CELEX: 61988CJ0008
Agriculture
EAGGF
Disallowance of expenditure

Grounds
1 By an application lodged at the Court Registry on 12 January 1988, the Federal Republic of Germany brought an action under the first paragraph of Article 173 of the EEC Treaty for the annulment of Commission Decision 87/541/EEC of 21 October 1987 amending Decisions 87/468/EEC and 87/469/EEC on the clearance of the accounts presented by the Member States in respect of the European Agricultural Guidance and Guarantee Fund, Guarantee Section, expenditure for 1984 and 1985 ( Official Journal 1987, L 324, p . 32 ) inasmuch as that decision disallowed from Community financing certain amounts which the Federal Republic had paid, by way of premiums provided for by the Community rules, to producers of sheepmeat and for the maintenance of the suckler cow herd, in respect of the abovementioned financial years .
2 In Decisions 87/468 and 87/469, the clearance of accounts did not cover certain expenditure concerning the Federal Republic of Germany in relation to which further checks were considered necessary . The contested decision relates to this expenditure .
3 The disallowance, by the contested decision adopted following those further checks, of premiums in favour of sheepmeat producers concerns solely North Rhine-Westphalia and relates to an amount of DM 1 681 980.64 for 1984 and DM 1 596 934.47 for 1985; the disallowance of premiums for the maintenance of the suckler cow herd, concerning only North Rhine-Westphalia, Baden-Wuerttemberg and Bavaria, relates to an amount of DM 222 376.22 for 1984 and DM 182 636.48 for 1985 .
4 The premium in favour of sheepmeat producers is provided for in Article 5 of Council Regulation ( EEC ) No 1837/80 of 27 June 1980 on the common organization of the market in sheepmeat and goatmeat ( Official Journal 1980, L 183, p . 1 ).
5 In accordance with Council Regulation ( EEC ) No 872/84 of 31 March 1984 laying down general rules for the granting of premiums to sheepmeat producers and repealing Regulation ( EEC ) No 2643/80 ( Official Journal 1984, L 90, p . 40 ), the person claiming the premium must, with effect from 1 April 1984 keep at least 10 ewes, whereas for the period from 1 January to 31 March 1984 the minimum number of ewes was fixed by the Member States .
6 Article 2 of Commission Regulation ( EEC ) No 3007/84 of 26 October 1984 laying down detailed rules for the application of the premium for producers of sheepmeat ( Official Journal L 283, p . 28 ) provides, since the end of October 1984, that the claimant must have kept on his holding the number of ewes for which the premium is claimed for at least 100 days starting from 30 April in each year . That obligation did not apply to 1984 .
7 The premium for the maintenance of the suckler cow herd was introduced by Council Regulation ( EEC ) No 1357/80 of 5 June 1980 ( Official Journal 1980, L 140, p . 1 ).
8 In accordance with that regulation, as amended by Council Regulation ( EEC ) No 1417/81 of 19 May 1981 ( Official Journal 1981, L 142, p . 4 ), the suckler cows for which the premium is claimed must belong to one of the meat-producing breeds mentioned in the regulation . Furthermore, the claimant must show evidence to the satisfaction of the competent authority "that he sells no milk or milk products originating on his own holding on the date on which the claim was made", and must undertake not to sell milk or milk products for 12 months from the day on which the application is lodged and to keep on his holding for a minimum period of six months from the same date a number of suckler cows which is at least equal to that for which the premium has been granted .
9 In accordance with the provisions of the regulation in question, in conjunction with Council Directive 72/159/EEC of 17 April 1972 on the modernization of farms ( Official Journal, English Special Edition 1972 ( II ), p . 324 ), the person applying for the premium must be an individual farmer for whom farming is his main occupation, that is to say the proportion of such person' s income from farming must be equal to or greater than 50% of his total income .
10 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the course of the procedure, the legal background and the submissions and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court .
11 The Commission' s refusal, by way of the contested decision, to allow Community financing of the premiums in question, is based on irregularities alleged against the German authorities . Generally, those are the lack of an adequate system of administrative and on-the-spot inspections and the lack of evidence that certain administrative inspections were carried out and that on-the-spot inspections were carried out in a satisfactory manner .
12 The relevant inspection procedures in the Federal Republic of Germany are not uniformly established throughout the whole of the territory by Federal decisions but fall under the responsibility of each Land . The Commission alleges that the Federal authorities did not give detailed instructions to the Laender on the type and frequency of checks to ensure the observance of the conditions laid down by the Community rules for the grant of the premiums in question . It accuses the Laender of not laying down and implementing appropriate inspection procedures .
13 In that connection, it should be observed that it is for all the authorities of the Member States, whether it be the central authorities of the State or the authorities of a federated State, or other territorial authorities, to ensure observance of the rules of Community law within the sphere of their competence . However, it is not for the Commission to rule on the division of competences by the institutional rules proper to each Member State, or on the obligations which may be imposed on federal and Laender authorities respectively . It may only verify whether the supervisory and inspection procedures established according to the arrangements within the national legal system are in their entirety sufficiently effective to enable the Community requirements to be correctly applied .
14 Consequently, there is no need to ascertain whether the Federal Government did give, as it maintains, adequate instructions to the Laender, but it is necessary to examine the applicant' s submissions in the light of the Commission' s criticisms relating to the absence of detailed rules for ensuring observance of the conditions laid down in the Community legislation, the lack of major administrative inspections and the lack of actual supervision of the subordinate implementing authorities, the lack or inadequacy of specific instructions to officials entrusted with on-the-spot inspections, the absence of any provision as to the frequency with which inspections are to be carried out and the absence of any written report on on-the-spot inspections carried out and their results . Those obligations are said to be minimum requirements under the provisions applicable in the matter .
15 The applicant' s principal submission is that the requirements thus laid down by the Commission represent for the Member States additional obligations which are not contained in the relevant Community rules and which are therefore incapable of constituting a valid criterion for assessing the manner in which the arrangements for the premiums in question were applied in the three Laender in question .
16 In that connection, it should be emphasized that, even if the Community rules mentioned above do not expressly require Member States to introduce supervisory measures and inspection procedures such as those mentioned by the Commission, nevertheless that obligation may be implied from the fact that, under the rules in question, it is for the Member States to apply the arrangements for the premiums in issue and to organize a system of inspection and supervision .
17 More specifically, it should be pointed out that Article 8 of Council Regulation ( EEC ) No 729/70 of 21 April 1970 on the financing of the common agricultural policy ( Official Journal, English Special Edition 1970 ( I ), p . 218 ), imposes on Member States the general obligation to take the measures necessary to satisfy themselves that the transactions financed by the Fund are actually carried out and are executed correctly, to prevent and deal with irregularities and to recover sums lost as a result of irregularities or negligence . On the other hand, Article 9 of that regulation provides that Member States are to make available to the Commission all information required for the proper working of the fund and are to take all suitable measures to facilitate the supervision which the Commission may consider it necessary to undertake .
18 In addition to those general provisions, it should be pointed out that, with regard to premiums in favour of sheepmeat producers, Article 5 of Regulation No 3007/84, mentioned above, provides that before the expiry of the period of 100 days, mentioned above, "... the competent authorities designated by the Member States shall ensure administrative supervision supplemented by means of systematic or random inspection visits to check the number of eligible ewes stated in the application for a premium ."
19 As regards premiums for the maintenance of the suckler cow herd, Article 4(1 ) of Commission Regulation ( EEC ) No 1244/82 of 19 May 1982 laying down detailed rules implementing the system of premiums for maintaining suckler cows ( Official Journal 1982, L 143, p . 20 ), imposes on the competent authorities designated by each Member State the obligation to carry out administrative checks supplemented by random or, if necessary, systematic on-the-spot checks .
20 With particular regard to the correct utilization of Community resources, it is clear from those provisions, viewed in the light of the obligation of faithful cooperation with the Commission laid down in Article 5 of the Treaty, that Member States are required to set up comprehensive administrative checks and on-the-spot inspections thus guaranteeing the proper observance of the substantive and formal conditions for the grant of the premiums in question .
21 If no comprehensive system of checks exists or if the system introduced by a Member State is defective to the point of giving rise to doubts as to compliance with the conditions imposed on the grant of the premiums in question, the Commission is entitled to disallow certain expenditure incurred by the Member State in question .
22 Consequently, the applicant' s submission that the requirements which the Commission seeks to impose on the Member States constitute obligations not imposed by the abovementioned Community rules is ill founded .
23 Nevertheless, it should be stated that the Commission is obliged on each occasion to give reasons for its decision finding an absence of, or defects in, inspection procedures operated by the Member State in question .
24 It is on the basis of those considerations that it is necessary to examine the applicant' s submissions directed against the parts of the contested decision concerning the operation of the system of premiums in the three Laender concerned .
25 As regards the amounts of the premium in favour of sheepmeat producers in North Rhine-Westphalia disallowed in the decision, the Commission claims that, during the inspections carried out by its officials, the competent Land authorities were unable to provide information on whether any system of administrative checks existed or on the procedures for on-the-spot checks .
26 In particular those authorities were said to be unable to provide information on the manner in which applications for premiums were dealt with, on the frequency of on-the-spot inspections, on the failure to draw up a written report following such checks as were carried out, or on the system of communication between the supervisory authorities and local officials responsible for implementation .
27 Without contradicting those findings by producing evidence, the applicant government merely contends that administrative checks were in fact carried out, as well as on-the-spot inspections, and that the failure to draw up written reports proves that the officials entrusted with carrying out the checks did not find any irregularities, since written reports were drawn up only when necessary, namely in the case of irregularities .
28 In that connection it should be stated that the applicant State has not been able to show that the Commission' s findings were inaccurate . Those findings are capable of giving rise to serious doubts as to the existence of an adequate and effective series of supervisory measures and inspection procedures as regards the conditions for the grant of premiums in the Land in question .
29 On the basis of those considerations, the applicant' s submissions concerning the disallowance, for the purposes of Community financing, of amounts paid by way of premiums in favour of sheepmeat producers in North Rhine-Westphalia in respect of the 1984 and 1985 financial years must be rejected .
30 As regards the premium for the maintenance of the suckler cow herd, it is clear from the contested decision, and from the documents and proceedings before the Court, that the criticisms made against the three Laender relate more particularly to the following four points, each one of which constitutes, according to the Commission, a specific failure to observe the conditions required for the grant of the premium .
31 First, in the three Laender in issue, there are said to be no rules governing the manner in which the number of suckler cows kept in a holding is to be calculated on the spot, in such a way as to facilitate compliance with the obligation to keep for a period of six months a number of suckler cows at least equal to the number in respect of which the premium was granted .
32 Secondly, it was necessary for provision to be made for the drawing up of a written report on the results of on-the-spot inspections; no such provision is said to have been made in the three Laender in question .
33 Thirdly, rules ought to have been laid down in the three Laender for checking compliance with the undertaking given by the person applying for the premium not to sell milk or milk products for 12 months from the day on which the application is lodged .
34 Lastly, rules ought also to have existed for the purpose of ensuring compliance with the condition that the person applying for the premium must be a person whose main income is derived from farming, that is to say a farmer deriving at least 50% of his income from his farm .
35 The applicant disputes that it was under an obligation to introduce the rules mentioned by the Commission .
36 On the basis of the general considerations set out above, it should be pointed out that the Community rules, though not going so far as to impose on Member States the requirement to adopt detailed and rigid rules, nevertheless entail the obligation to establish a coherent set of measures containing specific guidelines for the officials entrusted with on-the-spot inspections .
37 Such a set of measures must in the present case include rules on the manner of calculating the number of suckler cows kept on a farm, on the frequency of checks to be made, and on the criteria relating to the choice of holdings to be inspected . It must also provide for a written report to be drawn up on the results of the on-the-spot inspections carried out . In the absence of any such arrangements, the supervision provided for in Article 4(1 ) of Regulation No 1224/82, mentioned above, would be rendered meaningless and subsequent supervision by the Commission would be rendered practically impossible .
38 Consequently, the submission that the Commission was not entitled to consider the obligations set out above as requirements arising out of the relevant Community rules cannot be upheld .
39 The German Government goes on to claim that checks were in fact properly carried out and that they were adequate .
40 On that point it is clear from the documents before the Court that in North Rhine-Westphalia and Bavaria there were no rules properly so called on the method of calculating the number of suckler cows on a farm or on the need for a written report to be drawn up following inspections, or on the procedures for checking compliance with the conditions on not selling milk or on the majority of income being derived from farming .
41 In support of its conclusions with regard to the absence of any genuine overall organization of supervision in the Laender in question, the Commission cites a certain number of individual cases in which it found that the premiums in question had been granted without justification . In the applicant' s view, these individual cases, on the assumption that they be proven, cannot justify the blanket refusal by the Commission to allow EAGGF financing, but at the most, a disallowance of expenditure in respect of the individual cases in question .
42 That approach cannot be accepted . In fact those individual cases in which premiums were wrongly granted merely constitute an additional factor in support of the Commission' s allegation that, in the two aforementioned Laender, an effective set of measures for supervising and checking compliance with the conditions for the grant of the premiums did not in fact exist .
43 It follows that the submissions relating to those two Laender must be dismissed .
44 As far as Baden-Wuerttemberg is concerned, on the other hand, although the Commission' s allegations with regard to the failure to provide for a written report to be drawn up after on-the-spot inspections have been carried out are well founded, non-compliance with the other obligations set out above has not been established . In fact, it is clear from the documents before the Court that there was some form of system of checks in this Land, including verification, even if only superficial, of compliance with the requirement of not selling milk and the condition concerning the predominance of income from farming . That conclusion is corroborated by the fact that the Commission did not cite in regard to this Land individual cases in which the premium was granted in a manner which was manifestly erroneous .
45 Consequently, the part of the Commission' s decision refusing to charge to the EAGGF expenditure incurred in Baden-Wuerttemberg by way of premiums for the maintenance of the suckler cow herd is not justified and must therefore be annulled .
46 On the basis of the foregoing considerations the contested Commission Decision must be annulled solely inasmuch as it did not charge to the EAGGF expenditure incurred by way of premiums for the maintenance of the suckler cow herd in Baden-Wuerttemberg in respect of the 1984 and 1985 financial years, and the remainder of the application must be dismissed .
Decision on costs
Costs
47 Under Article 69(2 ) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs . However, the first subparagraph of Article 69(3 ) provides that the Court may order the parties to bear their costs in whole or in part if each party succeeds on some and fails on other heads .
Operative part
On those grounds,
THE COURT
hereby :
( 1 ) Annuls Commission Decision 87/541/EEC of 21 October 1987 amending Decisions 87/468/EEC and 87/469/EEC on the clearance of the accounts presented by the Member States in respect of the European Agricultural Guidance and Guarantee Fund, Guarantee Section, expenditure for 1984 and 1985, inasmuch as it did not charge to the EAGGF expenditure incurred by way of premiums for the maintenance of the suckler cow herd in Baden-Wuerttemberg in the financial years in question;
( 2 ) Dismisses the remainder of the application;
( 3 ) Orders each of the parties to bear its own costs .