JOINED OPINIONS OF MR ADVOCATE GENERAL DARMON DELIVERED ON 11 JUNE 1991. - FEDERAL REPUBLIC OF GERMANY V COMMISSION OF THE EUROPEAN COMMUNITIES. - CASE C-342/89. - ITALIAN REPUBLIC V COMMISSION OF THE EUROPEAN COMMUNITIES. - CASE C-346/89. - EAGGF - MONTHLY ADVANCES - COMMISSION'S POWER OF INSPECTION.



European Court reports 1991 Page I-05031



Opinion of the Advocate-General

++++

Mr President,

Members of the Court,

1. The present applications for annulment brought by the Federal Republic of Germany and the Italian Republic will require the Court to determine the extent of the Commission' s powers regarding the supervision of expenditure incurred by the European Agricultural Guidance and Guarantee Fund (hereinafter referred to as "the EAGGF").

2. Each of these applications seeks the partial annulment of Commission Decision C(89)1525 of 30 August 1989 concerning an advance against entry in the accounts of expenditure financed by the EAGGF Guarantee Section.

3. The background to the legal arrangements for the financing of EAGGF expenditure sheds light on what is at stake in this case. Originally, Regulation No 729/70 (1) of the Council provided that the Commission was to make available to Member States the necessary credits for the payments to be made by national authorities and bodies under the EAGGF. (2) Following the budgetary difficulties experienced by the Community for the year 1987, Council Regulation (EEC) No 3183/87 (3) temporarily established the system known as "intermediate financing" by the Member States. Under that system, the financial resources earmarked to cover the expenditure of the EAGGF Guarantee Section are to be mobilized by the Member States in accordance with the needs of their disbursing authorities; (4) the Commission, on sight of the payments effected, is to make "advance payments" not later than "the third working day of the second month following that in which the disbursing agencies effect the expenditure". (5) This temporary system was shortly afterwards made permanent by Council Regulation (EEC) No 2048/88. (6)

4. Following discontinuance of the system under which the Community financed EAGGF expenditure in advance, the Commission was obliged to adapt its implementing regulations. Thus, Regulation (EEC) No 3184/83 (7) was superseded by Regulation (EEC) No 2776/88. (8) Article 3(1) of the latter Regulation provides that "not later than the second working day of each week, the Member States shall telecopy to the Commission details of total expenditure effected since the beginning of the month until the end of the preceding week". Under Article 3(3), they are also to communicate "for the tenth of each month, ... details of the total amount of expenditure effected during the preceding month". On the basis of those data, and pursuant to Article 4, the Commission is required to "adopt appropriate decisions and make" the monthly advances. It may defer payment to any Member States which have failed to make the above notifications on time or where the notifications contain discrepancies which necessitate supplementary verification.

5. In its contested decision, the Commission refused to pay, with regard to the monthly advances for July 1989, the amounts corresponding to the declarations submitted by the Member States, in respect of which it proceeded to make various reductions. In a subsequent memorandum (9) the Commission explained that the Management Committee for Milk and Milk Products had examined the data submitted by the Member States concerning the application of the system of the additional milk levy for the period 1 April 1988 to 31 March 1989. On the basis of those data, the Commission estimated the total amount of the additional levy for that period at approximately ECU 500 million. After provisionally reducing that amount to ECU 220 million "in order to maintain a very wide safety margin", the Commission allocated it among the Member States in proportion to the amounts which they would have had to pay to discharge the levy as estimated. The Italian Republic' s advance payments for that month were thus reduced by LIT 47 164 600 000 and those of the Federal Republic of Germany by DM 34 236 729.47. It should be pointed out that, according to the information submitted at the hearing by the representatives of the German and Italian Governments, the checks for the clearance of accounts for the 1989 marketing year had not yet been completed at that stage.

6. The Italian Republic and the Federal Republic of Germany both rely on the plea in law based on the breach of Regulation No 729/70. The German Government also relies on a second plea based on the failure to state the reasons on which the contested decision was based. I shall now examine each of those pleas in turn.

7. According to the first plea in law, the Commission is not empowered to reduce the monthly advances and is therefore required to pay the amounts indicated on the declarations submitted by the Member States. There is, it is claimed, no basis in either Regulation No 729/70 or the Community rules taken as a whole for the contention that the Commission has such a power.

8. The Commission takes the view that its power to reduce the monthly advances is derived from both the consistent case-law of the Court, according to which only expenditure effected in accordance with Community rules may be charged to the EAGGF, (10) and Articles 2 and 3 of Regulation No 729/70, which provide that the financing of refunds on exports and intervention must be subject to compliance with the Community rules. In support of its argument, the Commission also relies on Article 6 of Council Decision 88/377/EEC of 24 June 1988 concerning budgetary discipline (11) and on Article 97 of the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities (hereinafter referred to as the "Financial Regulation"). (12)

9. It seems possible to dispose immediately of Article 97 of the Financial Regulation. That article provides that "expenditure effected by authorities and bodies under Article 4 of Regulation (EEC) No 729/70 shall be the subject of a commitment by chapter, article and item, and shall also be charged as a payment, after examination of the statements forwarded by the Member States in accordance with the provisions laid down pursuant to Article 5(3) of the said Regulation ...". (13) Reference is thus made to the provisions adopted to implement Regulation No 729/70 and, accordingly, to Regulation No 2776/88.

10. In the same way, Article 6 of Council Decision 88/377 appears to be irrelevant in the present context. In order to ensure that the "agricultural guideline" (14) is respected, that article establishes an "early warning system" covering the development of EAGGF expenditure. According to that provision, "where the rate of development of expenditure is exceeding the forecast profile, or risks doing so, the Commission shall use the management powers at its disposal, including those which it has under the stabilizing measures, to remedy the situation. If these measures are insufficient, the Commission shall examine the functioning of the agricultural stabilizers in the relevant sector and, if necessary, shall present proposals to the Council calculated to strengthen their action". (15) It suffices to note that that provision confers no new management powers on the Commission and merely requires the Commission to make use, for budgetary purposes, of the powers already at its disposal.

11. It would also appear that a power on the Commission' s part to reduce monthly advance payments is not expressly set out in Regulation No 729/70 or in Regulation No 2776/88, which is the implementing regulation. Article 5(2)(a) of the former simply provides that "the Commission shall decide solely on monthly advances against booking of expenditure effected", while Article 4(1) of the latter states that "the Commission shall, on the basis of data sent in accordance with Article 3, (16) adopt appropriate decisions and make the monthly advances against booking of expenditure". One ought not in this connection to over-use the expression "adopt appropriate decisions and make the monthly advances"; the expression "adopt appropriate decisions" here refers to the Commission' s budgetary power to authorize expenditure, since Community law recognizes the principle that authorizing officers and accounting officers are different individuals. (17) As I have already pointed out, the only power which Regulation No 2776/88 formally recognizes the Commission as having is the power to defer payment of monthly advances in the absence of information supplied by a Member State and to make corrections in the event of discrepancies between the various notifications submitted by that State during the preceding month.

12. Consequently, in my opinion, the only relevant principle which could provide a basis for the Commission' s power to reduce the advances is that which states that the EAGGF cannot finance activities which are at variance with Community rules. Such a principle, to which the Court has often referred in its case-law, (18) is to be found in Article 2(1) of Regulation No 729/70 with regard to refunds on exports, in Article 3(1) of that regulation concerning intervention, and in Article 4(2), which provides that the Commission is to make available to the Member States the necessary credits. The central issue in the problem facing the Court today is thus whether it may be inferred from that principle, as set out in particular in the abovementioned provisions, that the Commission has the power to reduce monthly advances.

13. The financial consequences of this issue are far from insignificant. There is no need to point out that in matters relating to the common agricultural policy the amounts at stake are often considerable. Furthermore, while Article 5(2)(b) of Regulation No 729/70 provides that the time-limit for making up the accounts is the end of the following year, the Court has already held in that respect that

"No penalty is imposed for failure to comply with that time-limit, which may therefore be regarded ... as a merely formal limit, save where the interests of a Member State are affected." (19)

That time-limit is, in practice, often exceeded. Finally, the procedure for clearing the accounts, the only legal basis for which is Regulation No 729/70, which established that procedure but failed to lay down detailed rules for its operation, makes no provision for interest to be added to the amounts which, in appropriate cases, ought to have been paid to a Member State by way of monthly advances or, on the other hand, did not require to be allocated to the EAGGF. The difficulty facing the Court in these applications is thus essentially that of determining whether it is the Member States or the Community that must bear the financial burden in respect of amounts which prima facie appear to have been committed contrary to Community rules.

14. Let me say right away that, in so far as manifest breaches of the Community rules governing the common agricultural policy would have the result (on a restrictive interpretation of Article 5(2) of Regulation No 729/70 and Article 4(1) of Regulation No 2776/88) that the Community would be required to finance, for a period often exceeding several years, practices which could in no case be charged to the EAGGF, it appears to be consistent with the reasoning behind the Court' s case-law that the Commission should in that situation be recognized as having the power (within certain limits) to refuse to pay the monthly advances in full. That power, based on both the Court' s traditional case-law, as mentioned above, and Articles 2(1), 3(1) and 4(2) of Regulation No 729/70, must be capable of being exercised once the Commission has become firmly convinced, in particular on sight of the information received pursuant to Articles 8 and 9 (20) of that regulation, that there has been a breach of the Community rules. As any decision which the Commission then takes will be of a temporary nature, since it will not in any way prejudge the decisions to be taken at the time of clearance of the accounts, the breach must, to my mind, be manifest. Thus, any new interpretations that the Commission may give to former rules cannot, for example, justify recourse to such decisions which would then adversely affect the legitimate expectations of Member States. (21)

15. In other words, what we have here is a new application of the maxim fraus omnia corrumpit. While one may easily appreciate that the Member States are not responsible for frauds which may be carried out on their territory, it is difficult to see on what ground the Community should be required to bear for several years the financial burden of such breaches. Such a consequence would, moreover, be contrary to the principle of equality between traders. In its judgment in Netherlands v Commission, (22) the Court took care, after referring to the principle that Articles 1, 2 and 3 of Regulation No 729/70

"permit the Commission to charge to the Fund only sums paid in accordance with the rules laid down in the various sectors of agricultural production while leaving the Member States to bear the burden of other sums paid, and in particular any amounts which the national authorities wrongly believed themselves authorized to pay in the context of the common organization of the markets",

to state that

"That strict interpretation of the conditions under which expenditure is to be borne by the Fund is necessary, moreover, in view of the aims of Regulation No 729/70. In fact if the common agricultural policy is to be applied in a manner which ensures equality between traders in the Member States the national authorities of a Member State may not, by the expedient of a wide interpretation of a given provision, favour traders in that State to the detriment of those in other States where a stricter interpretation is applied." (23)

16. It appears, moreover, that the Court has already accepted that the obligation on the Commission to refuse to charge to the EAGGF expenditure effected contrary to Community rules existed even before the opening of the procedure for clearance of the accounts. Thus, in its judgment in Denmark v Commission, (24) the Court held that

"... it is possible that irregularities may be discovered long after the events giving rise to them occurred. Until the accounts have been duly cleared, the Commission is required by Article 2 of Regulation No 729/70 to refuse to charge to the EAGGF refunds which have not been granted in accordance with the Community rules. That obligation does not disappear merely because the accounts are cleared after the expiry of the period prescribed in Article 5 of the abovementioned regulation." (25)

17. In my opinion, two further points should be added. First, the Commission must, in exercising that power, respect the right to a fair hearing. Although those decisions are, as the Commission has pointed out, taken following consultation with the EAGGF Committee, the resultant opinion cannot be compared with the more satisfactory procedure followed in this regard when the accounts are cleared. In this latter procedure, the Member State is notified of the irregularities established and may put its own individual point of view to the Commission; it also receives a draft of the decision relating to it. However, it does not seem possible for such a system to be applied in full for the purpose of drawing up decisions reducing monthly advances. According to Article 4(2) of Regulation No 2776/88, "The advances against booking shall be made not later than on the third working day of the second month following that of the execution of the expenditure by the paying departments or agencies", while the necessary information is to be sent to the Commission not later than the 20th of the month following that during which the advances were paid. (26) The Commission is thus required to act within a relatively short period. Furthermore, the requirement that the breach of the Community rules be manifest reduces the urgency for a detailed consultation with the competent services of the Member State concerned. It also appears that a request for the opinion of the EAGGF Committee itself suffices to ensure that the right to a fair hearing is observed, provided that that committee is informed of the Commission' s draft decision and of the information on which the Commission intends to rely in order to reduce the advances.

18. Secondly, this decision, which, as I have said, is a temporary measure, is unable as such to prejudice a Member State in a situation where, when the accounts are cleared, it becomes clear that the advances should not have been reduced. Consequently, in such a case, the Commission, in my opinion, is under a duty to put the Member State in the position in which it would have been had the Commission not misused its power. Not only must the amount of the reductions be the subject of a "positive correction" in favour of the Member State concerned when the accounts are cleared, but that Member State must also be reimbursed for the financial burden improperly imposed on its budget by the reductions. In other words, the Commission is required to credit those amounts to the account of the Member State together with interest calculated according to rules which it is responsible for drawing up. I would point out, moreover, that in my opinion, bearing in mind the requirement that the breach must be manifest, such situations ought to arise on a relatively infrequent basis.

19. It is under these conditions that, to my mind, on the basis of the principle that the EAGGF may not finance measures which are contrary to Community rules, the Commission' s power to reduce monthly advances may be recognized.

20. I shall now examine whether those requirements were complied with in the contested decision, always bearing in mind, however, that it is essentially the very principle of the Commission' s power to reduce advances, and not the propriety of its decision to use such a power in this case, that is being challenged by the applicant Member States.

21. As the Commission' s memorandum of 12 October 1989 pointed out, the information received by the Management Committee for Milk and Milk Products showed that quotas had been exceeded by some 1.6 million tonnes. The Commission thus estimated the total amount of additional levies to be collected for the 1988/1989 marketing year at approximately ECU 500 million. The amounts credited by the Member States to the EAGGF account in respect of this levy were significantly lower. The Commission reduced the estimated amount to ECU 220 million and allocated it among the Member States. The differences between the amounts declared and the amounts thus estimated were charged to the advances for July 1989. It was thus in the light of the statistical information in its possession concerning the volume of Community milk production and the significant discrepancies appearing in the declarations of the Member States concerning the additional levy that the Commission concluded that there had been a manifest breach of Community rules. The applicant Member States, upon whom the burden of proof rests, have produced no evidence capable of calling in question the analysis carried out by the Commission.

22. With regard to the right to a fair hearing, it should first of all be pointed out that the Member States are represented within the Management Committee for Milk and Milk Products and were thus in a position to be aware of the information received by that committee, that the EAGGF Committee was consulted in writing and that, for that purpose, the Commission sent to the Member States by telecopy of 14 August 1989 three tables showing the expenditure declared and the reductions envisaged. (27)

23. The plea based on breach of Regulation No 729/70 thus lacks relevance. Accordingly, I propose that the Court dismiss the application brought by the Italian Republic.

24. The Federal Republic of Germany, in support of its application, puts forward a second plea based on the failure of the contested decision to state the reasons on which it was based. It refers to the Court' s case-law, in the words of which the obligation to state the reasons on which Community decisions are based

"is not only for the protection of interested parties, but also has as objective to enable the Court to review the decisions fully from the legal point of view as required by the Treaty". (28)

The Federal Republic of Germany takes the view that the exchange of correspondence between the parties did not suffice to give it the necessary information regarding the grounds for the reduction made by the Commission (29) and that the Commission' s memorandum setting out the reasons on which the decision was based cannot be taken into account since it came after that decision. (30)

25. It should be pointed out that, while the Court regularly refers to the case-law cited by the applicant, it also accepts that the statement of grounds required by Article 190 of the Treaty need not give details of "all relevant factual and legal aspects" and that it

"must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question". (31)

26. Concerning the procedure for clearance of the accounts, the Court has already pointed out that the governments were closely involved in the process by which the decision for clearance was made and that they were therefore in a position to be aware of the reasons for which the Commission considered that the disputed amounts might not be charged to the EAGGF. (32) That involvement is less extensive here; it is achieved merely through the presence of representatives of the Member States within the management committee for the product in question and within the EAGGF Committee. None the less, it seems to have been sufficient for the Member States to have been informed with regard to both the factual data justifying recourse to a reduction in the advances and the legal grounds forming the basis of such a reduction. The "Annex to the Information Sheet 'Authorization' - EAGGF - Guarantee Advances" shows that, when the EAGGF Committee was consulted in writing, Italy and Germany disputed the legal basis of the draft decision. The Court' s case-law is concerned with the fact that a Member State was involved in the procedure by which the decision was reached only in so far as it was thereby made aware of the factual and legal aspects justifying the decision, so that it could, where appropriate, make use of its right to bring proceedings. The unavoidable conclusion in this case is that the applicant Member States were perfectly aware of the reasons underlying the contested decision.

27. On the other hand, no point is served by taking the Commission' s memorandum of 12 October 1989 into consideration as a statement of reasons. That memorandum is essentially confined to formalizing the stand taken by the Commission concerning the point disputed by the Member States when the EAGGF Committee was consulted, namely the possibility for the Commission to reduce the monthly advances. It is questionable, moreover, whether the Court could take account of it, in so far as it has already held that

"the statement of reasons must in principle be notified to the person concerned at the same time as the decision adversely affecting him". (33)

28. The second plea in law put forward by the Federal Republic of Germany in support of its application must for that reason also be dismissed.

29. In conclusion, therefore, I propose that the Court should:

(1) dismiss the applications for annulment brought by the Federal Republic of Germany and the Italian Republic against Commission Decision C(89)1525 of 30 August 1989 concerning an advance against entry in the accounts of expenditure financed by the EAGGF Guarantee Section;

(2) order the applicant Member States to pay the costs.

(*) Original language: French.

(1) - Regulation of the Council of 21 April 1970 on the financing of the common agricultural policy (OJ English Special Edition 1970 (I), p. 218).

(2) - Article 4(2).

(3) - Council Regulation of 19 October 1987 introducing special rules for the financing of the common agricultural policy (OJ 1987 L 304, p. 1).

(4) - New subparagraph of Article 4(2) of Regulation (EEC) No 729/70, added by Article 1 of Regulation No 3183/87.

(5) - New subparagraph of Article 5(2)(a) of Regulation No 729/70, added by Article 1 of Regulation No 3183/87.

(6) - Council Regulation of 24 June 1988 amending Regulation (EEC) No 729/70 on the financing of the common agricultural policy (OJ 1988 L 185, p. 1).

(7) - Commission Regulation of 31 October 1983 on the operation of the system of advances in respect of expenditure financed by the EAGGF Guarantee Section (OJ 1983 L 320, p. 1).

(8) - Commission Regulation of 7 September 1988 on data to be sent in by the Member States with a view to the booking of expenditure financed under the Guarantee Section of the Agricultural Guidance and Guarantee Fund (EAGGF) (OJ 1988 L 249, p. 9).

(9) - VI/340/89 of 12 October 1989 from the Directorate-General for Agriculture - EAGGF.

(10) - See, for example, the judgments in Case 326/85 Netherlands v Commission [1987] ECR 5091, at paragraph 7, Case 332/85 Germany v Commission [1987] ECR 5143, at paragraph 7, and Case 347/85 United Kingdom v Commission [1988] ECR 1749, at paragraph 11.

(11) - OJ 1988 L 185, p. 29.

(12) - OJ 1977 L 356, p. 1.

(13) - Emphasis added.

(14) - That is, the maximum progression for EAGGF Guarantee expenditure.

(15) - Emphasis added.

(16) - The reference is to the weekly and monthly declarations of the Member States concerning expenditure effected.

(17) - Article 17 of the Financial Regulation.

(18) - See footnote 10 above.

(19) - Judgment in Case 349/85 Denmark v Commission [1988] ECR 169, at paragraph 19.

(20) - Which the Court has stated that the Commission may use at any time (judgment in Case 214/86 Greece v Commission [1989] ECR 367, paragraph 2 of the summary).

(21) - For an application of the same principle at the time of the clearance of the accounts, see the judgment in Case 349/85, cited above, at paragraph 16.

(22) - Case 326/85, cited above.

(23) - Paragraph 7 of the judgment, emphasis added; see also the judgment in Case 332/85, cited above, at paragraph 7.

(24) - Case 349/85, cited above.

(25) - Paragraph 19; my emphasis.

(26) - Article 3(5) of Regulation No 2776/88.

(27) - Application of the Federal Republic of Germany, p. 5 and Annex V, (a), (b) and (c); Annex III to the application of the Italian Republic.

(28) - Judgment in Case 18/57 Nold v High Authority [1959] ECR 41, at 52.

(29) - Application, point 6.5.2.

(30) - Application, point 6.5.3.

(31) - Judgment in Case 185/83 University of Groningen v Inspecteur der Invoerrechten en Accijnzen, Groningen [1984] ECR 3623, at paragraph 38.

(32) - Judgment in Case 819/79 Germany v Commission [1981] ECR 21, at paragraphs 20 and 21; see also the judgment in Case 347/85, cited above, at paragraph 60.

(33) - Judgment in Case 195/80 Michel v Parliament [1981] ECR 2861, at paragraph 22.