Judgment — ECLI:EU:C:2000:687
Date: 2000-12-14
Language of the case: German
Court formation: Sixth Chamber
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Agriculture and Fisheries;European Agricultural Guidance and Guarantee Fund (EAGGF)
Concepts: Statement of reasons;Procedure for clearance of accounts
Procedure: Action for annulment - successful
Origin: Germany

summary report of 15 April 1997 on the results of inspections concerning the clearance of the EAGGFGuarantee Section accounts for 1993 (13) (hereinafter 'the summary report), which underlies the contested Decision, justifies the 2% reduction in the amount chargeable for the German milk promotion campaigns by stating that the competent authority had failed to check on the implementation of the relevant contracts and, in particular, to ensure that the objectives of the programmes were achieved. The different language versions of the report are not perfectly consistent in this respect. While the German version refers in particular to the latter alleged failing ('Die Zahlstelle hat es unterlassen, die Durchführung der betreffenden Verträge zu überwachen und insbesondere zu gewährleisten, daß die Ziele des Programms erreicht wurden), the French refers to the two items disjunctively ('L'organisme payeur n'a pas contrôlé la mise en oeuvre des contrats en cause ni veillé à l'application des objectifs des programmes) and the English mentions them conjunctively ('The paying agency failed to monitor implemenation of the contracts concerned and to ensure that the objectives of the programmes were met). (14) This conclusion is explained under the two headings of financial regularity (finanzielle Ordnungsmäßigkeit) and cost-effectiveness (Kosten-Nutzen-Verhältnis). Under the first heading, the Commission stated that CMA's interim reports to BALM did not 'show whether the contracts were progressing properly or, in German, whether or not they were being properly implemented ('ob die Verträge ordnungsgemäß durchgeführt wurden). Under the second, the Commission essentially reiterated, with only minor textual variations, its observations in its letters of 2 May 1996 and 26 November 1996. III - Arguments of the parties 16. It should be noted at the outset that it appears that the Commission accepts that the promotional campaigns achieved their stated objectives (although, somewhat confusingly, its written pleadings cast doubt on this conclusion at one point). Germany submits that it is not lawful for the Commission to reduce the amount chargeable to the EAGGF in the light of a merely abstract risk, which failed to materialise, that Community funds might not be used in an optimal fashion. The Commission responds that the insufficiency of Germany's surveillance of CMA's implementation of its contracts was, in itself, a breach of Article 8(1) of Regulation No 729/70, applied in conjunction with Article 6(2)(b) of Regulations Nos 465/92 and 585/93. Germany contends that there was nothing in the exchanges leading to the adoption of the contested Decision to suggest that the reduction concerned a general lack of surveillance of the type required by Article 6(2)(b) of the latter two regulations. The Commission counters that it raised the general insufficiency of checks by BALM in its letters of 27 October 1994 and 26 November 1996 and in the summary report for the financial year 1993. 17. Germany submits that BALM concluded contracts in the precise terms provided for by the two Regulations and that the interim reports were prepared in accordance with point 6.1 of these standard contracts. They all contained a short description of measures adopted to date, accompanied by receipts for expenditure. No obligation was imposed regarding a cost-effectiveness assessment in such reports, as distinct from the case of the final report, for which such an assessment was expressly required. Interim reports on similar lines were submitted without objection under previous schemes, although the terms of the relevant Community rules had not been altered in the meantime. Instead, the express requirements regarding the content of interim reports under later schemes have been expressly altered to reflect the concerns raised by the Commission in the present case. Germany also cited a fax from the Commission of 27 January 1993, indicating that interim reports need not be more than half a page in length. Furthermore, the proposals on the basis of which CMA was awarded the contracts, which included details such as the titles of periodicals in which advertisements would be placed, had been approved by the Commission. BALM could not impose additional obligations on CMA which were not contained in the contracts. 18. The Commission considers that the need for an interim assessment of cost-effectiveness and of the progress made in executing the contract can be implied from the general obligations imposed by Article 2 of the Financial Regulation, as amended, and by Articles 8 and 9 of Regulation No 729/70, allied with the fact that Community funds could be wasted if it were not possible to abandon a promotional strategy which failed to reach or to have an effect on its target audience. Even a short interim report could give the numbers of persons attending presentations or the readership levels of publications which carried advertisements, without having to engage in actual market studies at this stage. 19. Germany submits that, in any event, BALM conducted all the inspections required by Article 6(2)(b) of Regulations Nos 465/92 and 585/93, and gives details of two inspection visits in an annex to its application. The Commission responds that the insufficiency of the interim reports should have prompted BALM to make more than the minimum two inspections. In addition, it criticises BALM for failing to assess qualitative aspects of CMA's activities during its inspections in order to ascertain that Community funds were being used correctly. It also asserts that BALM accepted non-itemised invoices from one of CMA's subcontractors and did not even check if television advertisements for which CMA produced invoices had actually been broadcast. 20. Germany replies that the two inspection reports annexed to its application were merely samples and that a considerably larger number of on-the-spot inspections actually took place: 46 under one contract, 306 under the other. Germany also furnishes evidence to contradict the Commission's contentions regarding the lack of checks on subcontractors and on broadcast advertising and argues, more generally, that these contentions are part of an attempt by the Commission to widen the scope of its criticisms to include complaints which do notappear in the summary report for the financial year 1993. The Commission counters that this evidence has been presented late and should not be taken into account by the Court, and that the insufficiency of BALM's inspections was expressly mentioned in that report. The criticisms set out under the two subheadings of financial regularity and cost-effectiveness were stated to be particular examples of this insufficiency. IV - Analysis 21. It is necessary, first of all, to determine the scope of the grounds on which the Commission decided to reduce by 2% the amount chargeable to the EAGGF in respect of the German milk-promotion campaigns under Regulations Nos 465/92 and 585/93. In particular, I wish to determine whether that reduction was attributable exclusively to BALM's failure to engage in qualitative assessments of CMA's activity, or was also based on a more general failure by BALM to conduct proper and sufficiently numerous checks of the expenses invoiced by CMA and its subcontractors. In my view, the former is clearly the case, with the result that much of the Commission's defence is immaterial. 22. It is settled case-law that the extent of the duty to state the reasons on which a decision is based, laid down in Article 190 of the EC Treaty (now Article 253 EC), depends on the nature of the act in question and on the context in which it was adopted. A decision relating to the clearance of the accounts in respect of expenditure financed by the EAGGF and refusing to charge to the EAGGF a proportion of the expenditure declared does not require a detailed statement of reasons where the government concerned has been closely involved in the process of drawing up the decision and is well aware, from a report to which reference is made and which has been communicated to it, of the reason for which the Commission considers that it should not charge the contested amount to the EAGGF. (15) 23. Thus, the laconic character of the reference at point 4.3.2.1 of the summary report for the financial year 1993 to the competent authority's failure to check on the implementation of the relevant contracts could be understood as referring to other problems, in addition to those expressly mentioned under the subsequent two subheadings, provided that such additional problems had, in fact, been discussed in earlier exchanges between the Commission and the German authorities. However, there is no reference in the earlier correspondence to the Commission's concerns about the number of inspections made by BALM under the two contracts, the manner in which subcontractors' invoices were checked and the verification ofexpenses for broadcast advertising. The closest the Commission came to voicing such concerns was in the internal note forwarded to the German authorities on 10 March 1997, in which it said that the lack of information in the interim reports should have prompted BALM to take corrective management action. However, this statement did not identify the three alleged problems outlined immediately above. Furthermore, it was made in the context of a reference to the inspection visit of 19 to 23 September 1994, the report of which, annexed to the Commission's letter of 27 October 1994, did not mention any such problems, and of a discussion of the role of the interim reports in alerting the authorities to the need to adjust the means employed in the campaigns. 24. It is not possible, in my view, to include these three issues under the subheading of financial regularity employed both in the Commission's consolidated final report and in its letters of 2 May 1996 and 26 November 1996. Although they relate to financial regularity in the sense in which that term is normally used, nothing in the earlier exchanges between the parties suggests that the Commission's conclusion under this subheading was drafted in contemplation of these three alleged problems. Furthermore, it is clear that the Commission was using the term financial regularity in a much wider sense, which is difficult to distinguish from the term cost-effectiveness in the second subheading. This is demonstrated by the reference in its letters of 2 May 1996 and 26 November 1996 to the qualitative criterion of sufficient progress, rather than to mere compliance with projected spending plans. 25. As a result, the two issues referred to 'in particular in point 4.3.2.1 of the summary report are the only two issues which Germany needs to address in its application for the annulment of the Commission's decision to reduce its chargeable expenditure. Germany argues, essentially, that the contracting partner's interim reports are not required to contain information necessary for a qualitative assessment regarding the achievement of the promotional campaigns' objectives and that, in consequence, BALM was under no obligation to conduct checks regarding such matters in the absence of such information. In my view, its case is well founded. In reaching this conclusion, I am not influenced by the Commission's departure from a practice regarding the content of interim reports which Germany alleges was well established during previous campaigns. The Court has held that the principles of legal certainty and of the protection of legitimate expectations do not require that past toleration by the Commission of irregularities be maintained in subsequent financial years. (16) The point of central importance is that Regulations Nos 465/92 and 585/93 and the accompanying standard contracts and selection or implementation criteria do not in any way advert to the existence of an obligation regarding the content of interim reports of the type invoked by the Commission and that such an obligation cannot be implied from Articles 8 and 9 of Regulation No 729/70 or from Article 2 of the Financial Regulation. 26. The Commission implicitly relies on the provisions of the latter two regulations cited immediately above by employing the subheadings of financial regularity and cost-effectiveness. I have already indicated that the Commission has, in my view, placed upon the former term a construction much wider than would normally be used. While it merely stated in the German version of the summary report that the interim reports did not indicate whether or not the contracts were implemented in a regular fashion, it is clear from the preceding correspondence (and, for example, from the English and French versions of the summary report) that the Commission included under this rubric the achievement of a satisfactory level of progress in communicating the benefits of milk products to consumers or chosen target groups. In a context where the broad lines of the campaigns to be conducted by CMA, as laid down in its proposals, had been approved in advance by the Commission, the question of the specific appropriateness of the speakers, material and media employed by CMA, as opposed to that of whether or not the measures at issue were actually taken and the expenses claimed were incurred, does not, to my mind, relate to the surveillance of financial regularity required by Article 8(1) of Regulation No 729/70. In particular, the requirement in that provision that Member States satisfy themselves that transactions are 'executed correctly does not extend to an ongoing assessment of the appropriateness from a policy perspective of a programme already approved in principle. Similarly, the requirement in Article 6(2)(b) of Regulation No 465/92 that competent authorities 'ensure compliance with the agreed conditions and that in Article 6(2)(b) of Regulation No 585/93 that they 'verify that measures are implemented in accordance with the provisions of the contract do not, in my view, entail any such obligation, which goes substantially beyond checking adherence to the contractual terms actually agreed on the basis of the proposals. 27. I have already said that the criterion employed by the Commission under the subheading of financial regularity is difficult to distinguish from that of cost-effectiveness. In the light of the foregoing, it is more useful to examine the Commission's approach exclusively under the latter rubric. I would note, in passing, that there is a certain level of inconsistency in the Commission's arguments. In its pleadings before the Court, it denied that it wished CMA to conduct any sort of market study for the purposes of its interim reports. However, it is difficult to comprehend the reference in the consolidated final report to the lack of information on the actual effect of CMA's campaigns on consumption in the absence of such a requirement. 28. More generally, however, I take the view that the Commission's approach is inconsistent with the terms and scheme of the two regulations governing the milk-promotion campaigns and the accompanying standard contracts and criteria and is in no way bolstered by reference to Article 2 of the Financial Regulation. The latter provision establishes an obligation of a general character which does not necessarily (and, in practical terms, probably cannot) apply with equal intensity at all stages of the implementation of Community-funded programmes. In my view,that obligation to observe the principle of cost-effectiveness and to monitor the achievement of quantified objectives, which is mirrored in part in Article 1(1) of Regulation No 465/92, is given concrete expression at two stages in the procedure governing the milk-promotion campaigns at issue in the present case: the assessment of proposals and the submission of the final reports on the campaigns. As a result, it is not, in my view, permissible for the Commission to seek to derive supplementary substantive obligations from the Financial Regulation itself. 29. It is clear from the context of Article 2(1)(c) of Regulation No 465/92 and of the first two indents of Article 2(2) of Regulation No 585/93 that their requirements that the most effective means be used and that account be taken of local market conditions relate to the proposals to be submitted by interested organisations. Furthermore, the detailed proposals are required by Article 4(1)(b) and (c) of both regulations to justify the measures proposed, to indicate the expected results and to outline a detailed strategy, while point 18 of the selection criteria in respect of Regulation No 465/92 stresses the need for a clear statement of objectives in the proposal. 30. Upon the completion of the campaigns, it is clear from point 6.4 of both standard contracts that the contracting partner must give an account of the likely results of the measures adopted. Point 19 of the selection criteria under Regulation No 465/92 indicates that the final report should advert to compliance with the original proposal, the achievement of its objectives and the development of milk sales. In contrast, point 6.1 of the contracts merely requires the interim reports to refer to work completed and to be accompanied by the relevant receipts. 31. The express requirements regarding the interim reports seem to be related exclusively to the control of financial regularity in the narrow sense of checking on expenditure and the performance of the agreed programme. The scheme of the two regulations suggests that these reports are submitted in the framework of a procedure where qualitative assessments of the likely and actual success of the contracting partner in achieving the promotional objectives are undertaken (and are expressly provided for) at the initial and final stages. In contrast to the detailed requirements regarding the content of the proposal, there is no hint that information should be provided in the course of the campaign which might, if necessary, prompt a change of strategy. It may represent a positive step, from the point of view of sound financial management, to impose such an additional requirement. However, in a regulatory framework which already makes express provision for checks on cost-effectiveness and the achievement of quantified results at other stages, such an additional obligation cannot, without more, be derived directly from the terms of Article 2 of the Financial Regulation. That would be an affront to the principle of legal certainty and would cast an unnecessary doubt on the adequacy of the detailed provisions of Regulations Nos 465/92 and 585/93. 32. As a result, I conclude that the Commission erred in law in characterising the response of the German authorities to the interim reports submitted by CMAas a breach of the applicable Community rules, which merited a reduction in the expenses chargeable to the EAGGF because of the attendant risk that Community funds would be improperly employed. In these circumstances, there is no need to address Germany's distinct argument that the Commission is not entitled to make such reductions in respect of an abstract risk which does not, ultimately, materialise. V - Conclusion 33. In the light of the foregoing, I recommend that the Court: (1) Annul Commission Decision 97/333/EC of 23 April 1997 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1993 on the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) in so far as it reduces by 2% the expenditure chargeable to the EAGGF in respect of item 2062; (2) Order the Commission to pay the costs. 1: Original language: English. 2: - OJ 1997 L 139, p. 30. 3: - OJ, English Special Edition, Series I 1970 (I), p. 218. 4: - OJ 1977 L 356, p. 1. 5: - OJ 1990 L 70, p. 1. 6: - OJ 1992 L 53, p. 8. 7: - OJ 1993 L 61, p. 26. 8: - The competent authority is now the Bundesanstalt für Landwirtschaft und Ernährung ('BLE), but for convenience I use the term BALM throughout this Opinion. 9: - Point C of the Annex to the Commission's letter of 27 October 1994. 10: - Op. cit., point D. 11: - Op. cit., point E. 12: - This letter was the formal notification of the Commission's conclusion that certain items are not chargeable to the EAGGF Guarantee Section for the purposes of Article 1 of Commission Decision 94/442/EC of 1 July 1994 setting up a conciliation procedure in the context of the clearance of the accounts of the European Agricultural Guidance and Guarantee Fund (EAGGF), Guarantee Section, OJ 1994 L 182, p. 45. 13: - Doc. VI/5210/96 - EN consolidated. 14: - Emphasis added in both cases. 15: - See, for example, Case 819/79 Germany v Commission [1981] ECR 21, paragraphs 19 to 21; Case C-59/97 Italy v Commission [1999] ECR I-1683, paragraph 55; Case C-44/97 Germany v Commission [1999] ECR I-0000, paragraph 21. 16: - Case C-54/95 Germany v Commission [1999] ECR I-35, paragraph 12.