The EU Court of Justice has ruled that the Danish AgriFish Agency has used an incorrect calculation basis for several years when deducting EU subsidies from Danish farmers.
The EU Court of Justice recently ruled that the Danish AgriFish Agency has for several years applied the wrong calculation basis when the agency has deducted EU support from Danish farmers. The Danish application of the rule was based on the EU Commission’s statement. It remains unclear whether the Danish AgriFish Agency is authorized under EU rules to make a reduction in support for disregarding stricter national rules.
In a new landmark judgment of 25 July 2018, the EU Court of Justice states that the Danish AgriFish Agency (formerly the Danish AgriFish Agency) has used the wrong year as a basis for calculation when the agency reduced farmers’ EU support. In the specific case, this has resulted in farmers repaying too much of their EU support.
EU farmers receive support from the EU each year, financed by the Common Agricultural Policy. To avoid a reduction in support, each farmer must comply with a number of EU requirements for the environment, health, animal welfare and good agricultural condition. If the authorities find that the EU requirements are not being met, they can sanction the violation with a so-called cross-compliance deduction. This means a percentage deduction in EU support.
In the years 2006-2009, a number of Danish farmers had been sanctioned with cross-compliance deductions as a result of alleged violations of the Danish rules on fertilizer application. The cross-compliance deduction was calculated by the authorities on the basis of the support in the calendar year in which the rules were not complied with (hereinafter referred to as the “year of infringement”).
Subsequently, the Danish authorities contacted the EU Commission to find out on the basis of which year the sanction should be calculated. The EU Commission stated that the reduction should be applied to payments for the calendar year in which the failure to comply with EU requirements was established (hereinafter referred to as the “year of establishment”). In 2013, the EU Commission’s statement prompted the Danish AgriFish Agency to resume the decisions where the year of infringement had been used as a basis for calculation, which had financial consequences for the farmers who had received more support in the year of establishment than in the year of infringement. Two of the farmers complained to the then Food Ministry’s Appeals Centre, but were unsuccessful.
The farmers therefore brought an action before the High Court of Eastern Denmark, which chose to postpone the case and submit fundamental EU legal questions to the EU Court of Justice.
Before the EU Court of Justice, the farmers referred in particular to the wording of the EU provisions in question and to the general principle of law, according to which a sanction for non-compliance should be determined on the basis of the circumstances at the time of the facts. Cross-compliance deductions on the basis of the support paid in the year of establishment, on the other hand, would have consequences that were not foreseeable at the time of the infringement, which would be contrary to both the principle of legal certainty and the principle of protection of legitimate expectations.
The Food Ministry’s Appeals Centre referred to the fact that the provisions should be interpreted in accordance with the purpose of cross-compliance, which was to encourage farmers to comply with already existing EU requirements.
The EU Court of Justice initially stated that, in interpreting an EU legal provision, account should be taken not only of its wording, but also of the context in which it was set and of the objectives pursued by the scheme of which it formed part.
The EU Court of Justice noted that the various language versions of the EU provision in question, which laid down the rules for calculating the reduction, stated to a large extent that the reduction should be calculated on the basis of the year of infringement.
The EU Court of Justice then clarified that the rules should also be interpreted on the basis of the general structure of and the purpose of the scheme of which it was a part. As stated, the purpose was to encourage farmers to comply with a number of basic standards for the environment, animal welfare, etc.
The purpose could therefore only be pursued if the sanction for the violation of the basic standards resulted in a reduction of the support for the calendar year in which the violation occurred. The fact that, according to EU rules, the cross-compliance deduction could be made by offsetting it in the year of establishment did not change the EU Court of Justice’s view, as this rule merely ensured that reductions actually took place.
The EU Court of Justice then referred to the principle of equal treatment, the principle of proportionality and the principle of legal certainty.
As regards the principle of equal treatment, the EU Court of Justice stated that the application of the year of infringement removed the risk that the payments to which the reduction was applied were either significantly higher or lower than payments for the year in which the failure to comply with the cross-compliance rules took place. The use of the year of establishment as a basis for calculation would thus mean that two farmers – who in the same year had violated the same rules and received the same amount of support – could be sanctioned differently if the two farmers were entitled to different support in the year of establishment.
Regarding the principle of proportionality, the EU Court of Justice noted that the use of the year of establishment as a basis for calculation did not ensure a connection between the farmer’s demonstrated conduct, which was the cause of the reduction, and the reduction itself. Conversely, compliance with the principle of proportionality was always ensured if the reduction was calculated on the basis of the support in the year of infringement. Thus, the reduction would not go beyond what was necessary to achieve the purpose.
Finally, the EU Court of Justice pointed out that it would be contrary to the principle of legal certainty to use the year of establishment as a basis for calculating the reduction, since the support could vary considerably from year to year as a result of the number of cultivated areas, which formed the basis for the amount of support. In other words, the cross-compliance deduction should not depend on when the authorities carried out the control.
The EU Court of Justice then concluded that the reduction of direct payments as a result of non-compliance with cross-compliance requirements should be calculated on the basis of the direct support in the year of infringement. It is now up to the parties to determine the significance of the judgment, and if the Danish AgriFish Agency maintains claims against the farmers to some extent, it will ultimately be up to the High Court of Eastern Denmark to decide.
The EU Court of Justice does not take a position on whether the cross-compliance deductions could be made correctly at all. It follows from EU legislation that cross-compliance deductions can be made if the farmer violates a number of specified EU requirements. As far as is known, the farmers in the case in question had only violated the stricter Danish rules on fertilization, which were found in Danish legislation, until the so-called Agricultural Package abolished the previously applicable rules on under-fertilization. A parallel question is pending before the High Court of Western Denmark, where Sønderby Legal represents the farmers, and where it has been argued that there is no authority to sanction for disregarding stricter national rules. The Court was not presented with questions on this. Whether it may be relevant and necessary, it may be up to the High Courts to assess, if the Danish AgriFish Agency maintains claims to some extent.