offered growers 50% of the cost of certain improvement measures, provided they collectively marketed their products in producer organisations. Member states were responsible for approving programmes and paying aid. Angus Growers' approval under the scheme was temporarily suspended in 2009 owing to concerns as to their independence, but after these were addressed the suspension was continued for different reasons.

In 2010 the company was de-recognised owing to further "major concerns" as to their compliance, for reasons which included an admitted wrong interpretation of EU law. A review panel upheld the decision on reasoning which the Land Court and Inner House subsequently held inadequate.

The Government had since accepted that the withdrawal of recognition had been unlawful, and made up the payments that were due under the scheme. However the producers now sought damages in accordance with the European case Francovitch v Italy for losses sustained due to the Government's breach of the law. This required the producers to establish specific rights as individuals, a direct causal link, and a sufficiently serious breach of the law.

Lord Tyre accepted that the purpose of the scheme was to benefit individual growers and not just the producer organisation, and that the individual rights test was met. It did not matter that the scheme also had broader objectives, and to focus on the rights of the producer organisation would mean that most of the loss went uncompensated.

Whether the breach was sufficiently serious required "a value judgment by the national court", taking account of factors recognised by the European Court. The provision of the European regulation in question was sufficiently clear and precise that one could reasonably expect a member state to interpret it correctly; Lord Tyre agreed with the Lord President's view at the Inner House stage "that the basis upon which the [Agency] proceeded was simply untenable" and its interpretation "beyond the range of reasonable interpretations": the Government had not attempted to support it.

While the Agency did not intend to breach the law, "In other respects, however, an element of intention must be found to have existed", as the Agency must have known that de-recognition would have significant financial consequences" for the producers.

Further, even on the Government's approach, "the reasons founded upon did not justify the sanction of de-recognition... At this level too, therefore, there was an error of law in regarding the factors founded upon as justifying de‑recognition which I do not regard as excusable". And beyond that, "the decision to withdraw recognition must be examined in the context of the [Agency]’s constantly changing position, both before and after de-recognition". It had no clear and consistent view of what had to be done by the organisation to achieve recognition. Its position altered at every stage of the review and appeal process. 

"It is, in my opinion, relevant in assessing the seriousness of the defenders’ breach of Community law to take account of the fact that they took the drastic step of de-recognising AG [Angus Growers] against a background of inconsistent and incoherent analysis of the ways, if any, in which AG’s operations gave rise to failures to respect the criteria for recognition", Lord Tyre commented.

"In the whole circumstances... I am of the opinion that the breach of Community law occasioned by withdrawal of AG’s recognition... was sufficiently serious to confer a right to reparation in accordance with the Francovich principle. That, as I have said, is a value judgment; it takes account of all of the circumstances I have narrated, but in particular the inexcusability of the [Agency]'s errors of law, the incoherent and inconsistent approach adopted by the [Agency] during a very long period of time, and the seriousness of the consequences of de-recognition for AG and its members. For these reasons I hold that the conditions for imposition of state liability are fulfilled."

Click here to view the opinion.