Abuse of rights can lead to penalties

20 Mar 2009

Milk Supplies Limited v Department of Environment Food and Rural Affairs [2009] EWHC 503 QB

The High Court has held that a company that used multiple subsidiaries to claim export refunds set aside for small exporters, in circumstances where it had exhausted its own entitlement to refunds, had abused its rights under Community law and was subject to the strict penalties under the Regulation governing the system of export refunds for agricultural products (Regulation (EC) No 800/1999). DEFRA, represented by Rebecca Haynes, successfully opposed the company’s contentions that the artificial practice of diverting exports through subsidiaries was not contrary to the overall objectives of the relevant Community law which, it claimed, was to enable as many exports as possible to be covered by refunds, subject only to the Community’s international obligations under the WTO agreements to cap export aid at an agreed limit. The company further argued that following such cases as Halifax and Weald Leasing there was no basis for applying penalties in cases of abuse of rights and that it was not sufficiently clear that the relevant penalty provisions were intended to apply to abusive practices. DEFRA successfully argued that since the consequence of the application of the abuse of rights doctrine was that there was never any entitlement to the export refunds, it followed that the subsidiaries had over-claimed and that the penalty provisions of the refund system applied. The Court held that as the beneficiary of the money claimed by way of refunds, the company was liable to repay the refunds claimed through its subsidiaries, together with penalties totalling 50% of the amounts claimed and interest.

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Rebecca Haynes