The High Court has overturned as unlawful the government's decision on how €145.5 million in restructuring aid should be allocated following the rationalisation of the European sugar industry and Greencore's withdrawal from sugar production here.

Mr Justice Frank Clarke yesterday upheld Greencore's challenge to the decision of July 12th, 2006, and quashed it, effectively meaning the new Government must now reconsider the matter in accordance with principles laid down by the court and recalculate the losses incurred by affected parties.

The judge ruled that the losses to be calculated were those resulting from the closure of Greencore's plant at Mallow only, and not the general losses consequent on the restructuring of the sugar industry.

He found there was a "deliberate decision" by the government not to offer any compensation to Greencore and prejudgment by the government of the issue of aid allocation.

However, he rejected claims by Greencore of objective bias on the part of the government. There may have been "unguarded comments" by the minister for agriculture to the media on the matter, but there was no objective bias, he held.

The judge also suggested there may be errors or overstatement by Greencore in relation to how it had assessed its own likely losses as a result of the closure of its Mallow plant.

It was not likely, he said, that Greencore incurred substantial losses due to the closure of the Mallow plant. While it had lost a future income stream, that was due to overall reform of the sugar industry and not just the plant closure. Greencore's losses could also be offset in part against the fact that the Mallow plant could now be used in a more profitable way than if required for continued sugar production.

The government had decided that €47.1 million in restructuring aid should go to sugar beet farmers and contractors, €28.4 million to redundancy payments in line with Labour Court recommendations, €20 million for environmental and demolition costs, and €50 million for pension fund requirements and other payments in order to demonstrate a "sound economic balance" between the elements of the restructuring plan.

Greencore claimed that decision was "fundamentally legally flawed" and breached regulations of 2006 adopted to give effect to the reform of the sugar regime in the EU. The government, it claimed, failed to take into account adequately, or at all, Greencore's own losses resulting from the major reform of the EU sugar market announced in November 2005 and had wrongly relied on a "flawed" report by consultants Indecon.

The action was brought by Greencore Group plc and Irish Sugar Ltd, trading as Greencore Sugar, against the government, the minister for agriculture and food, and the Attorney General. The Irish Farmers' Association, as representative of the sugar beet growers, and the Machine Contractors' Association were notice parties.

After the judgment was delivered, the judge adjourned the proceedings to June 20th next to allow the sides consider his decision and for the purpose of making final orders in the case.

In his decision, the judge found that the government's decision failed to achieve the "sound economic balance" as required by the relevant regulations and that it had relied heavily on flawed analysis by Indecon of losses incurred by the various parties.

There were errors in the methodology employed by Indecon in assessing the likely losses of the various parties and in its calculation of those losses, he found.

Indecon had effectively estimated losses attributable to overall reform of the sugar regime rather than those attributable to the closure of the Mallow plant, and the government had accepted that analysis in large part and made its decision on the same legally incorrect basis, he found.

The government's mistaken belief that its decision had to be made by July 13th, 2006, when the correct deadline was July 15th, had contributed to Indecon's difficulties in assessing certain likely losses of Greencore, he also said.

However, he stressed, there was no basis for Greencore's claim that Indecon had not acted in an independent and non-predetermined way. He also noted that Indecon had recommended that there be some compensation for Greencore although there were flaws in how it assessed Greencore's likely losses.

Earlier, Mr Justice Clarke noted that, under the EC regulations, a minimum 10 per cent of restructuring aid was to go to growers and contractors and the government's decision had allocated 32.8 per cent to those groups. There was consultation and disagreement between Greencore and the government on a range of issues before the government made its decision, he also noted. Greencore had argued the Minister should not have made a decision on aid allocation until Greencore had submitted its own plan.

The judge said there was some confusion about exactly when a decision on allocation of aid had to be made and the government had wrongly believed the final date was July 13th, 2006. The correct deadline was rather July 15th, 2006 and the extra days would have given Indecon more time to calculate losses, he found. The government's mistake meant it was operating on a very tight timescale.

The judge also found there were a number of "manifest errors" in how Greencore's likely losses were calculated by Indecon. Indecon failed to take into account likely sugar price reductions or that Greencore would probably have bene unable to pay higher premium prices to growers after restructuring, he found. He ruled that several other criticisms by Greencore of the Indecon report were not sustainable.