High Court of Ireland Decisions

1. In this judgment, I will assess the damages to which the ninth named Plaintiff, Patrick O'Donovan (Mr. O'Donovan), is entitled as a result of the mistake of law of the first named Defendant (the Minister) as found by the Supreme Court in accordance with the Order of that Court dated 7th March, 1997.

2. Mr. O'Donovan is a married man, he and his wife, Nora O'Donovan (Mrs. O'Donovan) having married in 1979. They have three children ranging in age from 19 years down to 13 years.

3. On his marriage in 1979, Mr. O'Donovan became entitled to a residential holding comprising approximately 77 acres at Dromerk, Dunmanway, Co. Cork, on foot of an ante-nuptial agreement made in his favour by an uncle who continued to reside on the holding with another uncle and an aunt of Mr. O'Donovan.

4. At the time of their marriage Mr. and Mrs. O'Donovan were living in Cork. Mr. O'Donovan was working at his trade, as a shuttering carpenter, and Mrs. O'Donovan was employed as a secretary/book-keeper.

5. In the Spring of 1981, Mr. O'Donovan decided to embark on a farming enterprise on the farm at Dromerk. He entered into a farm plan under the Farm Modernisation Scheme on which he was categorised as a development farmer. The plan was a five year plan which envisaged Mr. O'Donovan milking 6 cows in 1981, 30 cows in 1982, 35 cows in each of 1983 and 1984 and 40 cows in 1985. It also envisaged that in each of the years 1982, 1983, 1984 and 1985 there would be twenty "followers" in the dairy herd, 10 in the 0 to 1 year category and 10 in the 1 to 2 year category, equivalent to 10 livestock units. The plan envisaged that in the final year of the plan, 1985, Mr. O'Donovan would be producing 28,000 gallons of milk, based on 40 cows yielding 700 gallons per cow. The improvements to the farm and the investments envisaged under the plan included the construction of an unroofed silo, a cubical house, a slurry pit and cattle crush and a milking parlour and dairy. It also envisaged the drainage and reclamation of 40 acres of land. It is common case that something between 50 acres and 60 acres of the 77 acres comprises good quality land, whereas the balance consists partly of rocky outcrop and partly of bog.

6. In order to implement the schedule of improvements and investments provided for in the plan, Mr. O'Donovan gave up his trade in the Spring of 1981 for one year. At the time his uncle was milking six cows. However, he died suddenly in June of 1981. As the O'Donovans were still living in Cork, it was decided to convert to a dry-stock enterprise until the works were completed.

7. The time-span in the plan for the completion of the milking parlour and dairy, which it was envisaged would be constructed in 1982, was not adhered to. In any event, the work was done in the Autumn of 1983. In February 1983, Mrs. O'Donovan had given up her employment. Later that year the O'Donovans moved to Dunmanway. In October 1983 they bought six or seven cows and six or seven in-calf heifers. They commenced milking in December 1983. In the year 1983, they delivered 122 gallons to their Co-Operative, Ballyclough Co-Operative. When the superlevy regime commenced in April 1984, Mr. O'Donovan was allocated a quota of 619 gallons based on those deliveries (122 gallons plus 497 gallons).

8. From the outset, Mr. O'Donovan's farming enterprise was encumbered with very heavy borrowings. In 1981, the sum of £24,000 was borrowed from the bank to fund improvements on the farm and by the time the dairying enterprise commenced at the end of 1983, this indebtedness had escalated to £32,000. In addition, in July 1983, Mr. O'Donovan had borrowed a further £25,000 from the Irish Permanent Building Society secured by a mortgage on the house. The position at the commencement of the dairying enterprise was that the O'Donovans were faced with the prospect of servicing £57,000 of debt.

9. In 1985/86, Mr. O'Donovan was allocated 8,217 gallons of new entrant quota. The only additional allocations he received from the national reserve, apart from allocations aggregating approximately 1,200 gallons in accordance with provisions under which the generality of small producers benefited, were an allocation of 4,955 gallons from the Milk Quota Appeals Tribunal in 1992/93 and a further allocation of 20,000 gallons from the Tribunal in 1994/95 on the grounds of hardship.

10. In the ten quota years before 1994/95, when he received the allocation of 20,000 gallons, Mr. O'Donovan was caught in a vicious cycle of being inhibited in the amount of milk he could produce because of the quota restriction, which resulted in insufficient income to provide himself and his family with a decent living and to service his debt, which in turn led to the sale of cows. The reduction in stock numbers, in turn, further reduced his ability to produce milk.

11. Despite the very low base from which he started in 1983, Mr. O'Donovan achieved deliveries of almost 15,000 gallons in each of the first three years of the superlevy regime and he avoided a superlevy penalty because of the availability of flexi milk. He increased his herd to 23 cows and one in-calf heifer in 1984 and Mrs. O'Donovan testified that the intention was to increase the herd to 35 cows. While over the next two years his cow numbers fluctuated, going down to 19 cows in 1985/86 and to 15 cows in 1986/87, in 1987/88, with the aid of a £10,000 loan, Mr. O'Donovan increased his cow numbers to 28 and in that year he delivered 21,340 gallons to Ballyclough Co-Operative and 1,258 gallons to Kilashandra Co-Operative. Just as the situation was looking brighter, disaster struck. Mr. O'Donovan incurred a superlevy penalty of £11,037 in that year which was subsequently adjusted to £9,778. The amount of the adjusted penalty together with interest, capped at £14,301.56, remains due by Mr. O'Donovan to Dairygold Co-Operative.

12. After the imposition of the superlevy penalty, Mr. O'Donovan's milk production declined, going down as low as 14,770 gallons in 1993/94. The herd size also declined in the same period. Mr. O'Donovan avoided any further imposition of a superlevy penalty by acquiring additional permanent and temporary quota. In two years, 1988/89 and 1993/94, he acquired the maximum gallonage available in the Dairygold Co-Operative catchment area under the relevant restructuring schemes, 2,450 gallons and 550 gallons respectively. In the four quota years between 1988/89 and 1991/92, he leased approximately 8,000 gallons of quota each year with land and in 1988/89 he leased a further 1,000 gallons under the temporary leasing scheme in force that year. However, the allocation by the Milk Quota Appeals Tribunal of 4,955 gallons in 1992/93 did not make up for the loss of the lease of 8,000 gallons with land in the previous years and the decline in production continued.

13. The allocation of the 20,000 gallons by the Milk Quota Appeals Tribunal on the ground of hardship in 1994/95 turned the enterprise around somewhat and both cow numbers and production increased. In 1995/96, Mr. O'Donovan produced 30,815 gallons. However, by 1996, aside from ordinary trade creditors, his indebtedness to financial institutions stood at £125,000. In reality "Aughrim was lost", as the saying goes, by the time the 20,000 gallons was allocated.

14. Almost from the outset of the dairying enterprise, Mr. O'Donovan was in bad health. He fractured an ankle in an accident in May 1983, which rendered him unfit for carpentry work. He suffered a second and more serious and debilitating fracture in October 1984. Since 1985, he has been permanently in receipt of disability benefit. His disability is attributable to stress, not to an orthopaedic problem.

15. It is beyond question that the O'Donovans were under very severe financial pressure from the time they started dairying up to 1996. The only agricultural enterprise which they engaged in alongside the dairying enterprise was the sale of hay. Such ventures, as Mrs. O'Donovan embarked on to augment their income, for example, the sale of second-hand clothes, had no appreciable effect on their financial status.

16. The straw that broke the camel's back, as it were, was the unfavourable decision given by the European Court of Justice on the Article 177 Reference in these proceedings in February 1996. It was a crisis and a disappointment too many for the O'Donovans. Their general practitioner, Dr. Creedon, testified that it seemed to him that dealing with a succession of crises and disappointments in relation to the farming enterprise and the milk quota situation was damaging them emotionally, physically and as a family. He advised them to sell the farm. They followed his advice. The farm comprising 74 acres with a milk quota of 36,732 gallons was sold in the Autumn of 1996 for £240,000. The house on the holding and 3 acres surrounding it were sold the following year for £60,000. Since the sale, Mr. O'Donovan has not been engaged in farming.

17. During the course of the hearing, on 16th June, 1999, I ruled on the issue as to the amount of quota which Mr. O'Donovan would have been allocated in accordance with the formula set out in my judgment of 25th March, 1999 having regard to the allocation of a new entrant quota of 8,217 gallons made to him in 1985/86. The ruling was that under the formula 13,691 gallons would have been allocated to Mr. O'Donovan, that is to say, 50% of the difference between his targeted milk production for the end year of his plan, 28,000 gallons, and his initial quota 619 gallons and the new entrant quota did not require to be taken into account.

18. Mr. O'Donovan's claim for compensation is framed under the following heads of claim:-

19. Historically, the quota available to Mr. O'Donovan and the volume of his milk production were quite different to what they would have been had he had an additional allocation of 13,691 gallons of quota from the outset. With his initial allocation of 619 gallons and the subsequent allocation of 8,217 gallons of new entrant quota, he was producing against a quota of only 8,836 gallons. The additional 13,691 gallons was of an order which would have enabled him to almost treble his production, if he was totally reliant on allocated quota. On the other hand, it is acknowledged that, had he been allocated the additional 13,691 gallons from the outset, he would not have received the allocations of 4,955 gallons and 20,000 gallons from the national reserve in 1992/93 and in 1994/95 respectively.

20. In constructing a model of what, as a matter of probability, Mr. O'Donovan's production would have been had the additional 13,691 gallons been allocated to him from the outset the foregoing factors must be taken into account. Moreover, regard must also be had to the following factors:-

21. The model which I believe is a reasonable representation of what Mr. O'Donovan's production would have been is set out in tabular form in Appendix A annexed to this judgment. It envisages the following level of production:-

22. No question could arise as to the capacity of the farm to produce milk to the level envisaged in the model. On the evidence it clearly had the capacity. As to the capability of the farmer, evidence was led by the Minister to suggest that, because of lack of a farming background and training, Mrs. O'Donovan, who effectively was the farmer, had not the capability to manage a dairy enterprise efficiently and to fully utilise the farm. On the evidence, I have no doubt that the farm under the management of Mrs. O'Donovan, and with such assistance as her husband could give, could have achieved the level of production envisaged, if the additional quota had been available from the outset. The level of production actually achieved in 1995/1996 and the yield achieved in that year, from what was almost a "start-up" position after the 20,000 gallons of quota was allocated on a hardship basis, suggest that this is the case. As regards increasing production, the most constraining factor would have been the availability of quota, particularly in the light of Mr. O'Donovan's straitened financial circumstances. Acquiring quota by purchase with land would not have been an option, nor would any further leasing of quota with land than had historically occurred. The only options left would have been purchasing under a restructuring scheme or leasing under a temporary leasing scheme, which schemes first came into operation in 1988/89. The model, in my view, envisages the optimum amount of restructured quota which would have been available in the altered scenario which would have prevailed. In particular, I do not think it probable that Mr. O'Donovan would have been able to acquire any restructured quota in 1990/1991.

23. In quantifying the loss attributable to the lost additional milk production, I am adopting the same course as I adopted in the Finlay and O'Regan judgments.

24. In Appendix A the additional gross income which the additional milk production would have yielded in each year down to 1996/1997 is tabulated. The methodology adopted is summarised in the preamble to the appendix.

25. In Appendix B the various amounts which must be off-set against the additional gross income in each relevant year are tabulated. In column (2) are set out the various costs in connection with the build up of quota and the methodology adopted is explained in the preamble to Appendix B. In column (3) are set out the various sums which the Minister properly contends he should be given credit for. In addition to the points made in the preamble as to the methodology employed, it should be noted that, as it is envisaged, as stated above, that Mr. O'Donovan would have funded the acquisition cost of the cows necessary to produce the additional milk in the initial years other than from borrowings, no credit is included for interest on the acquisition cost of additional cows.

26. The net income before tax which the additional milk production would have yielded in each year up to 1996/1997 is tabulated in Appendix B and it represents the net loss before tax by reason of the additional quota not being available to Mr. O'Donovan. The aggregate loss over the years in question amounts to £45,924.

27. As I have indicated, Mr. O'Donovan's plan envisaged Mr. O'Donovan milking 40 cows and having 10 other livestock units in the dairy herd at the end of the plan. In column 3(c) of Appendix B the number of livestock units, other than cows, which were actually on the farm in the relevant years are set out in brackets. Their relevance in the context of Appendix B is that, in the milk production model, the credit which the Minister claims on account of the impact of the expansion of milk production on land use and the capacity of the farm is based on the assumption that, in order to accommodate the extra cows necessary to create the additional milk production, Mr. O'Donovan would have had to forgo, first, those livestock units and, secondly, hay which was produced or ought reasonably to have been produced on the farm to mitigate his loss. This is broadly speaking in line with the approach adopted in the Finlay and O'Regan judgments and, in my view, is a reasonable approach on the facts of this case.

28. The separate head of claim advanced in relation to the livestock units other than cows is based on the fact that because of the general lack of finance by reason of the non-availability of the additional income from the additional production which the additional quota would have allowed, Mr. O'Donovan was not able to fulfil his plan and there was a shortfall of other livestock units actually on the farm as against the numbers planned for in most years with the exception of 1990/1991 and 1994/1995. A claim for £16,019 was made based on the loss of income which it is alleged arose from this shortfall.

29. There certainly would have been a gross margin to be derived from the other livestock units, if they had been achieved. Because of the manner in which the Minister uses the gross margin on the other livestock units which were achieved to get a credit, this cannot be gainsaid. But the real issue here is whether the shortfall is attributable to lack of finance, which, in turn, is attributable to the non-availability of the additional quota. When one analyses the stocking record from the outset of the dairy enterprise, it is obvious that the submission made by Ms. Finlay on behalf of the Minister that the shortfall was attributable to financial inability to fund stocking which was anterior to the introduction of the superlevy regime is correct. The problem stemmed from the level of debt incurred by Mr. O'Donovan before the superlevy regime commenced. Moreover, and, perhaps, more significantly, the additional income which, as a matter of probability, the additional 13,691 gallons of quota would have generated, which is tabulated on a yearly basis in the table in Appendix B, in my view, was not sufficiently elastic to remedy the shortfall, as well as meet the other calls on it, for example, the repayment of debt and the improvement of the O'Donovans' living conditions.

30. Accordingly, I consider that this separate head of claim in relation to other livestock units fails on the grounds of causation.

31. The same methodology is to be used in calculating the interest which Mr. O'Donovan would have saved on his indebtedness to financial institutions, if he had been the recipient of the additional income from the additional production attributable to the additional quota, as was used in the Finlay case and in the O'Regan case. The calculation will have to be redone on the basis of the figures set out in column (5) of the table in Appendix B.

32. It was part of Mr. O'Donovan's case that, in consequence of the Minister's mistake and the fact that he was deprived of the additional income which would have flowed from the allocation of the additional 13,691 gallons of quota, he was put in a financial position which necessitated the sale of his farm, which he had hitherto run as a going concern. It was argued on his behalf that, to be put in the same position as he would have been in if the Minister had not committed the wrong against him, he must be awarded by way of compensation a sum of money which will reflect -

33. The Minister's principal riposte to this claim is that the absence of the additional 13,691 gallons of quota was not the cause of the sale of the farm. The dairy enterprise was doomed to failure from the beginning, it was submitted, because of the burden of debt it carried from the beginning, which the Minister would ascribe to a variety of factors, such as the family circumstances of the O'Donovans, the death of Mr. O'Donovan's uncle, the delay in implementing the plan, Mr. O'Donovan's accidents and his unavailability to run the farm, Mrs. O'Donovan's lack of experience and training, the fact that there was no income from the farm for three years, the fact that the enterprise started off with accumulated losses in the region of £17,000 and the fact that, in effect, the O'Donovans were living off capital.

34. The issue for the Court is not to identify the cause or causes of the deterioration in the O'Donovans' financial circumstances. It is to determine whether the additional income which I have found the additional production from the additional quota would have yielded, would have alleviated the financial situation sufficiently to stave off the eventual sale in 1996/1997.

35. Looking at the first eight years of the superlevy regime sequentially, the additional income would have represented 37%, 68%, 64%, 9%, 88%, 145%, 112% and 78% of the interest actually charged on borrowings in each of those years respectively. The figure of 9% relates to the exceptional year, 1987/88, the year in which the superlevy fine was incurred. The appropriation of, say, 75% of the additional income in reduction of the debt and the interest thereon would have been bound to contain the exponential growth of the debt, which happened in reality. While I have not attempted to calculate the overall effect of the appropriation of all or a substantial proportion of the additional income to debt reduction, I think it is probable that it would have had a significant effect and that, instead of increasing from £63,306 at the end of the quota year 1984/85 to £125,086 at the end of the quota year 1995/96, the debt would have been contained within acceptable limits and the sale would probably have been avoided. Historically Mr. O'Donovan's inability to keep the debt within acceptable bounds was due to insufficient income, which, in turn, was due to his inability to increase his milk production. In short, what Mrs. O'Donovan in her evidence referred to as the "domino effect" of the lack of repayment capacity in the early years of the dairy enterprise, resulted in the unsustainable debt level with which the farm was burdened in the 1990's. Therefore, it seems to me that a causal link has been established between the sale of the farm and the Minister's mistake of law.

36. As to the measure of Mr. O'Donovan's loss, it was submitted on behalf of the Minister that, in the absence of evidence of the intention of Mr. O'Donovan to resume farming, he was not entitled to be compensated on the basis claimed and that the correct measure is the reduction in the value of Mr. O'Donovan's capital assets by reason of the sale. I reject this submission. In the earlier phases of these proceedings it has been acknowledged that the Minister's wrong was characterised as being in the nature of a tort. The principal restitutio in integrum is the fundamental rubric in assessing damages to compensate for loss and damage suffered as a result of a tort.

37. Accordingly, Mr. O'Donovan is entitled to an amount of money which will put him in the same position as if he owned a 74 acre 30 cow dairy farm at Dromerk with a 27,414 gallon milk quota today, but allowing for sale proceeds he received in 1996. The evidence establishes that the farm at Dromerk, as sold, would be worth approximately £40,000 more today, but the farm was sold with and valued on the basis of a 36,732 gallon quota. On the evidence I find that the additional quota of 9,318 gallons accounts for £27,000 of the differential of £40,000, leaving Mr. O'Donovan's capital loss at £13,000. To this must be added the transaction costs incurred by Mr. O'Donovan in 1996 in connection with the sale of the farm, which appear to be £14,585, as Mr. Clarke submitted, as the net proceeds of the sale as shown in Table F of Mr. Smyth's submission were £225,415. In my view, neither the fact that Mr. O'Donovan has had the use of the proceeds of sale of the farm since 1996 nor the fact that, had the sale not taken place, the indebtedness to financial institutions in connection with the farm would have increased in the interim bears on the capital loss claim. But for the Minister's wrong the debts would not, in any event, have been of the order they were in 1996, as I have found.

38. For the avoidance of doubt, I should perhaps say that I consider that Mr. O'Donovan incurred no compensatable loss in connection with the sale of the dwelling house or in connection with the sale of the one acre site of which, on the evidence, he was not the beneficial owner in 1996. Apart from the fact that the farm having been sold, the sale of the dwelling house was not necessary to eliminate Mr. O'Donovan's indebtedness, Mrs. O'Donovan in her own testimony acknowledged that the substitute house which they purchased in Inishshannon has appreciated in value in the last two years. The alternative argument, that the house at Dromerk would have fetched a better price if it had been refurbished before the sale and that Mr. O'Donovan was precluded from achieving the better price because of the non-availability of income to effect the refurbishment, in my view, is not sustainable. The additional income from the additional production which would have resulted from the additional quota would not have been sufficiently elastic to stretch to refurbishment works, as well as debt repayment and supplementing living expenses. In any event, I do not accept the basic premise that the refurbishment works would have achieved the enhanced price contended for.

39. The evidence in relation to the differential between the cost of acquiring 30 cows today and the aggregate purchase money achieved for the 34 cows which Mr. O'Donovan sold in 1996 is not very satisfactory. Having regard to the state of the evidence, the sum I propose allowing under this heading, to include the differential in relation to the price of a second-hand tractor, is £17,500.

40. The total compensation in respect of capital loss in connection with the farm, accordingly, is £45,085, comprising £13,000 in respect of the differential in relation to the market value of the farm, £14,585 in respect of transaction costs on the sale of the farm and £17,500 in respect of the differential in relation to the stock and machinery.

41. The production model set out in Appendix A assumes that Mr. O'Donovan was in production for the whole quota year 1996/97 and the additional income is calculated on the basis of total probable production of 32,000 gallons in that year. I do not propose allowing for loss of income for the period since 1st April, 1997 for the following reasons. Mr. O'Donovan is being compensated under a separate head in respect of the interest savings which the additional income would have achieved. He has had the actual net proceeds of sale since the completion of the sales transactions in 1996. I propose allowing interest at the Court rate on the compensation in respect of capital losses of £45,085 from 1st October, 1996 to the date of judgment. As of today, restitutio in integrum is afforded to Mr. O'Donovan by the combination of the foregoing factors. He will have the monetary compensation as of today and I see no legal basis for awarding him any further compensation for loss of income to enable him to achieve what, in effect, would amount to equivalent reinstatement.

42. It is common case that Mr. O'Donovan would have become entitled to 2,385 extra shares in Dairygold Co-Operative by reason of his additional production and his additional trading with the Co-Operative over the years from 1984/85 to 1996/97. On the evidence, it is not probable that the corporate status of Dairygold will change in the short to medium term. In the circumstances, I think the appropriate course is to allow the Plaintiff the value of the shares forgone at par, that is to say, £2,385. Any other approach would be pure speculation.

43. In the production model, I have calculated the superlevy fine which Mr. O'Donovan would have incurred in 1987/88 at £3,672, albeit somewhat artificially in that production in that year is not increased in a manner which mirrors what happened in reality. The Minister is given credit in the model for a superlevy fine of that order spread over two quota years.

44. Mr. O'Donovan incurred and remains under liability to Dairygold for the sum of £14,301.56 in respect of the superlevy fine which he incurred together with capped interest, which liability he would not have incurred if the Minister had not made the mistake of law. He is entitled to recoup of the sum due to Dairygold from the Minister.

45. In this case, I have medical evidence from Dr. Creedon of the impact the milk quota problems and this litigation have had on Mr. O'Donovan and on Mrs. O'Donovan and their family. I have also had Mrs. O'Donovan's testimony as to the effect of the problems stemming from the fact that the additional quota was not allocated to them and, in particular, the effect of the sale of the farm has had on herself and her husband.

46. It is absolutely clear on the evidence that Mr. O'Donovan and his family have endured an extreme degree of hardship and deprivation which could have been alleviated, if not eliminated entirely, if the Minister had not made the mistake of law. It is also clear that Mr. O'Donovan's emotional health has been adversely affected and that from time to time this has impacted on his physical health.

47. On the facts of this case, it seems to me that the appropriate level of general damages is £20,000.