Case C-115/10

Bábolna Mezőgazdasági Termelő, Fejlesztő és Kereskedelmi Zrt.

v

Mezőgazdasági és Vidékfejlesztési Hivatal Központi Szerve

(Reference for a preliminary ruling from the Fővárosi Bíróság)

(Common agricultural policy – Regulation (EC) No 1782/2003 – Complementary direct national aid – Conditions for grant)

Summary of the Judgment

Agriculture – Common agricultural policy – Integrated administration and control system for certain aid schemes – Complementary national aid

(Council Regulation No 1782/2003; Council Decision 2004/281)

Regulation No 1782/2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers, as amended by Decision 2004/281 adapting the Act concerning the conditions of accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which the European Union is founded, following the reform of the common agricultural policy, must be interpreted as precluding national legislation which excludes from the benefit of complementary national aid legal persons carrying on agricultural activity in the territory of the Member State in question, on the ground that they are the subject of voluntary dissolution proceedings, when a condition that there be no such proceedings has not been the subject of prior authorisation by the Commission.

Although Regulation No 1782/2003 grants the new Member States a certain discretion in setting in motion the complementary national aid, that discretion is nevertheless limited in so far as, in accordance with the provisions of Article 143c(7) of that regulation, the amount up to which the complementary national aid may be paid, as well as its rate and the possible conditions of its grant, must be subject to the prior authorisation of the Commission.

(see paras 36, 38, 41, operative part)

JUDGMENT OF THE COURT (First Chamber)

9 June 2011 ( )

(Common agricultural policy – Regulation (EC) No 1782/2003 – Complementary direct national aid – Conditions for grant)

In Case C‑115/10,

REFERENCE for a preliminary ruling under Article 267 TFEU from the Fővárosi Bíróság (Hungary), made by decision of 31 August 2009, received at the Court on 3 March 2010, in the proceedings

Bábolna Mezőgazdasági Termelő, Fejlesztő és Kereskedelmi Zrt.

v

Mezőgazdasági és Vidékfejlesztési Hivatal Központi Szerve,

THE COURT (First Chamber),

composed of A. Tizzano, President of the Chamber, A. Borg Barthet (Rapporteur), M. Ilešič, M. Safjan and M. Berger, Judges,

Advocate General: J. Mazák,

Registrar: A. Calot Escobar,

after considering the observations submitted on behalf of:

– the Hungarian Government, by M.Z. Fehér and K. Szíjjártó, acting as Agents,

– the European Commission, by H. Tserepa-Lacombe and A. Sipos, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 10 February 2011,

gives the following

Judgment

1 This reference for a preliminary ruling concerns the interpretation of Council Regulation (EEC) No 3508/92 of 27 November 1992 establishing an integrated administration and control system for certain Community aid schemes (OJ 1992 L 355, p. 1) and of Council Regulation (EC) No 1259/1999 of 17 May 1999 establishing common rules for direct support schemes under the common agricultural policy (OJ 1999 L 160, p. 113).

2 The reference has been made in proceedings between Bábolna Mezőgazdasági Termelő, Fejlesztő és Kereskedelmi Zrt. (‘Bábolna’) and Mezőgazdasági és Vidékfejlesztési Hivatal Központi Szerve (the Office of Agriculture and Rural Development, the ‘Hivatal’) concerning the grant to Bábolna of complementary national aid for the year 2004.

Legal context

European Union (‘EU’) legislation

Decision 2004/281/EC

3 Council Decision 2004/281/EC of 22 March 2004 adapting the Act concerning the conditions of accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which the European Union is founded, following the reform of the common agricultural policy (OJ 2004 L 93, p. 1), was adopted pursuant to Article 2(3) of the Treaty concerning the accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic to the European Union, signed at Athens on 16 April 2003 (OJ 2003 L 236, p. 17), and to Article 23 of the Act of Accession relating to it (OJ 2003 L 236, p. 33, ‘the Act of Accession’).

4 That decision provides, inter alia, at Article 1(5), for the replacement of point 27 of Chapter 6, A of Annex II to the Act of Accession, which amended Regulation No 1259/1999, by provisions which amend Council Regulation (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers and amending Regulations (EEC) No 2019/93, (EC) No 1452/2001, (EC) No 1453/2001, (EC) No 1454/2001, (EC) No 1868/94, (EC) No 1251/1999, (EC) No 1254/1999, (EC) No 1673/2000, (EEC) No 2358/71 and (EC) No 2529/2001 (OJ 2003 L 270, p. 1 and – corrigendum – OJ 2004 L 94, p. 70), in order to take account of adjustments to the legislation relating to the common agricultural policy (CAP) introduced by that latter regulation, which was adopted after the signature of the accession instruments.

5 Recital 10 of Decision 2004/281 states:

‘In order to maintain the coherence of the complementary national direct payments, some adaptations have to be made following the introduction of the new single payment scheme. Specifically, it is necessary to adjust the arrangements in the act of accession to ensure that such complementary payments can function as intended under three different scenarios: firstly the “classical” direct payment scheme, secondly the regional option of the new single payment scheme, and thirdly the single area payment scheme.’

Regulation No 1782/2003

6 Regulation No 1782/2003 repealed Regulations Nos 3508/92 and 1259/1999 with effect from 1 May 2004.

7 Under Recital 21 in the preamble to Regulation No 1782/2003:

‘The support schemes under the [CAP] provide for direct income support in particular with a view to ensuring a fair standard of living for the agricultural community. This objective is closely related to the maintenance of rural areas …’

8 Article 1 of Regulation No 1782/2003, as amended by Decision 2004/281 (‘Regulation No 1782/2003’), provides:

‘This Regulation establishes:

– common rules on direct payments under income support schemes in the framework of the [CAP] which are financed by the “Guarantee” Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) listed in Annex I, except those provided for under Regulation (EC) No 1257/1999;

– an income support for farmers (hereinafter referred to as “the single payment scheme”);

– transitional simplified income support for farmers in the new Member States (hereinafter referred to as the “single area payment scheme”);

…’.

9 Under Article 2 of Regulation No 1782/2003:

‘… the following definitions shall apply:

(a) “farmer” means a natural or legal person, or a group of natural or legal persons, whatever legal status is granted to the group and its members by national law, whose holding is situated within Community territory, as referred to in Article 299 [EC], and who exercises an agricultural activity;

(b) “holding” means all the production units managed by a farmer situated within the territory of the same Member State;

(c) “agricultural activity” means the production, rearing or growing of agricultural products including harvesting, milking, breeding animals and keeping animals for farming purposes, or maintaining the land in good agricultural and environmental condition as established under Article 5’.

10 Under Title II of Regulation No 1782/2003, headed ‘General provisions’, Article 22, headed ‘Aid applications’, provides at paragraph 1:

‘Each year, a farmer shall submit an application for direct payments subject to the integrated system, indicating, where applicable:

– all agricultural parcels of the holding,

– the number and amount of payment entitlements,

– any other information provided for by this Regulation or by the Member State concerned.’

11 Article 28 of Regulation No 1782/2003, headed ‘Payment’, provides at paragraph 1:

‘Save as otherwise provided for in this Regulation, payments under support schemes listed in Annex I shall be made in full to the beneficiaries.’

12 Title III of Regulation No 1782/2003 is dedicated to the single payment scheme. Under Article 44(1) to (3) of Regulation No 1782/2003:

‘1. Any payment entitlement accompanied by an eligible hectare shall give right to the payment of the amount fixed by the payment entitlement.

2. “Eligible hectare” shall mean any agricultural area of the holding taken up by arable land and permanent pasture except areas under permanent crops, forests or used for non agricultural activities.

3. The farmer shall declare the parcels corresponding to the eligible hectare accompanying any payment entitlement. Except in case of force majeure or exceptional circumstances, these parcels shall be at the farmer’s disposal for a period of at least 10 months, starting from a date to be fixed by the Member State, but not earlier than 1 September of the calendar year preceding the year of lodging the application for participation in the single payment scheme.’

13 Title IVa of Regulation No 1782/2003 is headed ‘Implementation of support schemes in the new Member States’.

14 Under Article 143a of Regulation No 1782/2003:

‘In the new Member States direct payments shall be introduced in accordance with the following schedule of increments expressed as a percentage of the then applicable level of such payments in the Community as constituted on 30 April 2004:

– 25% in 2004,

– 30% in 2005,

– 35% in 2006,

– 40% in 2007,

– 50% in 2008,

– 60% in 2009,

– 70% in 2010,

– 80% in 2011,

– 90% in 2012,

– 100% as from 2013.’

15 Article 143b of Regulation No 1782/2003, headed ‘Single area payment scheme’, provides at paragraphs 1 to 3:

‘1. The new Member States may decide not later than the date of accession to replace the direct payments during the period of application referred to in paragraph 9 with a single area payment which shall be calculated according to paragraph 2.

2. The single area payment shall be made once a year. It shall be calculated by dividing the annual financial envelope established according to paragraph 3 by the agricultural area of each new Member State established according to paragraph 4.

3. For any new Member State, the Commission shall establish an annual financial envelope:

– as the sum of the funds that would be available in respect of the calendar year concerned for granting direct payments in the new Member State,

– according to the relevant Community rules and on the basis of the quantative parameters, such as base areas, premium ceilings and Maximum Guaranteed Quantities (MGQ), specified in the Act of Accession and subsequent Community legislation for each direct payment, and

– adjusted using the relevant percentage specified in Article 143a for the gradual introduction of direct payments.’

16 Article 143c of Regulation No 1782/2003, headed ‘Complementary national direct payments and direct payments’, provides:

‘…

2. The new Member States shall have the possibility, subject to authorisation by the Commission, of complementing any direct payments up to:

…

The total direct support the farmer may be granted in the new Member States after accession under the relevant direct payment including all complementary national direct payments shall not exceed the level of direct support the farmer would be entitled to receive under the corresponding direct payment then applicable to the Member States in the Community as constituted on 30 April 2004.

…

4. If a new Member State decides to apply the single area payment scheme, that new Member State may grant complementary national direct aid under the conditions referred to in paragraphs 5 and 8.

5. In respect of the year 2004, the total amount per (sub)sector of complementary national aid granted in that year when applying the single area payment scheme shall be limited by a specific financial envelope per (sub)sector. This envelope shall be equal to the difference between:

– the total amount of support per (sub)sector resulting from the application of the points (a) or (b) of paragraph 2, as appropriate, and

– the total amount of direct support that would be available in the relevant new Member State for the same (sub)sector in the year concerned under the single area payment scheme.

In respect of any year as from 2005 the requirement to operate the above limitation by means of applying (sub)sector specific financial envelopes shall not apply. However, the new Member States shall retain the right to apply (sub)sector specific financial envelopes, provided that such a (sub)sector specific financial envelope may only relate to

– the direct payments combined to the single payment scheme, and/or

– one or more of the direct payments that are excluded or may be excluded from the single payment scheme in accordance with Article 70(2) or may be subject to partial implementation as referred to in Article 64(2).

6. The new Member State may decide on the basis of objective criteria and after authorisation by the Commission, on the amounts of complementary national aid to be granted.

7. The authorisation by the Commission shall:

– where point (b) of paragraph 2 applies, specify the relevant CAPlike national direct payment schemes,

– define the level up to which the complementary national aid may be paid, the rate of the complementary national aid and, where appropriate, the conditions for the granting thereof,

– be granted subject to any adjustments which may be rendered necessary by developments in the [CAP].

8. No complementary national payments or aid shall be granted for agricultural activities in respect of which direct payments are not foreseen in the Community as constituted on 30 April 2004.

…’

National legislation

17 Article 3(1)(a) of Government Decree 6/2004, of 22 January 2004, on the general conditions for the granting of EU agricultural aid, complementary aid to that provided by the national budget and agricultural aid relating to national jurisdiction (Magyar Közlöny, 2004/7) provides that legal persons or companies without legal personality which are not engaged in proceedings for bankruptcy (‘csődeljárás’), liquidation (‘felszámolás’), arrangement with creditors (‘adósságrendezés’) or voluntary dissolution (‘végelszámolás’) may receive aid that falls within the field of application of that decree, including complementary national aid.

The dispute in the main proceedings and the questions referred for a preliminary ruling

18 On 28 May 2004 Bábolna lodged with the Hivatal an application for a single area payment and complementary national aid linked to that payment.

19 On 1 September 2004 a voluntary liquidation procedure was commenced in relation to Bábolna pursuant to Government Resolution 2186/2004, of 22 July 2004, on the capital restructuring and privatisation of Bábolna Mezőgazdasági Termelő, Fejlesztő és Kereskedelmi Zrt. (Határozatok Tára No 2004/33 (22 July)).

20 By decision of 17 May 2005, the Hivatal granted Bábolna’s application in part by allocating it HUF 174 410 400 by way of single area payment and HUF 70 677 810 by way of complementary national aid for arable land.

21 However, after becoming aware that Bábolna had been the subject, since 1 September 2004, of voluntary dissolution proceedings, the Hivatal adopted a new decision amending the decision of 17 May 2005. By that amending decision, on the basis of Article 3(1)(a) of Government Decree 6/2004, of 22 January 2004, it rejected the application for complementary national aid for arable land and ordered Bábolna to repay the amount of HUF 15 829 789 which had already been paid to it by way of such aid.

22 Báblona brought an action for the annulment of that amending decision and for the maintenance in force of the decision of 17 May 2005.

23 Before the Fövárosi Bíróság (Budapest Municipal Court) (Hungary), it submitted that the Community legislation applicable in this case does not provide for any exclusion related to a voluntary dissolution situation. The grant of aid is subject only to the condition that the holding at issue must be in the territory of the Community, and the legal status of the applicant in national law is irrelevant in that regard.

24 The Hivatal contends that the action should be dismissed.

25 The national court considers that, in order to decide the dispute pending before it, it is necessary to determine whether a company engaged in agricultural activity in a Member State has the right to receive complementary national aid while it is in voluntary dissolution.

26 The Fövárosi Bíróság raises the question, in particular, whether complementary national aid can be regulated in an autonomous way, independently of principles and rules of EU law. It seeks to know whether a Member State can subject the grant of complementary national aid to stricter conditions than those provided for in the context of the single area payment scheme established by that law.

27 The national court moreover notes, concerning the fifth question it has referred for a preliminary ruling, that Hungarian law creates distinct legal statuses for bankruptcy, liquidation and voluntary dissolution proceedings.

28 Taking the view that the outcome of the dispute before it depends on the interpretation of the applicable EU law, the Fövárosi Bíróság decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

‘1. May the conditions for Community aid under the [CAP] (EAGGF) differ from the conditions for national complementary aid, that is to say, may other, stricter rules than are applied to aid financed by the EAGGF apply to the conditions for national complementary aid?

2. May the scope ratione personae, as regards the recipients of aid, of Article 1(4) of Regulation [No 3508/92] and Article 10(a) of Regulation [No 1259/1999] be interpreted as meaning that there are only two conditions for the recipients of aid: (a) the individual or group of farmers (b) whose farm is situated in the territory of the Community will be entitled to receive aid?

3. May the above regulations be interpreted as meaning that a farmer whose farm is in the territory of the Community but who wishes to cease activity in the future (after using the aid) is not entitled to aid?

4. In the light of the above two regulations, how is the status of such a producer under national law to be interpreted?

5. Does that status under national law extend to the legal status of a farmer (or group of farmers) undergoing any form of cessation of activity? ...

6. May the conditions for applications for (Community) single area payments and for complementary national aid be subject to separate rules entirely independent of one another? What is the relationship between the principles, system and objectives of both types of aid?

7. May a group (person) be excluded from complementary national aid where they otherwise meet the requirements for area aid?

8. Does the scope of Regulation No 1259/1999 extend, under Article 1 thereof, to complementary national aid, bearing in mind that where the EAGGF provides finance only in part, complementary national aid provides finance as appropriate?

9. Does a farmer whose farm, which functions legally and effectively, is in the territory of the Community, have a right to receive complementary national aid?

10. If national law contains specific regulations for procedures for terminating the activity of commercial companies, do those regulations have any relevance from the point of view of Community aid (and national aid linked to it)?

11. Should Community legislation and national legislation on the functioning of the [CAP] be interpreted as meaning that they have to create a complex legal system which can be interpreted uniformly and which functions on the basis of identical principles and requirements?

12. Should the scope of Article 1(4) of Regulation No 3508/92 and Article 10(a) of Regulation No 1259/1999 be interpreted as meaning that, from the point of view of aid, both the intention of the farmer to cease activity in the future and the appropriate legal regime for that intention are wholly irrelevant?’

Consideration of the questions referred

Preliminary observations

29 In the context of the enlargement of the European Union that took place in 2004, the Act of Accession provided for the insertion of provisions concerning the introduction of direct payments in the new Member States and the single area payment scheme in Regulation No 1259/1999. They were then included by Decision No 2004/281 in Regulation No 1782/2003, which repealed, with effect from 1 May 2004, Regulations Nos 3508/92 and 1259/1999.

30 Accordingly, the dispute in the main proceedings is governed, taking account of the date of the facts, by Regulation No 1782/2003.

31 As the Court has a duty to interpret all provisions of EU law which national courts need in order to decide the actions pending before them, even if those provisions are not expressly indicated in the questions referred to the Court by those courts (see, inter alia, Case C‑45/06 Campina [2007] ECR I‑2089, paragraph 31), the questions referred for a preliminary ruling must be understood as relating to Regulation No 1782/2003 or falling within the context of that regulation.

All of the questions referred

32 By its 12 questions, which it is appropriate to consider together, the national court asks, in essence, whether Regulation No 1782/2003 prohibits national legislation which excludes from the benefit of complementary national aid legal persons carrying out an agricultural activity in the territory of the Member State in question, because they are the subject of voluntary dissolution proceedings.

33 Regulation No 1782/2003 establishes, inter alia, pursuant to Article 1 thereof, common rules on the subject of direct payments under financial support schemes relating to the CAP, income aid to farmers (single payment scheme) and simplified and transitory income aid for farmers of the new Member States (single area payment scheme).

34 In accordance with Articles 143a and 143b of Regulation No 1782/2003, direct payments or, if appropriate, the single area payment scheme are to be progressively introduced in the new Member States. The purpose of that progressive introduction of EU aid in the new Member States is not to slow down the necessary restructuring of the agricultural sector in those Member States and not to create significant disparities in income or social imbalances by the granting of aid not proportionate to the income level of farmers and the general population (see, by analogy, Case C‑273/04 Poland v Council [2007] ECR I‑8925, paragraph 69).

35 Under Article 143c(2) and (4) of Regulation No 1782/2003, the new Member States nevertheless have the possibility of supplementing any direct payments or single area payment by complementary national aid financed, at least partially, by their budget.

36 In that regard, Regulation No 1782/2003 grants a certain margin of discretion to those Member States in the context of the implementation of the complementary national aid. In particular, Article 143c(6) of that regulation provides that the new Member States may decide, on the basis of objective criteria and after authorisation by the Commission, on the amounts of complementary national aid to be granted.

37 However, having regard to the fact that the adoption of national legislation such as that applicable in the main proceedings forms part of the CAP, such legislation cannot be established or applied in such a way as to compromise the objectives pursued by that policy (see, to that effect, Joined Cases C‑230/09 and C‑231/09 Kurt und Thomas Etling and Others [2011] ECR I-0000, paragraph 75), and more particularly those envisaged by the aid schemes provided for by Regulation No 1782/2003.

38 The discretion available to the new Member States is moreover limited in so far as, in accordance with the provisions of Article 143c(7) of Regulation No 1782/2003, the amount up to which the complementary national aid may be paid, which must fall within the limits defined at paragraph 2 – or 5 where appropriate – of that article, as well as the rate thereof and the possible conditions of the granting of the aid must be subject to the prior authorisation of the Commission.

39 In this case, it must be noted that it is apparent from the file that the Republic of Hungary’s programme of 18 May 2004 on complementary national direct payments, approved by Commission Decision C(2004) 2295 of 29 June 2004, did not contain a condition according to which complementary national aid may only be granted to farmers, within the meaning of Regulation No 1782/2003, who are not the subject of voluntary dissolution proceedings.

40 Therefore, it is sufficient to hold in this case that Regulation No 1782/2003 prohibits, as regards the grant of complementary national aid such as that at issue in the main proceedings, the imposition of a condition that has not been authorised by the Commission without it being necessary to rule on the compatibility of that condition with the objectives of Regulation No 1782/2003 and, in general, with the general principles of EU law that the Member States are also bound to respect (see Kurt und Thomas Etling and Others, paragraph 74).

41 Having regard to the foregoing considerations, the answer to the questions referred is that Regulation No 1782/2003 must be interpreted as meaning that it prohibits national legislation which excludes from the benefit of complementary national aid legal persons carrying out an agricultural activity in the territory of the Member State in question, on the ground that they are the subject of voluntary dissolution proceedings, where a condition relating to the absence of such proceedings has not been the subject of prior authorisation by the Commission.

Costs

42 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

On those grounds, the Court (First Chamber) hereby rules:

Council Regulation (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers and amending Regulations (EEC) No 2019/93, (EC) No 1452/2001, (EC) No 1453/2001, (EC) No 1454/2001, (EC) No 1868/94, (EC) No 1251/1999, (EC) No 1254/1999, (EC) No 1673/2000, (EEC) No 2358/71 and (EC) No 2529/2001, as amended by Council Decision 2004/281/EC of 22 March 2004, must be interpreted as meaning that it prohibits national legislation which excludes from the benefit of complementary national aid legal persons carrying out an agricultural activity in the territory of the Member State in question, on the ground that they are the subject of voluntary dissolution proceedings, where a condition relating to the absence of such proceedings has not been the subject of prior authorisation by the European Commission.

[Signatures]