Case C-5/03

Hellenic Republic

v

Commission of the European Communities

(EAGGF — Exclusion of certain expenditure — Fruit and vegetables — Oranges — Animal premiums — Bovine animals — Sheep and goats)

Opinion of Advocate General Geelhoed delivered on 14 October 2004

Judgment of the Court (Third Chamber), 7 July 2005

Summary of the Judgment

1. Agriculture — EAGGF — Clearance of accounts — Expenditure disallowed owing to incorrect application of Community rules — Challenge by the Member State concerned — Burden of proof — Divided between the Commission and the Member State

(Council Regulation No 729/70)

2. Agriculture — EAGGF — Clearance of accounts — Expenditure disallowed owing to incorrect application of Community rules — Financial adjustment — Conditions — Existence of a significant failing exposing the EAGGF to a genuine risk of loss

(Council Regulation No 729/70)

1. With regard to the financing of the common agricultural policy by the EAGGF, although it is for the Commission, when it intends to exclude certain expenditure from Community financing, to prove that Community rules have been infringed, it is not required to prove that there has been a loss or to demonstrate exhaustively that the checks carried out by the national authorities are inadequate, or that the data submitted by them are incorrect, but may simply adduce sound evidence of such loss or evidence of serious and reasonable doubt on its part regarding the checks or data.

Once the Commission has presented such evidence, it is for the Member State to demonstrate, if appropriate, that the Commission made an error with regard to the financial consequences to be attached to it. The Member State cannot rebut the Commission’s findings by mere assertions which are not substantiated by evidence of a reliable and operational supervisory system. It is for that State to adduce the most detailed and comprehensive evidence that its checks or its figures are accurate and, if appropriate, that the Commission’s assertions are incorrect.

The reason for this mitigation of the burden of proof on the Commission lies in the division of powers between the Community and the Member States concerning the common agricultural policy and in the fact that the management of EAGGF finances is principally in the hands of the national administrative authorities responsible for ensuring that the Community rules are strictly observed.

(see paras 36, 38-40, 46-47, 62, 75, 79)

2. With regard to the clearance of the accounts of the EAGGF, the fact that a procedure is open to improvement does not in itself justify a financial adjustment. There must be a significant failing in the application of express Community rules and such a failing must expose the EAGGF to a genuine risk of loss or irregularity.

(see para. 51)

JUDGMENT OF THE COURT (Third Chamber)

7 July 2005 ( )

(EAGGF – Exclusion of certain expenditure – Fruit and vegetables – Oranges – Animal premiums – Bovine animals – Sheep and goats)

In Case C-5/03,

ACTION for annulment under Article 230 EC, brought on 3 January 2003,

Hellenic Republic, represented by S. Charitaki and E. Svolopoulou, acting as Agents, with an address for service in Luxembourg,

applicant,

v

Commission of the European Communities, represented by M. Condou-Durande, acting as Agent, assisted by N. Korogiannakis, lawyer, with an address for service in Luxembourg,

defendant,

THE COURT (Third Chamber),

composed of A. Rosas (Rapporteur), President of the Chamber, A. Borg Barthet, J.-P. Puissochet, J. Malenovský and U. Lõhmus, Judges,

Advocate General: L.A. Geelhoed,

Registrar: L. Hewlett, Principal Administrator,

having regard to the written procedure and further to the hearing on 15 September 2004,

after hearing the Opinion of the Advocate General at the sitting on 14 October 2004,

gives the following

Judgment

1 By its application, the Hellenic Republic is seeking annulment of Commission Decision 2002/881/EC of 5 November 2002 excluding from Community financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) (OJ 2002 L 306, p. 26), in so far as it relates to financial adjustments amounting to EUR 2 438 896.91 in respect of financial years 1997 to 2001 concerning the fruit and vegetables sector, amounting to EUR 11 352 868 in respect of financial years 1999 to 2001 concerning animal premiums for bovine animals, and amounting to EUR 22 969 271 in respect of financial years 1998 and 1999 concerning animal premiums for sheep and goats.

2 Those financial adjustments correspond, in the fruit and vegetables sector, to a specific adjustment of 3% in respect of insurance contributions and a flat-rate adjustment of 2% in respect of inadequate checks. In the sectors of animal premiums for bovine animals and of animal premiums for sheep and goats, that financial adjustment corresponds to flat-rate adjustments of 10% and 5% respectively.

Legal context

General Community legislation concerning financing of the common agricultural policy

3 Regulation (EEC) No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy (OJ, English Special Edition 1970(I), p. 218), as amended by Council Regulation (EC) No 1287/95 of 22 May 1995 (OJ 1995 L 125, p. 1, ‘Regulation No 729/70’), constitutes the basic legislation in this matter as regards expenditure prior to 1 January 2000. Council Regulation (EC) No 1258/1999 of 17 May 1999 on the financing of the common agricultural policy (OJ 1999 L 160, p. 103) applies in respect of expenditure after that date.

4 The Guarantee Section of the EAGGF finances, under Articles 1(2)(b) and 3(1) of Regulation No 729/70 and Articles 1(2)(b) and 2(2) of Regulation No 1258/99 and within the framework of the common organisation of the agricultural markets, intervention intended to stabilise those agricultural markets, undertaken according to Community rules.

5 Under Article 5(2)(c) of Regulation No 729/70 and Article 7(4) of Regulation No 1258/99, the Commission is to decide on the expenditure to be excluded from the Community financing where it finds that the latter has not been effected in compliance with Community rules. When evaluating the amounts to be excluded the Commission is to take into account the nature and gravity of the infringement and the financial loss suffered by the Community.

6 The annex to Commission Regulation (EC) No 1663/95 of 7 July 1995 laying down detailed rules for the application of Council Regulation No 729/70 regarding the procedure for the clearance of the accounts of the EAGGF Guarantee Section (OJ 1995 L 158, p. 6) states that the paying agency will make the payment by cheque.

Community regulations relating to fruit and vegetables: oranges

7 Council Regulation (EC) No 2200/96 of 28 October 1996 created the common organisation of the market in fruit and vegetables (OJ 1996 L 297, p. 1).

8 Council Regulation (EC) No 2202/96 of 28 October 1996 introducing a Community aid scheme for producers of certain citrus fruits (OJ 1996 L 297, p. 49) based that scheme on contracts concluded between producer organisations and processors together with qualitative and quantitative checks on those contracts by the competent authorities of the Member States concerned.

9 Article 15(2) of Commission Regulation (EC) No 1169/97 of 26 June 1997 laying down detailed rules for the application of Regulation No 2202/96 (OJ 1997 L 169, p. 15) provides that within 15 working days following receipt of the aid or the advance, the producer organisation is to pay in full by bank or postal transfer the amounts received to its members.

Community legislation relating to animal premiums for bovine animals

10 Regulation (EEC) No 805/68 of the Council of 27 June 1968 (OJ English Special Edition 1968(I), p. 187 established the common organisation of the market in beef and veal.

11 Article 11(1) of Council Directive 92/102/EEC of 27 November 1992 on the identification and registration of animals (OJ 1992 L 355, p. 32) provides that Member States are to bring into force the laws, regulations and administrative provisions necessary to comply with that directive, for the requirements regarding bovine animals, so that, as from 1 February 1993, they are registered in accordance with existing national procedures and are identified in accordance with the existing rules referred to in that directive.

12 Council Regulation (EC) No 820/97 of 21 April 1997 establishing a system for the identification and registration of bovine animals and regarding the labeling of beef and beef products (OJ 1997 L 117, p. 1), adopted, according to the ninth recital in the preamble to that regulation, due to the unsatisfactory implementation of Directive 92/102 in that regard, applies, under the second paragraph of Article 22, from 1 July 1997.

13 Article 1(2) of that regulation provides that those provisions of Directive 92/102 which relate specifically to bovine animals are no longer to apply from the date on which those animals must be identified in accordance with Title I of that regulation.

14 Article 3 of that regulation provides that the system of identification and registration is to comprise eartags, computerised databases, animal passports and individual registers kept on each holding. Articles 4 to 7 define in detail each of those aspects of the system.

15 Commission Regulation (EC) No 2629/97 of 29 December 1997 laying down detailed rules for the implementation of Regulation No 820/97 as regards eartags, holding registers and passports in the framework of the system for the identification and registration of bovine animals (OJ 1997 L 354, p. 19) is to apply, under Article 10 of that regulation, from 1 January 1998. It adds certain details to the provisions of Regulation No 820/97.

16 Commission Regulation (EC) No 2630/97 of 29 December 1997 laying down detailed rules for the implementation of Regulation No 820/97 as regards the minimum level of controls to be carried out in the framework of the system for the identification and registration of bovine animals (OJ 1997 L 354, p. 23) applies, under Article 6 of that regulation, from 1 January 1998. It lays down the minimum requirements with which the checks provided for under the system for the identification and registration of bovine animals must comply. More particularly, Article 2(3) of that regulation provides that the holdings to be inspected are to be selected on the basis of a risk analysis, which must take into account the factors listed in Article 2(4).

17 Council Regulation (EEC) No 3508/92 of 27 November 1992 establishes an integrated administration and control system for certain Community aid schemes (OJ 1992 L 355, p. 1). Commission Regulation (EEC) No 3887/92 of 23 December 1992 laying down detailed rules for applying the integrated administration and control system for certain Community aid schemes (OJ 1992 L 391, p. 36), as amended with effect from 1 January 1999 by Commission Regulation (EC) No 1678/98 of 29 July 1998 (OJ 1998 L 212, p. 23, ‘Regulation No 3887/92’), applies, under Article 1 of that regulation, without prejudice to specific provisions adopted in the regulations covering the individual aid schemes.

18 Article 6(2) of Regulation No 3887/92 provides for administrative checks, to include in particular cross-checks on animals declared in order to ensure that aid is not granted twice. Following the amendment introduced on 1 January 1999, and once the computerised database is fully operational in accordance with Article 5 of Regulation No 820/97, the new subparagraph (b) of Article 6(2) also provides for cross-checks with a view to ensuring that Community aid is granted only for bovine animals for which the births, movements and deaths have been duly notified by the applicant to the competent authority. Article 6(4) provides that applications to be subjected to on-the-spot checking are to be selected on the basis of a risk analysis, which must take into account the factors listed therein.

Community regulations relating to animal premiums for sheep and goats

19 The first recital in the preamble to Commission Regulation (EEC) No 2700/93 of 30 September 1993 on detailed rules for the application of the premium in favour of sheepmeat and goatmeat producers (OJ 1993 L 245, p. 99), as amended by Commission Regulation (EC) No 279/94 of 8 February 1994 (OJ 1994 L 37, p. 1, ‘Regulation No 2700/93’) states that pursuant to Regulation No 3887/92 the aid applications and the integrated administration and control system are applicable to the ewe and female-goat premiums from the 1994 marketing year.

20 Article 1(3) of Regulation No 2700/93 provides for a retention period during which the producer undertakes to keep on his holding the number of ewes and/or goats in respect of which the premium is requested. The second subparagraph of that paragraph provides:

‘Before all or some of that number of ewes and/or she goats in respect of which the premium is requested are placed in agistment during the retention period, the animals concerned must be identified … [and] … the place (or places) of retention must be indicated in the premium application …’

21 Article 4(1) of that regulation provides that on-the-spot inspections must be carried out in accordance with Article 6 of Regulation No 3887/92, and the system for the permanent recording of livestock movements must comply with the rules laid down by Article 4 of Directive 92/102.

22 Article 10(5) of Regulation No 3887/92 in its original version, which became Article 10(11) with effect from 1 January 1999, provides that in cases where owing to the impact of natural circumstances the farmer cannot meet his commitment to keep the animals notified for a premium throughout the compulsory retention period he shall be entitled to the premium for the number of eligible animals actually kept throughout the period, provided that he has informed the competent authority in writing within 10 working days of finding any reduction in the number of animals.

Financial adjustment relating to fruit and vegetables

Specific adjustment of 3%

Arguments of the parties

23 The Greek Government challenges the specific adjustment of 3% corresponding to the deduction of insurance contributions by the producer organisations, notwithstanding Article 15(2) of Regulation No 1169/97. All the national provisions and circulars show that Greek legislation does not permit any divergence from the Community provisions and that the Greek authorities have never approved any acts that conflicted with those provisions or adopted any practice that involved unlawfully deducting the amount of insurance contributions. The small number of any infringements that were not immediately detected by those authorities is of minor significance and was covered by carrying out the required checks, and did not in any event continue beyond the end of March 1999, the date on which the Commission inspections were carried out.

24 The Commission notes that the Greek Government is not challenging either the deduction of 3% of the subsidies by way of insurance contributions or the fact that that practice is contrary to Article 15(2) of Regulation No 1169/97. As the infringement is not linked to the conduct or the nature of the checks it cannot be included in the flat-rate adjustment for inadequate checks. Furthermore, the inspections carried out by both the Commission and the Court of Auditors revealed that the practice in question had been tolerated by the Greek authorities until 31 December 2000 at least.

Findings of the Court

25 According to Article 15(2) of Regulation No 1169/97, ‘the producer organisation shall pay in full … the amounts received to its members’.

26 It is not disputed that, in the case of some of the producer organisations, payment in full of the amounts of aid received did not take place and that 3% of those amounts was deducted by way of insurance contributions.

27 The fact remains therefore that the payments made by those producer organisations were not made in accordance with the Community rules. The Commission is therefore right to exclude the corresponding amounts from Community financing.

28 The Greek Government contends that at any event the specific adjustment should not apply to expenditure after 31 March 1999.

29 It should be pointed out in that regard that the Commission, making reference both to the national measures adopted up until July 1999 and to the checks made by the Community institutions during 2000, contends that the deduction persisted until 31 December 2000 at least.

30 The Greek Government has adduced no evidence to contradict the Commission’s position.

31 In view of all the foregoing considerations, the Greek Government’s arguments against the specific adjustment of 3% corresponding to the deduction of insurance contributions by the producer organisations cannot be accepted.

Flat-rate adjustment of 2%

Arguments of the parties

32 The Greek Government disputes the flat-rate adjustment of 2% on the grounds that payment by cheque does not entail any risk of loss for the EAGGF, that any producer organisation which did not pay the amounts of aid to its members within the time‑limits is an isolated, unrepresentative case, that the rejection at the time of the Commission inspection of a load whose quality did not comply shows that the Community rules were being correctly applied and not the contrary, and that as the Community provisions do not require weigh tickets to be retained, the Commission cannot criticise it for not doing so.

33 The Commission points out that the Greek Government acknowledges that, contrary to Article 15(2) of Regulation No 1169/97, payments were made by cheque and, in the case of four producers, that the amounts of aid were not paid within the set time‑limits. In addition, the statements of the officials responsible for carrying out the checks to ensure that a tolerance of 5% for crushed fruit and 1% for spoilt fruit was applied are supported by the fact that, throughout the marketing season in question, only two loads were refused, one of which was on the very day of the Commission inspection. In that context, the weigh tickets provide a valuable tool for improving the quality of the checks. However, since all those factors when taken together represent only a small risk of loss for the EAGGF, the flat-rate adjustment imposed was limited to 2%.

Findings of the Court

34 With regard to the first two complaints, relating to the producer organisations, it should be pointed out that Article 15(2) of Regulation No 1169/97 provides that ‘[w]ithin 15 working days following receipt of the aid or the advance, the producer organisation shall pay in full by bank or postal transfer the amounts received to its members’.

35 It is not disputed that payments were made by cheque and that, in the case of four producers, the amounts of aid were not paid within the set time‑limits.

36 The fact remains that the expenditure in question was not incurred in accordance with the Community rules. The Commission was therefore right to exclude that expenditure from Community financing.

37 As regards payment by cheque, the Greek Government denies that there was any risk of loss for the EAGGF and refers to Regulation No 1663/95, which authorises payment by cheque in the context of payments by the EAGGF to the paying agencies of the Member States.

38 The Court has consistently held that although it is for the Commission to prove that Community rules have been infringed, once it has established such an infringement it is for the Member State to demonstrate, if appropriate, that the Commission made an error as to the financial consequences to be attached to that infringement (see to that effect, Case 49/83 Luxembourg v Commission [1984] ECR 2931, paragraph 30, and Case C-153/01 Spain v Commission [2004] ECR I‑0000, paragraph 67).

39 Furthermore, the Commission is not required to prove that there has been a loss but may simply adduce sound evidence of such loss (see Spain v Commission, cited above, paragraph 66). The reason for this mitigation of the burden of proof on the Commission lies in the division of powers between the Community and the Member States concerning the common agricultural policy (see to that effect Case C-48/91 Netherlands v Commission [1993] ECR I-5611, paragraph 17, and Case C-238/96 Ireland v Commission [1998] ECR I-5801, paragraph 29).

40 The management of EAGGF finances is principally in the hands of the national administrative authorities responsible for ensuring that the Community rules are strictly observed (see Ireland v Commission, cited above, paragraph 30).

41 As was stated in paragraphs 34 to 36 above, payment was made by cheque in breach of Article 15(2) of Regulation No 1169/97. The Commission contends, on the one hand, that the purpose of that provision is to ensure that recipients receive personally the amount of aid owing to them and, on the other hand, that the same signature has appeared for several people, which proves that the recipients did not receive the amounts of aid in question personally and that there was a risk the EAGGF would incur a loss.

42 The reference by the Greek Government to the fact that this method of payment is acceptable in other contexts is insufficient to rebut the Commission’s findings with regard to the likelihood of a risk of loss for the EAGGF.

43 The Greek Government’s first two complaints must therefore be rejected.

44 The third and fourth complaints, concerning the processors, seek to establish that the Commission was wrong to conclude that the Greek system for checking fruit and vegetables was unreliable and inefficient and to exclude the relevant expenditure from Community financing.

45 In its third complaint, the Greek Government criticises the Commission for basing its case not on the unlawful acceptance of a load whose quality did not comply with the relevant regulations, but on the rejection of that load in accordance with those regulations.

46 As stated in paragraph 38 above, it is for the Commission to prove that the rules of the common organisation of the agricultural markets have been infringed (see also to that effect Case C-281/89 Italy v Commission [1991] ECR I-347, paragraph 19, and Case C-253/97 Italy v Commission [1999] ECR I-7529, paragraph 6).

47 The Court has consistently held that the Commission is required not to demonstrate exhaustively that the checks carried out by the national authorities are inadequate, or that the data submitted by them are incorrect, but to adduce evidence of serious and reasonable doubt on its part regarding the checks or data (see to that effect Netherlands v Commission, cited above, paragraph 17, and Case C-344/01 Germany v Commission [2004] ECR I-2081, paragraph 58).

48 It is therefore necessary to ascertain whether the Commission has adduced a body of cohesive facts to demonstrate such serious and reasonable doubt. In the present case, such doubt is based on the fact that only two loads of fruit submitted during the marketing year in question were rejected (the second was rejected at precisely the time when the two Commission auditors were present) and, secondly, on the statements by the representatives of the Greek Government that a tolerance level of 5% and 1% had been applied in respect of crushed fruit and spoilt fruit respectively.

49 As the Advocate General rightly states in point 30 of his Opinion, it is not apparent from these facts, none of which demonstrates the existence of irregularities, that there is any doubt as to the full and thorough nature of the checks carried out by the Member State concerned. The Commission has therefore failed to comply with its obligation to adduce evidence of serious and reasonable doubt on its part regarding those checks.

50 In its fourth complaint, the Greek Government disputes the fact that, for the purposes of assessing the risk of loss for the EAGGF, the fact that the processors did not keep the weigh tickets for the marketing year 1997/98 was taken into account, although there was no Community rule requiring them to be kept.

51 In that regard, it should be pointed out that the fact that a procedure is open to improvement does not in itself justify a financial adjustment. There must be a significant failing in the application of express Community rules and such a failing must expose the EAGGF to a genuine risk of loss or irregularity (see, to this effect, Case C-318/02 Netherlands v Commission [2005] ECR I-0000).

52 In the present case, the Commission has not stated in what way not keeping the weigh tickets constitutes such a significant failing in the application of the Community provisions or shown why it was necessary to keep the weigh tickets for the purposes of the checks in question.

53 It is clear from the above considerations that the Greek Government’s first two complaints cannot be accepted but that its third and fourth complaints are well‑founded.

54 In that regard, it should be pointed out that, according to Summary Report AGRI-625-2002, point B.2.2.3.2, the flat-rate adjustment of 2% of expenditure in the fruit and vegetables sector in respect of marketing years 1997/98 and 1998/99 is imposed because several of the checks show failures to meet the requirements. However, only two of the four sets of observations prepared by the Commission revealed such failures. The financial adjustment is therefore based on insufficient evidence.

55 Decision 2002/881 must therefore be annulled in so far as it excludes from Community financing 2% of the expenditure incurred in the fruit and vegetables sector as a result of inadequate checks.

The financial adjustment relating to animal premiums for bovine animals

Arguments of the parties

56 The Greek Government challenges the 10% flat-rate adjustment imposed by the Commission on animal premiums for bovine animals and relies on three sets of arguments to that effect.

57 As regards first of all the serious failings noted by the Commission in the key checks, namely, the failure to notify the amendments to the regulations governing the integrated administration and control system introduced by Regulations Nos 1678/98 and 2804/99, the failure to complete the database and the absence of cross-checks, the keeping of herd books for bovine animals that did not comply with Regulation No 820/97 and the failings in the earmarking of bovine animals, particularly new-born calves, and the issuing of animal passports that did not comply with Regulation No 820/97, the Greek Government considers that, taking into account the transitional measures and the improvements made in the national procedures, those failings are not sufficiently serious to justify a flat-rate adjustment of 10%.

58 As regards also the serious failings noted by the Commission in the ancillary checks, concerning the failure to separate tasks, inadequate cooperation between the veterinary services of the competent authorities, inadequate checks on the agricultural cooperatives, the delay in processing applications, a risk analysis that was not computerised, and discrepancies in the statistics, the Greek Government, whilst challenging the validity of the Commission’s findings, points out that any non-compliance with some of the ancillary checks should only incur a flat-rate adjustment of no more than 2%.

59 Lastly, the Greek Government pleads that the limits of the Commission’s discretion have been exceeded since the risk of loss for the EAGGF was not such as to justify a financial adjustment of 10%.

60 The Commission merely notes in essence that the findings on which the flat-rate adjustment is based have either been expressly acknowledged, or have not been contradicted by the Greek Government. As regards exceeding the limits of its discretion, the Commission considers that the findings made by its officials point to serious failings in the organisation and implementation of the system of key checks which, since several of those checks were not made or were not made to an adequate extent, expose the EAGGF to a significant risk of loss.

Findings of the Court

61 First, as regards the key checks, it should be pointed out, as the Commission is doing, that the Greek Government expressly accepts the Commission’s findings except for that concerning the failure to notify the amendments to regulations that were introduced on 1 January 1999 and 1 January 2000, respectively.

62 It should be borne in mind in that regard that, as the Commission has adduced evidence of serious and reasonable doubt, the Member State cannot rebut the Commission’s findings by mere assertions which are not substantiated by evidence of a reliable and operational supervisory system. It is for that State to adduce the most detailed and comprehensive evidence that its checks or its figures are accurate and, if appropriate, that the Commission’s assertions are incorrect (Case C‑300/02 Greece v Commission [2005] ECR I-0000, paragraphs 34 to 36).

63 The Greek Government maintains, on the one hand, that those amendments were notified in good time through the annual briefing sessions and, on the other hand, that the fact that the circulars containing detailed instructions on applying the regulations in question were sent to the regional authorities with a delay of two and four months respectively did not prevent those regulations being applied to the checks carried out in 1999 and 2000. Those assertions are not sufficient however to rebut the Commission’s finding.

64 As regards the ancillary checks, it should be pointed out that the evidence relied on by the Greek Government in order to disprove the Commission’s assertions is not sufficient to remove the doubts the latter has expressed regarding the checks in question.

65 The Greek Government merely denies by means of general assertions the failure to separate tasks and to supervise the agricultural cooperatives. It only mentions one circular as evidence of adequate cooperation between the veterinary services of the competent authorities. Whilst acknowledging the delay in processing the applications, it none the less maintains, as regards the risk analysis, that the latter was carried out manually and in good time. In addition, as the Advocate General observes in point 53 of his Opinion, the Greek Government’s assertions regarding the incorrect statistics are difficult to understand and do not explain how those statistics were checked and corrected. The absence of reliable figures in respect of the checks entails a high degree of risk for the EAGGF.

66 Lastly, with regard to the Greek Government’s arguments that the Commission exceeded its discretion, as the Advocate General observes in points 57 to 59 of his Opinion, those arguments cannot be accepted in the light of the above considerations.

67 Since the Greek Government has not managed to refute the Commission’s assertions through evidence of a reliable and operational supervisory system, the serious failings found by the latter both in the key checks and in the ancillary checks must be considered to have been established.

68 The Commission cannot therefore be criticised for imposing, in accordance with the guidelines contained in Document No VI/5330/97, an adjustment of 10%, since where one or more key checks are not carried out, or are carried out so badly or so seldom that they are ineffective in determining the eligibility of an application or preventing irregularities, it is reasonable to consider that there was a high risk of significant loss for the EAGGF.

69 In the light of the foregoing, it is appropriate to dismiss as unfounded the arguments put forward by the Greek Government against the flat-rate adjustment of 10% imposed on animal premiums for bovine animals.

The financial adjustment in respect of animal premiums for sheep and goats

Arguments of the parties

70 The Greek Government disputes the flat-rate adjustment of 5% imposed by the Commission on animal premiums for sheep and goats. That adjustment is based on the adjustment, also of 5%, made on the same premiums in respect of the years 1995 to 1997. As a result of the improvements made in the way that government applied the system over the years 1998 and 1999, it should be reduced to 2%.

71 The Commission merely points out in essence that the findings on which the financial adjustment is based, namely the absence of a register of livestock movements, the unreliability of the statistics resulting from the checks, the delays in processing the data, the failure to conduct a risk analysis, the lack of a precise indication of the place where the livestock were kept, and the notification of reductions by word of mouth, were not denied. The absence of clear improvements in relation to the findings which resulted in the imposition of a flat-rate adjustment of 5% in respect of the years 1995 to 1997 led to the imposition of the same rate of adjustment in respect of the years 1998 and 1999.

Findings of the Court

72 It should be noted, as a preliminary point, that in Case C-332/01 Greece v Commission [2004] ECR I-7699 the Court of Justice dismissed the action brought by the Hellenic Republic against Commission Decision 2001/557/EC of 11 July 2001 excluding from Community financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) (OJ 2001 L 200, p. 28) in so far as it related to the flat-rate adjustment of 5% imposed on animal premiums for sheep and goats in respect of the years 1995 to 1997.

73 The financial adjustment at issue in the present action was imposed due to the general negligence found by the Commission in respect of the years 1995 to 1997, with regard to which Commission officials did not observe any clear improvement during the years 1998 and 1999.

74 It is therefore appropriate to consider the evidence adduced by the Greek Government against the Commission’s findings in order to check whether there were any differences in relation to the situation that presented itself at the time of the previous flat-rate adjustment.

75 In that regard, it should be pointed out, as it was in paragraph 62 above, that since the Commission has adduced evidence of serious and reasonable doubt in respect of the supervisory system in question, it is for the Member State to adduce the most detailed and comprehensive evidence that its checks are accurate or that the Commission’s assertions are incorrect.

76 As the Court found in Case C-300/02 Greece v Commission, the Greek Government accepts that for the years in question and contrary to what is laid down in Article 4(1) of Regulation No 2700/93, the register of livestock movements had still not been completed. The Greek Government does not furnish any evidence showing the improvements to which it refers.

77 Likewise, the Greek Government admits that its authorities accepted notification of reductions by word of mouth, in breach of the provisions of Article 10(5) of Regulation No 3887/92.

78 As regards the unreliability of the statistics resulting from the checks, the Advocate General was quite right to dismiss, in point 66 of his Opinion, the reference by the Greek Government to the fact that its inspectors are highly qualified, since that is insufficient to prove that the animals were correctly counted.

79 So far as the delay in processing the data and the risk analysis provided for in Article 6(4) of that regulation are concerned, it is appropriate to refer, as do the parties to the dispute, to the findings in respect of the animal premiums for bovine animals (see paragraphs 62 and 65 above). Thus, a Member State cannot rebut the Commission’s findings without substantiating its own assertions by evidence of a reliable and operational supervisory system. A simple reference to the fact that such analysis is done manually is not sufficient for that purpose (see Case C‑300/02 Greece v Commission, paragraphs 128 and 129.

80 As for indicating where the animals are kept, it should be pointed out, as the Court did in Case C-300/02 Greece v Commission, paragraphs 133 to 137, that, in view of the structure and objective of the fourth indent of Article 5(1) of Regulation No 3887/92, it is appropriate to consider that the indication required must be sufficiently clear to enable the supervising authorities to check the exact place where the animals are kept.

81 Therefore, the arguments put forward by the Greek Government against the flat-rate adjustment of 5% of the animal premiums for sheep and goats cannot be accepted.

82 In the light of all the above considerations, Decision 2002/881 must be annulled in so far as it excludes from Community financing 2% of the expenditure incurred in the fruit and vegetables sector. For the rest, the action brought by the Hellenic Republic must be dismissed.

Costs

83 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Under Article 69(3) of those rules, where each party succeeds on some and fails on other heads, the Court may order that the costs be shared or that the parties bear their own costs. As the Hellenic Republic has failed on two of the three claims raised by the Commission, it must be ordered to bear two thirds of the Commission’s costs, as applied for by the Commission. As the Hellenic Republic has not applied for costs, the parties shall bear their own costs as to the remainder.

On those grounds, the Court (Third Chamber) hereby:

1. Annuls Commission Decision 2002/881/EC of 5 November 2002 excluding from Community financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) in so far as it excludes from Community financing 2% of the expenditure incurred in the fruit and vegetable sector;

2. Dismisses the remainder of the application;

3. Orders the Hellenic Republic to pay two thirds of the costs of the Commission of the European Communities;

4. Orders the parties to pay their own costs as to the remainder.

[Signatures]