Judgment — ECLI:EU:C:1998:556
Date: 1998-11-19
Language of the case: French
Court formation: Fifth Chamber
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Agriculture and Fisheries;Cereals;European Agricultural Guidance and Guarantee Fund (EAGGF)
Concepts: Export refunds;Conditions subject to which expenditure is borne by the EAGGF;General
Procedure: Action for annulment - unfounded
Origin: France

Summary Report of 15 April1997 on the results of inspections concerning the clearance of the EAGGFGuarantee Section accounts for 1993 that: 'On notification of these findings the French authorities took action to improvetheir procedures. The fact remains, however, that the inadequacies of the systemput EAGGF funds at significant risk during the 1992/93 and 1993/94 marketingyears. 23. The Commission identified several persistent weaknesses during 1993 (p. 113):  delays in booking stocks  some inadequacy in surveillance  inadequacy of storage conditions and inadequate signs identifyingintervention stocks  absence of plans  inadequate stock records. 24. The contested decision applied the financial correction of 2%. 25. In support of its claim for annulment, the French Government relies on three pleasin law, alleging that the national management and control system was in accordancewith Community legislation and that there has been a breach of the principles oflegal certainty and proportionality. Conformity of the national management and control system with Communitylegislation 26. The French Government submits that the national system for the management andcontrol of the quantities and quality of cereals delivered into intervention duringthe 1993 financial year met the requirements laid down by Community legislation. 27. In France, all storage facilities are subject to technical approval. They are recordedin a technical storage register maintained by the Office National Interprofessionneldes Céréales (hereinafter 'the ONIC). Since it possesses no storage facilities of its own, the ONIC relies on service providers with which it enters into storagecontracts. 28. Under those contracts, storage bodies are liable in particular where there are foundto be goods outside the scope of the contract or where the quality of the cerealsis not identical with that recorded on entry into storage. Failure to observe theobligations provided for entails financial penalties in addition to the reimbursementof the storage aid wrongly paid; they are imposed systematically and are a deterrentintended to prevent misappropriation of goods or failure to monitor the storedcereals properly. 29. According to the French Government the inspection when the products were putinto storage covered both the quantities being put into storage and the quality ofthe cereals, gauged on the basis of representative samples of the batches. Therehas always been inspection at the time of delivery. The ONIC is generallyrepresented by the storage body at the time of delivery. However, where thestorage body and the supplier are interdependent, the ONIC calls on the servicesof a monitoring company. 30. Even if there was in some cases delay in entering data into the accounts, that doesnot in any way call into question the reliability of the declarations since transactions(entry into and removal from storage) are tracked daily. It has therefore alwaysbeen possible to produce an accurate list of stocks in each warehouse at the timeof the inspections by comparing the entries and removals recorded in the mostrecent declarations. 31. In addition, in 1993 the risk of circumvention of Community rules on public storageof cereals was taken into account. 32. In order to ensure that public storage was being undertaken properly, the Frenchauthorities implemented measures not provided for under Community rules, inparticular requiring storage agencies to affix signs stating how much storagecapacity they were renting to the ONIC. 33. It is clear from the reports drawn up at the time of the inspections carried out bythe Commission that storage conditions were satisfactory. Whilst they makemention of some wholly insignificant incidents (such as dead birds and insulationpanels being found on the stored cereals), those incidents do not show that theconditions in which the goods were stored were unsatisfactory since the EAGGFinspectors did not make any reservations on that point. 34. In that regard, the financial audit report of the paying bodies for the 1993 and 1994financial years carried out by Ernst and Young at the Commission's requestconcludes as follows: 'Variances are properly followed up. The reconciliations of the quantities ofcereals on the annual clearance statements for 1993 and 1994 with those on thecomputer print-outs from the ONIC's management system are accurate(paragraph 7.3.5 of Annex 7 to the audit report). 'The quantity control inspections carried out by the ONIC are clearly of a goodstandard: they are frequent, supported by a defined procedure, systematic, andintermediate inspections are unannounced. They enable the ONIC to form areliable view of the information provided by the storage bodies. In addition, as aresult of the fact that information is compiled manually, which is undoubtedly alengthy and tedious process, the ONIC's management system enables detailedinformation to be available on the amount of cereals in storage with each storagebody at any given time (paragraph 7.4 of Annex 7 of the audit report). 35. The French Government points out that the main analyses and conclusions in theaudit report demonstrate the effectiveness of the inspection, inventory and storagesystem put into place by the ONIC's management system, enabling inter alia detailsof the stocks of cereals held by each storage body to be ascertained at any giventime. It is clear from the report that one of the main criticisms levelled by theCommission, relating to quantity control at the storage bodies, is wholly withoutfoundation. 36. The French Government denies that the Commission's remarks contained, inparticular, in the memorandum appended to its letter of 20 September 1993, leadto the conclusion that there were failings which exposed the EAGGF to the risk ofloss. 37. A number of the Commission's comments concerned requirements not provided forby the legislation in force. Thus, nothing in Community law requires stocks to beentered in real time using the computer system of the intervention agency's headoffice. The same is true of the systematic placing of signs in storage areas. Finally,there is no Community provision specifying the conditions under which storageorganisations' stock records are to be kept. 38. First of all it must be observed that it is settled case-law that the Commission isonly permitted to charge to the EAGGF sums paid in accordance with the ruleslaid down in the various sectors of agricultural production, leaving the MemberStates to bear the burden of any other sum paid, and in particular any amountswhich the national authorities wrongly believed themselves authorised to pay in thecontext of the common organisation of the markets (Case 11/76 Netherlands vCommission [1979] ECR 245, paragraph 8; Case 18/76 Germany v Commission[1979] ECR 343, paragraph 7, and Case C-48/91 Netherlands v Commission [1993]ECR I-5611, paragraph 14). 39. Whilst it is for the Commission to prove that there has been a breach ofCommunity rules, it is for the Member State to demonstrate, if appropriate, thatthe Commission erred as to the financial consequences to be put into effect as aresult (see to that effect Case 49/83 Luxembourg v Commission [1984] ECR 2931,paragraph 30). 40. In this connection, it must first of all be observed that, according to the statementsof the Conciliation Body relating to the 1992 financial year, the French authoritiesdo not deny that they should have significantly modified their procedures in orderto meet the Commission's requirements and that the Community inspectionsidentified various irregularities, which the French authorities have admitted andpenalised (see paragraph 15 above). Furthermore, in its final report of 5December 1996, the Conciliation Body maintained its earlier observations andconclusions in respect of the 1993 financial year (see paragraph 21 above). 41. Second, it is apparent from Annex 2 to the Commission's letter of 16 November1994 that, when its representatives carried out their inspection visit in June 1994,they found that prefinanced wheat had been mixed with the storage body's privatelyheld wheat (see paragraph 11 above). 42. Third, it is clear from a letter addressed to the French Republic by the Commissionon 13 June 1997 that the Commission's staff pointed out in 1994, 1995 and 1996that the defects they had previously identified in the French system for inspectingand storing cereals, such as the fact that no representative of the ONIC waspresent at delivery, the weaknesses in the annual inventory and the inadequatechecking of data, continued to exist. 43. Fourth, the French Government acknowledged in its reply that it was possible thatcertain rules had not been complied with in practice. 44. Finally, no argument can be advanced on the basis that some of the Commission'scomplaints related to requirements not expressly laid down by the Communityrules. 45. Article 8(1) of Regulation No 729/70, which defines the principles according towhich the Community and the Member States are to ensure the implementationof Community decisions on agricultural intervention financed by the EAGGF andcombat fraud and irregularities in relation to those operations (see Joined Cases146/81, 192/81 and 193/81 BayWa [1982] ECR 1503, paragraph 13), imposes on theMember States the obligation to take the measures necessary to satisfy themselvesthat the transactions financed by the EAGGF are actually carried out and areexecuted correctly, to prevent and deal with irregularities and to recover sums lostas a result of irregularities or negligence, even if the specific Community act doesnot expressly provide for the adoption of particular supervisory measures (see CaseC-8/88 Germany v Commission [1990] ECR I-2321, paragraphs 16 and 17). 46. In view of those considerations, the first plea in law must be rejected. The principle of legal certainty 47. By its second plea in law, the French Government alleges that the Commissionbreached the principle of legal certainty by going back, on account of 'persistenttrade rumours ... that stocked goods and market cereals are switched in particularupon the sale of stocks into intervention, on the undertaking it had given in itsletter of 8 April 1994 not to impose any financial consequences in the context ofthe clearance of accounts. 48. The Commission denies having given any undertaking to the French authorities tothe effect that the deficiencies found in the control system would not give rise toany financial correction whatever. According to the Commission, the possibility ofa financial correction had been expressly raised in the correspondence with theFrench authorities. 49. Without its being necessary to consider whether an alleged undertaking given bythe Commission after the end of the financial year at issue not to impose an overallfinancial penalty is capable of permitting a Member State to escape the financialconsequences of its failure to comply with its obligations under Communityagricultural legislation, it need only be observed that, as is evident from paragraphs7 to 9 of this judgment, that undertaking was, in any event, given subject to theproviso that cereal bought into intervention should not prove to have been replacedby privately-held cereal. The decision to impose a correction was in fact takenafter Commission staff had discovered substitutions in the presence ofrepresentatives of the national authorities and following an inquiry, as is clear fromthe Commission's letter of 16 November 1994. 50. In view of those considerations, the second plea in law must be rejected. The principle of proportionality 51. In the alternative, the French Government claims that the contested decision wascontrary to the principle of proportionality. In its view, the correction could not,in any event, be applied in respect of budget item 10-13, which concerns losses instocks sold, which were fully offset in accordance with the procedure laid down byRegulation No 3597/90. 52. In that connection, it need only be observed that the Commission was able toestablish not only that intervention stocks were in fact missing but more generallythat monitoring was inadequate. That showed that more stocks could be missing and thus that there was a risk of additional losses which could not be made goodin accordance with Regulation No 3597/90. 53. The third plea must therefore be rejected. The correction in respect of an export refund for processed cheese 54. Regulation (EEC) No 876/68 of the Council of 28 June 1968 (OJ, English SpecialEdition 1968 (I), p. 234) lays down general rules for granting export refunds onmilk and milk products and criteria for fixing the amount of such refunds. Article6 provides that the refund is to be paid upon proof that the products have beenexported from the Community, and that they are of Community origin. 55. By Regulation (EEC) No 3665/87 of 27 November 1987 (OJ 1987 L 351, p. 1), theCommission laid down common detailed rules for the application of the system ofexport refunds on agricultural products. 56. Article 3 thereof provides: '1. The day of export means the date on which the customs authority acceptsthe export declaration in which it is stated that a refund will be applied for. ... 4. The day of export shall be used to establish the quantity, nature and characteristics of the product exported. 57. Article 5(1) provides: 'Payment of the differentiated or non-differentiated refund shall be conditional notonly on the product having left the customs territory of the Community but also save where it has perished in transit as a result of force majeure  on its havingbeen imported into a non-member country and, where appropriate, into a specificnon-member country within 12 months following the date of acceptance of theexport declaration: (a) where there is serious doubt as to the true destination of the product, or (b) where ... it is possible that the product may be re-introduced into theCommunity. 58. The final subparagraph of Article 5(1) adds: 'In addition, the competent authorities of the Member States may require thatadditional evidence be provided such as to satisfy them that the product has actually been placed on the market in the non-member country of import in theunaltered state. 59. Article 13 provides: 'No refund shall be granted on products which are not of sound and fairmarketable quality, or on products intended for human consumption whosecharacteristics or condition exclude or substantially impair their use for thatpurpose. 60. Finally, Article 17, which relates to differentiated refunds, provides that the productmust have been imported in the unaltered state into the non-member country andgoes on to specify in Article 17(3) that: 'A product shall be considered to have been imported when it has been clearedthrough customs for release for consumption in the non-member countryconcerned. 61. The cheese company Bel exported 14 256 boxes of 'Vache qui rit cheese to SaudiArabia in the last quarter of 1988, weighing a total of 89 813 kg and having amarket value of FF 883 700. It was entitled to refunds for those exports underArticle 17 of Regulation (EEC) No 804/68 of the Council of 27 June 1968 on thecommon organisation of the market in milk and milk products (OJ, English SpecialEdition 1968 (I), p. 176). 62. On 20 June 1989, six months after shipment of the boxes, Bel issued a credit noteto the buyer, Abbar and Zainy Cold Stores in Jedda, in the amount ofUS $ 187 110.78, representing the invoice value of 12 148 boxes. 63. The buyer allegedly considered the texture of the cheese to be too soft havingregard to the product's usual standards. Bel therefore decided to destroy the12 148 boxes in the interests of preserving the product's brand image. 64. During an investigation carried out on 6 November 1991 pursuant to CouncilRegulation (EEC) No 4045/89 of 21 December 1989 on scrutiny by Member Statesof transactions forming part of the system of financing by the Guarantee Sectionof the European Agricultural Guidance and Guarantee Fund and repealingDirective 77/435/EEC (OJ 1989 L 388, p. 18), the French authorities found that 'The products from the group's Belgian factory were examined by the company'squality control staff. They formed the view that the manufacturing procedure hadbeen inadequately monitored during some ten days of manufacture, which led tothe withdrawal from sale of all the products affected. 65. Following the destruction of the products, Bel received an export refund ofFF 720 720. 66. By letters of 5 January, 3 April and 9 October 1995 the Commission informed theFrench authorities that a consignment of 76 500 kg of cheese was not eligible forintervention by reason of, firstly, the fact that it was of unsatisfactory quality fromthe time of manufacture and, second, the fact that it was not put on the market inthe country of destination. 67. By letters of 16 January and 23 April 1996, the Commission informed the FrenchRepublic of its proposal to exclude from EAGGF funding the sum of FF 720 720,the amount representing the export refund granted in respect of the 76 500 kg ofprocessed cheese. 68. The French Republic referred the matter to the Conciliation Body. In its finalreport of 8 November 1996, the Conciliation Body concluded that '... it is unable to find a basis for conciliation in this case. It wishes to emphasisethe importance of rapid clarification of the applicable Community provisions, inparticular Articles 5 and 13 of Regulation No 3665/87. 69. In the contested decision, the Commission corrected the sum of FF 720 720 on thegrounds set out at paragraph 4.2.2.3 of the Summary Report on the basis that  the product was not of marketable quality (see Article 13 of Regulation No3665/87);  the defect in quality was caused during manufacture, and consequentlybefore export (see Article 3 of Regulation No 3665/87);  the product was not put on the market in the country of destination (seeArticle 5 of Regulation No 3665/87). 70. In support of its application for annulment, the French Government claims that theexport refund in respect of the processed cheese was made in accordance with therules contained in Regulation No 3665/87. Therefore, the contested decision doesnot comply with Regulation No 729/70 and in particular Articles 2 and 3 thereofwhich provide that the EAGGF is to finance interventions intended to stabilise theagricultural markets where expenditure is undertaken by the competent nationalauthorities in compliance with Community law. 71. The French Government puts forward two arguments in support of this sole plea. 72. First, the products were of sound and fair marketable quality on the day of export. 73. The importer only discovered that the cheese was of a softer texture than usualwhen he came to sell the products. According to the French Government, therewas no evidence at the time when customs clearance was carried out by the Saudiauthorities of any microbial or physical or chemical defect, or of any foreign body,or that the dates by which the products had to be used had passed. 74. Second, the cheese was in fact exported to Saudi Arabia within the meaning ofArticle 5 of Regulation No 3665/87. 75. The customs formalities for releasing the products for consumption were dulycompleted. The fact that the products were later destroyed does not alter the factthat they did effectively reach the Saudi market. Pursuant to Regulation No3665/87, products must be deemed to have been put on the market as soon as theformalities for releasing them into free circulation are completed in the country ofdestination and the customer takes possession of the products. 76. So far as the sound and fair marketable quality of the products in question isconcerned, in the absence of Community rules providing a definition thereof it isfor the Member States themselves to adopt more precise provisions (see, to thateffect, Case C-371/92 Ellinika Dimitriaka [1994] ECR I-2391, paragraph 23). 77. However, such national provisions may conflict with the general scheme of theapplicable Community rules. In that connection, the ninth recital in the preambleto Regulation No 3665/87 provides that products in respect of which an exportrefund is applied for must be 'of a quality such that they can be marketed onnormal terms. 78. On this point, it need only be observed that the French Government hasacknowledged that the difference in quality compared to the usual texture of theproduct was due to a manufacturing defect, as was established by internal checkscarried out by the manufacturer (see paragraph 64 of this judgment). 79. It is of little importance that the defect in the texture only became apparent uponinspection by the Saudi customer. On the day of export, the product in questionhad a latent defect, the result of which was that it was not of sound and fair marketable quality within the meaning of Article 13 of Regulation No 3665/87. 80. Taking the opposite view would result in the general public having to bear theconsequences of the manufacturer's failure to fulfil its contractual obligations todeliver the product as specified. That is not the purpose of the refund scheme,which is intended solely to enable Community products to be exported where thiscourse would not otherwise be financially viable for the exporter (see CaseC-299/94 Anglo Irish Beef Processors International and Others [1996] ECR I-1925,paragraphs 21 and 22). 81. Since no refund is payable under Article 13 of Regulation No 3665/87 where theproducts are not of sound and fair marketable quality, it is not necessary to go onto examine whether the processed cheese in question was in fact imported intoSaudi Arabia within the meaning of Article 5 of that regulation. 82. In view of those considerations, the application must be dismissed in its entirety. Costs 83. Under the first sentence of Article 69(2) of the Rules of Procedure, theunsuccessful party is to be ordered to pay the costs if they have been applied forin the successful party's pleadings. Since the French Republic has beenunsuccessful, it must be ordered to pay the costs. On those grounds, THE COURT (Fifth Chamber) hereby: 1. Dismisses the application; 2. Orders the French Republic to pay the costs. Puissochet Moitinho de Almeida Gulmann Edward Wathelet Delivered in open court in Luxembourg on 19 November 1998. R. Grass J.-P. Puissochet Registrar President of the Fifth Chamber 1: Language of the case: French.