Judgment of the Court (Fifth Chamber) of 1 October 1998. - French Republic v Commission of the European Communities. - EAGGF - Clearance of accounts - 1992 and 1993 - Beef and veal - Cereals. - Case C-232/96.



European Court reports 1998 Page I-05699



Summary

Parties

Grounds

Decision on costs

Operative part



Keywords

1 Agriculture - Common organisation of the markets - Beef and veal - Intervention mechanisms - Buying-in by tendering procedures - Relationship between tenderers - Article 9 of Regulation No 859/89 - Interpretation - Rule that tenders must be independent - Scope

(Regulation No 805/68 of the Council, Art. 6(6); Commission Regulations No 859/89, Arts 9, 12(2) and 15, and No 2456/93, Art. 11)

2 Agriculture - Common agricultural policy - EAGGF financing - Principles - Conformity of expenditure with the Community rules - Obligation to supervise incumbent on the Member States

(EC Treaty, Art. 5; Regulation No 729/70 of the Council, Art. 8(1))

3 Agriculture - Common agricultural policy - EAGGF financing - Principles - Conformity of expenditure with the Community rules - Burden of proof - Divided between the Commission and the Member State concerned

(Regulation No 729/70 of the Council, Arts 2 and 3)

Summary

1 In the context of intervention measures in the beef and veal sector, and in particular of the system of buying-in by tendering procedures, Article 9(1) of Regulation No 859/89 provides that tenderers must undertake to comply with all the relevant provisions and Article 9(2) that interested parties may submit one tender only per category in response to each invitation to tender. Since the need to ensure legal certainty means that rules must enable those concerned to know precisely the extent of the obligations which they impose on them, the wording of Article 9(2) cannot provide any support for the interpretation that, on account of the difference in meaning between the words `interested party' and `tenderers', the latter may submit one tender only in response to an invitation to tender where they are part of a single group. Such an interpretation would thus be tantamount to applying retroactively Article 11 of Regulation No 2456/93, which introduces into the Community legislation provisions on the relationship between tenderers.

That being the case, although the rule that tenders must be independent, an essential requirement for the validity and effectiveness of any tender procedure, which underlies Articles 9(6) (confidentiality of tenders), 12(2) (prohibition on the transfer of rights and obligations arising from the tender procedure), 9(4)(c) (tenderers' obligation to lodge a security) and 15 (tenderers' obligation to receive payment personally) of Regulation No 859/89 and Article 6(6) of Regulation No 805/68 (equality of access for all persons concerned), does not prevent several companies belonging to one group from taking part at the same time in one tender procedure, it does preclude those same companies from agreeing on the terms and conditions of the tenders which they each submit, if the tender procedure is not to be distorted.

2 Article 8(1) of Regulation No 729/70, which constitutes a specific expression in the agricultural area of the obligations imposed on Member States by Article 5 of the Treaty, defines the principles according to which the Community and the Member States must ensure the implementation of Community decisions on agricultural intervention financed by the EAGGF and combat fraud and irregularities in relation to those operations. It imposes on the Member States the general obligation to take the measures necessary to satisfy themselves that the transactions financed by the EAGGF are actually carried out and are executed correctly, even if the specific Community act does not expressly provide for the adoption of particular supervisory measures, particularly when there is evidence such as to give rise to serious suspicions that a prohibition laid down by the Community act in question has been circumvented.

3 Articles 2 and 3 of Regulation No 729/70 permit the Commission to charge to the EAGGF only sums paid in accordance with the rules laid down in the various sectors of agricultural production, leaving the Member States to bear the burden of any other sum paid, and in particular any amounts which the national authorities wrongly believed themselves authorised to pay in the context of the common organisation of the markets.

Although it is therefore for the Commission to prove an infringement of the Community rules, the Member State concerned must demonstrate that the Commission committed an error as to the financial consequences to be attributed to it.

Where it has established that a Member State infringed several Community rules in the field of agriculture and that harm was probably caused to the Community budget, the Commission cannot be required to do more, since it cannot carry out systematic checks and analysis of the current state of a given market depends on information gathered by the Member States.

Parties

In Case C-232/96,

French Republic, represented by C. de Salins, Head of Subdirectorate in the Legal Affairs Directorate at the Ministry of Foreign Affairs, and F. Pascal, Chargé de Mission in the same Directorate, acting as Agents, with an address for service in Luxembourg at the French Embassy, 8B Boulevard Joseph II,

applicant,

v

Commission of the European Communities, represented by X. Lewis, of its Legal Service, acting as Agent, with an address for service in Luxembourg at the office of C. Gómez de la Cruz, of its Legal Service, Wagner Centre, Kirchberg,

defendant,

APPLICATION for the annulment in part of Commission Decision 96/311/EC of 10 April 1996 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1992 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) and in respect of certain expenditure for 1993 (OJ 1996 L 117, p. 19),

THE COURT

(Fifth Chamber),

composed of: C. Gulmann, President of the Chamber, M. Wathelet (Rapporteur), J.C. Moitinho de Almeida, J.-P. Puissochet and L. Sevón, Judges,

Advocate General: S. Alber,

Registrar: L. Hewlett, Administrator,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 4 February 1998,

after hearing the Opinion of the Advocate General at the sitting on 24 March 1998,

gives the following

Judgment

Grounds

1 By application lodged at the Court Registry on 8 July 1996, the French Republic brought an action under the first paragraph of Article 173 of the EC Treaty for the annulment in part of Commission Decision 96/311/EC of 10 April 1996 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1992 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) and in respect of certain expenditure for 1993 (OJ 1996 L 117, p. 19, `the contested decision'), in so far as it refused to charge to the EAGGF, first, FF 76 041 440 in respect of intervention measures in the beef and veal sector and, secondly, FF 84 061 488 in respect of intervention measures in the context of public storage of cereals.

The financial correction in respect of intervention measures in the beef and veal sector

2 The basic rules for the common organization of the market in beef and veal are contained in Regulation (EEC) No 805/68 of the Council of 27 June 1968 (OJ, English Special Edition 1968(I), p. 187). Article 6 of that regulation authorises the Commission to intervene with a view to maintaining prices on the Community markets. Regulation No 805/68 was amended in particular by Council Regulation (EEC) No 571/89 of 2 March 1989 (OJ 1989 L 61, p. 43), the version as thus amended (hereinafter `Regulation No 805/68') being that applicable to the relevant period in the present case (1992 and 1993).

3 Until 1989, there was a system of automatic intervention buying when prices fell below certain thresholds, with the result that very large quantities were purchased by the intervention agencies at prices exceeding the market price.

4 In order to remedy that unsatisfactory situation, the system was reformed in 1989. Whilst preserving automatic buying-in in the event of a very large fall in prices, a system of buying-in by tendering procedures was introduced with a view to ensuring that the quantities bought in and the prices paid out did not go beyond what was required for reasonable support of the market.

5 Thus, under Article 6(2) of Regulation No 805/68, the Council sets the intervention price each year. When market prices in the Community fall below certain percentages of the intervention price, the intervention agencies in one or more Member States may buy in certain categories, qualities or quality groups of beef and veal originating in the Community, under the conditions laid down in Article 6.

6 The buying-in is organised under tender procedures. Under Article 6(1), such purchases may not exceed a quantity of 220 000 tonnes per year for the entire Community.

7 However, under Article 6(5), in the event of a very steep fall in prices a procedure is implemented whereby all offers at or below 80% of the intervention price are then accepted and are not counted against the maximum quantity referred to in Article 6(1) (the `safety-net' procedure).

8 Under Article 6(6), tender procedures must ensure equality of access for all persons concerned and those procedures are opened on the basis of specifications.

9 In accordance with Article 6(7), the procedures implementing the intervention system are to be adopted by the Commission, which also decides on the opening and suspension of tender procedures after consulting a management committee. During the period to which the present case relates, those procedures were defined by Commission Regulation (EEC) No 859/89 of 29 March 1989 laying down detailed rules for the application of intervention measures in the beef and veal sector (OJ 1989 L 91, p. 5).

10 Article 7 of Regulation No 859/89 provides that the decision to open buying-in by invitation to tender is to be published in the Official Journal of the European Communities on the Saturday or the Tuesday before the first deadline for the submission of tenders. Under Article 8, during the period in which the invitation to tender is open, the deadline for the submission of tenders is 12 noon (Brussels time) on the second and fourth Wednesday of each month.

11 Article 9 of Regulation No 859/89, which lies at the centre of the dispute, provides:

`1. Tenderers may take part in the invitation to tender only if they undertake in writing to comply with all the provisions relating to the tender concerned.

2. Interested parties may participate in the invitation to tender issued by intervention agencies of the Member States in which this is opened either by lodging a written tender against a receipt or by any other written means of communication accepted by the intervention agency, with advice of receipt; they may submit one tender only per category in response to each invitation to tender.

3. Tenders shall specify:

(a) the name and address of the tenderer;

(b) the quantity tendered for, expressed in tonnes, of the products and categories specified in the notice of invitation to tender;

(c) the price tendered per 100 kilograms of products of quality R3 ...;

(d) the intervention centre or centres to which the tenderer intends to deliver the product.

...'

12 Under Article 9(4)(c) of that regulation, tenderers must prove that they lodged a security for the tender by the final date for submission of tenders and, in accordance with Article 9(5) and (6), tenders may not be withdrawn after the deadline for their submission and are to be confidential.

13 It follows from Article 7 of Regulation No 859/89 that, at the opening of the invitation to tender, a minimum price may be fixed below which tenders are not accepted and from Article 8 that intervention agencies are to notify the Commission of the tenders they have received within 24 hours of the expiry of the time-limit for their submission.

14 Article 11(1) of Regulation No 859/89 provides that, in the light of the tenders received in response to each invitation to tender and after consultation of the management committee, the Commission is to fix a maximum buying-in price; a different price may be set to reflect average market prices for individual Member States or regions within a Member State if special circumstances so require. According to Article 11(2), a decision may also be taken not to proceed with the invitation to tender and, under Article 11(3), if the total of the quantities tendered at a price at or below the maximum price exceeds the quantities to be bought in, a reduction coefficient may be applied to the quantities awarded.

15 Article 12 of Regulation No 859/89 provides that tenders are not to be accepted if the price proposed is higher than the maximum price laid down and Article 10(2) provides that the security is to be released entirely if the tender is not accepted.

16 According to Article 13 of Regulation No 859/89, if the tender is accepted, the security is to be released entirely if the quantity delivered represents at least 95% of the quantity tendered. If the quantity delivered comprises between 85% and 95% of the quantity tendered, the security is to be forfeited to the intervention agencies in proportion to the quantities lacking, except in cases of force majeure. In all other cases, it is to be forfeited to the intervention agencies entirely, except in the event of force majeure.

17 The requirement that a security be lodged was introduced in order to put an end to the practice of inflated tenders.

18 Article 12(2) of Regulation No 859/89 provides that rights and obligations arising from the invitation to tender are not to be transferable. Under Article 15 the intervention agency is to pay the successful tenderer the price indicated in his tender.

19 After the facts in the present case arose, Regulation No 859/89 was repealed and replaced by Commission Regulation (EEC) No 2456/93 of 1 September 1993 laying down detailed rules for the application of Regulation No 805/68 as regards the general and special intervention measures for beef (OJ 1993 L 225, p. 4). In place of Article 9 of Regulation No 859/89, there was a new detailed provision concerning the persons eligible to submit tenders, Article 11 of Regulation No 2456/93, which provides that:

`1. Only the following may submit tenders:

(a) slaughterhouses for bovine animals approved in accordance with Directive 64/433/EEC, and not enjoying a derogation under Article 2 of Directive 91/498/EEC, whatever their legal status, and

(b) livestock or meat traders who have slaughtering undertaken therein on their own account and who are entered in a public register under an individual number.

2. In response to invitations to tender, interested parties shall forward tenders to the intervention agencies of the Member States in which they are opened, either by lodging a written bid against a receipt or by any other written means of communication accepted by the intervention agency, with advice of receipt.

Separate tenders shall be submitted for each type of invitation to tender.

3. Interested parties may submit only one tender per category in response to each invitation to tender.

The Member States shall ensure that tenderers are independent of each other in the terms of their management, staffing and operations.

Where there are serious indications to the contrary or that tenders are not in line with economic facts, tenders shall be deemed admissible only where the tenderer presents suitable evidence of compliance with the second subparagraph.

Where it is established that a tenderer has submitted more than one tender, all the tenders from that tenderer shall be deemed inadmissible.

4. ...'

20 Finally, Article 8(1) of 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) requires Member States to satisfy themselves that transactions financed by the EAGGF are executed correctly and are actually carried out, and to prevent and deal with irregularities and to recover sums lost as a result of irregularities or negligence. Article 8(2) provides that the financial consequences of irregularities or negligence attributable to administrative authorities or other bodies of the Member States are not to be borne by the Community.

21 Between 1990 and 1992, as a result of a combination of various circumstances (mad cow disease (BSE), the reunification of Germany, the Gulf War, developments in relations with Eastern Europe, etc.), the Community beef market underwent an unprecedented crisis which, as from the financial year 1991, led to a consistent increase in Community budgetary expenditure. Community beef intervention purchases rose from 540 000 tonnes in 1987 to 1 030 000 tonnes in 1991, an increase of 90.7% in the space of four years.

22 According to the Commission, a number of undertakings had submitted several tenders in the context of a single tender procedure. In its 1992 Summary Report it stated:

`France

The competent paying agency, Ofival, accepted all offers providing they were submitted by a separate legal entity as evidenced by its own individual "Sirene" number. Ofival made no attempt to determine whether or not participants were linked and, because neither the offer nor the takeover documents indicated the place of slaughter, such a check would often have been futile in any case. The French authorities failed therefore to control the requirement under Article 9(2) of Regulation No 859/89.

In its examination of purchase files and summary adjudication documentation the EAGGF noted that:

- offers from different companies often gave the same address, telephone and telex numbers and had sometimes been signed by the same person;

- invoices sent by different companies to Ofival for payment were sometimes consecutively numbered although slightly different in appearance;

- over-deliveries under one company's contract (for which no payment is due according to Article 13(4) of Regulation No 859/89) had been transferred to another company's under-delivered contract, thereby avoiding any loss of purchase security;

- prices offered under the different bids often followed a pattern indicating some speculation on the part of the interested party.

The EAGGF concludes that Ofival must have been fully aware that many of the offers were linked but made no effort to prevent the acceptance of these offers, either by refusing them or drawing the Commission services' attention to the potential abuses. Furthermore, the EAGGF also considers that prices and quantities offered by these linked companies indicate an element of price speculation. Finally, the transfers of over-delivered quantities to the contracts of other companies (which were detected by the EAGGF only where administrative and/or accounting errors had been made, and which would normally go undetected) indicates deliberate evasion of the rules providing for the non-payment of over-deliveries and security forfeiture for under-deliveries.

Financial consequences are proposed at a flat rate of 2% applicable to 1992 expenditure.'

23 According to the Commission, those practices were expressly prohibited by the applicable Community rules and totally incompatible with the purpose of the intervention scheme. In its summary report, it found that there had been infringement of Article 9(2) (submission of a single tender per tenderer in response to each invitation to tender), Article 12(2) (non-transferability of rights and obligations arising from the invitation to tender), Article 9(4)(c) (lodging of a security by the tenderer himself) and Article 15(1) (payment of the price to the tenderer) of Regulation No 859/89.

24 The Commission concluded that this practice had been adopted by tenderers in order to sell the greatest possible amount of meat into intervention at the highest possible prices, while significantly reducing the risk of losing their security. According to the Commission, where the quantity actually delivered was lower than that which should have been delivered, the splitting of one tender into several made it possible in fact to honour at least some of the tenders and therefore to recover the relevant securities.

25 In response to the Commission's argument that the competent national authorities should have intervened in order to stop such practices, the French authorities objected that Regulation No 859/89 did not authorise them to intervene where tenders were made by separate legal entities.

26 The matter was referred to the Conciliation Body established by the Commission on its own initiative by Decision 94/442/EC of 1 July 1994 setting up a conciliation procedure in the context of the clearance of the accounts of the European Agricultural Guidance and Guarantee Fund (EAGGF), Guarantee Section (OJ 1994 L 182, p. 45).

27 The Conciliation Body took the view that it could not state with any certainty that the tender procedure followed by the Member States was contrary to Regulation No 859/89. It observed that, in any event, it had subsequently been deemed necessary to explain the rules contained in Regulation No 859/89. The Conciliation Body also pointed out that the Commission had failed to react before 1993 to the Member States' practice.

28 Notwithstanding the conclusions of the Conciliation Body, the Commission adopted the contested decision.

29 In support of its application, the French Republic relies on three pleas in law alleging that (i) the practice followed in that Member State was lawful (ii) the EAGGF had suffered no harm and (iii) the principle of proportionality had been breached. The second and third pleas in law will be taken together.

Lawfulness of the practice followed in France

30 By its first plea in law, the French Government submits that the practice of accepting tenders from any legal entity during the relevant period was lawful. There was no legal basis in 1991 and 1992 for the national intervention bodies to reject offers made by separate legal entities on the ground that those entities were not independent of other tenderers.

31 Article 9(2) of Regulation No 859/89 merely lays down the rule that a tenderer may submit one tender only per category in response to each invitation to tender.

32 The French authorities adopted and implemented national provisions ensuring observance of that tender procedure requirement. In France, each tenderer must prove that it constitutes a separate legal entity in order to prevent the same undertaking from submitting several tenders per category in response to each invitation to tender.

33 The possibility of a connection between tenderers was not taken into consideration until after the period with which the present case is concerned, in Regulation No 2456/93, which repealed Regulation No 859/89. The second subparagraph of Article 11(3) of Regulation No 2456/93 was the first provision to require that tenderers be independent of each other.

34 According to the French Government, the national authority checked on each occasion that the various tenderers were genuinely separate legal entities. The question whether the various tenderers belonged to a single group was not checked, however, since there was neither any need nor any legal basis for doing so.

35 The French Government submits in that respect that, if the Commission really believed that identifying tenderers and ascertaining their geographical location guaranteed the effectiveness of the tender procedure, it should have made it possible to transmit such information via the Community IDES software, something which is not possible at present. IDES was set up, inter alia, to enable the Commission to fix the buying-in price and the quantities accepted for intervention on the basis of questions put to the Member States.

36 The Commission draws a distinction between the term `tenderer' as used in Article 9(1) of Regulation No 859/89 and the concept of `interested parties' as used in Article 9(2). Whereas the tenderer is merely the person submitting a tender, the term `interested party' covers a wider circle. In its view, the prohibition laid down in Article 9(2) of the regulation precluding tenderers from submitting more than one tender per category in response to each invitation to tender would be rendered redundant if it were possible for the same interested party to make several tenders through tenderers who are de jure separate but de facto connected.

37 The first point to be borne in mind here is the need to ensure legal certainty, which means that rules must enable those concerned to know precisely the extent of the obligations which they impose on them (see, to that effect, Case 348/85 Denmark v Commission [1987] ECR 5225, paragraph 19). The Commission thus cannot choose, at the time of the clearance of EAGGF accounts, an interpretation which departs from and is not dictated by the normal meaning of the words used (see, to that effect, Case 349/85 Denmark v Commission [1988] ECR 169, paragraphs 15 and 16).

38 In this regard, the last sentence of Article 9(2) of Regulation No 859/89 merely provides that interested parties may submit one tender only per category in response to each invitation to tender. That wording cannot therefore provide any support for the interpretation claimed by the Commission that, on account of the difference in meaning between the words `interested party' and `tenderers', the latter may submit one tender only in response to an invitation to tender where they are part of a single group.

39 It is only since the entry into force of Regulation No 2456/93 that the Community rules have contained provisions on interconnections between tenderers. To uphold the interpretation of Article 9(2) of Regulation No 859/89 suggested by the Commission would be tantamount to applying Article 11 of Regulation No 2456/93 retroactively.

40 However, the contested decision does not fall to be annulled on the basis of the plea in law put forward by the French Government, since it contains other factual and legal grounds which provide it with a sufficient statement of reasons.

41 The EAGGF's 1992 Summary Report stated that over-deliveries under one company's contract had been transferred to another company's under-delivered contract and that systematic cross-checking of addresses and telephone, telex and invoice numbers led to the conclusion that many individual tenders came from the same source (pp. 123 and 124).

42 That evidence was such as to give rise to serious suspicions that the prohibition on tenderers submitting more than one tender per category in response to each invitation to tender had been circumvented by the use of other names in order to disguise the fact that the tenders in actual fact emanated from a single operator. In view of the division of powers between the Community and the Member States in the field of the common agricultural policy, those were matters which called for inspection and investigation by the latter.

43 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. That system, based on trust between national and community authorities, does not involve any systematic supervision by the Commission, which moreover would in practice be quite unable to carry it out. Only the intervention agencies are in a position to provide the information necessary for setting a maximum buying-in price and, where necessary, a reduction coefficient, since the Commission is not close enough to obtain the information it needs from the economic operators (see, to this effect, Case C-48/91 Netherlands v Commission [1993] ECR I-5611, paragraph 11).

44 By failing to carry out such inquiries, the French Republic failed to fulfil its obligations under Article 8(1) of Regulation No 729/70 (see Case C-2/93 Exportslachterijen van Oordegem v Belgische Dienst voor Bedrijfsleven en Landbouw [1994] ECR I-2283, paragraphs 16 to 18).

45 That provision, which constitutes a specific expression in the agricultural area of the obligations imposed on Member States by Article 5 of the EC Treaty, defines the principles according to which the Community and the Member States must ensure the implementation of Community decisions on agricultural intervention financed by the EAGGF and combat fraud and irregularities in relation to those operations (see Joined Cases 146/81, 192/81 and 193/81 BayWa and Others v Bundesanstalt für Landwirtschaftliche Marktordnung [1982] ECR 1503, paragraph 13). It imposes on the Member States the general obligation to take the measures necessary to satisfy themselves that the transactions financed by the EAGGF are actually carried out and are executed correctly, even if the specific Community act does not expressly provide for the adoption of particular supervisory measures (see Case C-8/88 Germany v Commission [1990] ECR I-2321, paragraphs 16 and 17).

46 Moreover, the EAGGF found that there had been an infringement of more than Article 9(2) of Regulation No 859/89. It also pointed out that the practices referred to at paragraph 41 of the present judgment breached the prohibition on the transfer of rights and obligations arising from the tender procedure (Article 12(2) of Regulation No 859/89) and the tenderers' obligation to lodge a security (Article 9(4)(c)) and to receive payment personally (Article 15) (pp. 123 and 124 of the Summary Report).

47 The EAGGF was thereby alleging that French tenderers had breached the rule that tenders must be independent, an essential requirement for the validity and effectiveness of any tender procedure, which underlies not only the abovementioned provisions but also Article 9(6) of Regulation No 859/89 (confidentiality of tenders) and Article 6(6) of Regulation No 805/68 (equality of access for all persons concerned). Although that rule does not prevent several companies belonging to one group from taking part at the same time in one tender procedure, it does preclude those same companies from agreeing on the terms and conditions of the tenders which they each submit, if the tender procedure is not to be distorted.

48 In view of the foregoing considerations, the first plea in law must be rejected.

Absence of harm suffered by the EAGGF and breach of the principle of proportionality

49 By its second and third pleas in law, the French Government alleges that the Commission's demonstration of the interest which traders might have in submitting multiple tenders is of a purely theoretical nature, bearing no relation to the submission of multiple tenders.

50 Moreover, if the Commission's reasoning were to be followed, the existence of such speculation on the anticipated settings for the reduction coefficient, on the basis of `multiple tenders', would be borne out if a large number of securities had been forfeited to the national intervention agencies. However, in all only two securities were forfeited to Ofival during 1990, 1991, 1992 and 1993.

51 The French Government also denies that the fact that the possible practice of multiple tendering obscures the Commission's view of the state of the market. In that connection, the Conciliation Body noted in the annex to its final report:

`it would seem that, prior to the amendment of the regulations in 1993 and despite the practice of "multiple tendering", the Commission has remained in control of the situation by setting the quantities and prices accepted for intervention at an appropriate level'.

52 In the alternative, the French Government submits that a correction of 2% of total EAGGF expenditure for the public storage of beef is disproportionate, there being no risk of loss to the Community funds.

53 Here, it must be noted that, as the Court has consistently held, Articles 2 and 3 of Regulation No 729/70 permit the Commission to charge to the EAGGF only sums paid in accordance with the rules laid down in the various sectors of agricultural production, leaving the Member States to bear the burden of any other sum paid, and in particular any amounts which the national authorities wrongly believed themselves authorised to pay in the context of the common organisation of the markets (Case 11/76 Netherlands v Commission [1979] ECR 245, paragraph 8; Case 18/76 Germany v Commission [1979] ECR 343, paragraph 7; and Case C-48/91 Netherlands v Commission, cited above, paragraph 14).

54 Although it is therefore for the Commission to prove an infringement of the Community rules, the Member State concerned must demonstrate that the Commission committed an error as to the financial consequences to be attributed to it (see, to this effect, Case 49/83 Luxembourg v Commission [1984] ECR 2931, paragraph 30).

55 In the present case, it is apparent from paragraphs 41 and 46 of the present judgment that the Commission has established that the French Republic infringed several Community rules in the field of agriculture.

56 In addition, it indicated how it was possible for the unlawful conduct of the French tenderers to have led to an erroneous assessment of the market by the Community authorities likely to result in the purchase of excessive quantities of beef and veal, possibly at higher prices. In so doing, it established the probability that harm was caused to the Community budget. The Commission cannot be required to do more than that, since it cannot carry out the systematic checks and since analysis of the current state of a given market depends on information gathered by the Member States (see Case C-48/91 Netherlands v Commission, cited above, paragraph 17).

57 Nor has the French Government shown that the conduct for which it was responsible did not lead to an increase in expenditure in the context of the EAGGF.

58 Finally, in view of the essential nature of the formalities which were not complied with and of the probability of losses, or even fraud, to the detriment of the Community budget, the amount disallowed by the Commission, which was limited to 2% of the expenditure involved, cannot be regarded as excessive and disproportionate (Case C-49/94 Ireland v Commission [1995] ECR I-2683, paragraph 22).

59 In view of the foregoing considerations, the second and third pleas in law must be rejected.

The correction in respect of intervention measures in the context of the public storage of cereals

60 Under Article 7 of Regulation (EEC) No 2727/75 of the Council of 29 October 1975 on the common organisation of the market in cereals (OJ 1975 L 281, p. 1), the intervention agencies are obliged to buy in cereals which are offered to them, provided that the offers comply with conditions in respect of in particular quality and quantity.

61 Commission Regulation (EEC) No 689/92 of 19 March 1992 fixing the procedure and conditions for the taking-over of cereals by intervention agencies (OJ 1992 L 74, p. 18) requires in particular that:

- the cereals be sound, fair and of marketable quality, free from abnormal smell and live pests and meet minimum quality requirements (Article 2);

- all offers for intervention contain the name of the offerer, the cereal offered, the place of storage, the intervention centre to which the offer relates, the quantity, the main characteristics and harvesting year (Article 3(1));

- takeover by the intervention agency take place when the quantity and the standards have been established for the entire lot in respect of the goods delivered to the intervention store (Article 3(4));

- the quality characteristic be established on the basis of a representative sample (Article 3(5));

- the quantity may be established on the basis of the stock records in respect of goods taken over in the store (Article 3(6));

- a takeover note be issued by the intervention agency in respect of each offer (Article 3(8));

- the intervention agency check the quality of the stored product at least once a year (Article 5).

62 Pursuant to Article 3(2) of Regulation No 729/70, the Council adopted Regulation (EEC) No 3492/90 of 27 November 1990 laying down the factors to be taken into consideration in the annual accounts for the financing of intervention measures in the form of public storage by the European Agricultural Guidance and Guarantee Fund, Guarantee Section (OJ 1990 L 337, p. 3). That regulation provides in particular, under the first paragraph of Article 3, that intervention agencies are to establish an inventory for each product which has been the subject of Community intervention. The rules for drawing up that inventory are laid down by Commission Regulation (EEC) No 618/90 of 14 March 1990 (OJ 1990 L 67, p. 21). The inspection procedure in respect of cereals with a view to drawing up an inventory is described in Annex III to that regulation. Articles 3 and 4 provide that verifications and on-the-spot checks of the inventory must be carried out by the intervention agency.

63 Following inspections in June and July 1993 to check the cereals stored in intervention in France, the Commission informed the French authorities by letter of 20 September 1993 that its staff had found eight areas in which the management and control system for public storage was unsatisfactory. Those deficiencies related to

- quality checks on products on entry into storage;

- the identification of stocks in storage, in particular their differentiation from stocks stored under different arrangements;

- the late entry into the accounts of stock movements;

- the unavailability of accurate records of stocks held in each store on a particular date when checks were carried out;

- the unavailability at the head office of the physical inventories laid down in Community rules and of accounts recorded when checks were carried out;

- the unsatisfactory nature of stock records held by the storage bodies;

- the unsuitability of certain warehouses for intervention storage (impossibility of taking measurements, non-existent or dangerous gangways, open to the elements ...);

- the difficulty of reconciling plans with the actual measurements of warehouses.

64 In the same letter, the Commission stated that the results of its mission could give rise subsequently to financial consequences when clearing the 1993 accounts.

65 By letter of 8 April 1994, the Commission expressed its satisfaction with the improvements which the French authorities intended to put in place. After drawing the French authorities' attention to Chapter E of the memorandum appended to its letter, concerning the corrections, and to the final comments, it stated that no overall financial penalty would be imposed, in particular in view of the improvements made to the management system.

66 In Chapter E it confirmed, however, that part of the stored goods was missing, contrary in particular to Article 3(6) of Regulation No 689/92 and that the EAGGF should be reimbursed at the value provided for by Commission Regulation (EEC) No 3597/90 of 12 December 1990 on the accounting rules for intervention measures involving the buying-in, storage and sale of agricultural products by intervention agencies (OJ 1990 L 350, p. 43).

67 In conclusion, it was pointed out to the French authorities that:

`... according to persistent trade rumours, it would appear that stocked goods and market cereals are switched in particular upon the sale of stocks into intervention'.

The Commission went on: `If it should transpire that those rumours are founded, very severe financial corrections will be imposed and you will be requested to impose penalties on traders and/or on storage bodies.'

68 Following a further series of inspections of the public storage of cereals, carried out between 27 June and 1 July 1994, the Commission confirmed, in a letter of 16 November 1994, that in many cases the French authorities had not put right the deficiencies in the running of the management system raised in 1993, namely:

- the delay in entering stocks into the accounts;

- certain inadequacies in checks;

- poor storage conditions and problems with the placing of signs;

- inadequate stock records.

69 In the first annex to that letter, the Commission stated that the rumours regarding the mixture of other specific cereals with cereals bought into intervention had been confirmed. In a second annex, which related to an inspection of intervention stocks in the Orléans area, the Commission's inspectors stated that they had found the quantity held in the silos to be greater than should normally have been stored. The Commission concluded that the prefinanced wheat had been mixed with the storage body's privately held wheat.

70 It therefore informed the national authorities that the financial corrections would be decided in the context of the clearance of accounts with effect from 1992. By letter of 18 August 1995, the Commission proposed a financial correction of 2% of the total expenditure on intervention by way of public storage by the EAGGF, that is to say FF 84 million.

71 The French authorities referred the matter to the Conciliation Body, for it to attempt to reconcile the divergent standpoints on the case.

72 In its intermediate report of 15 December 1995, the Conciliation Body observed that the French authorities did not deny the essential findings of the EAGGF inspectors, although there remained differences over the veracity or the interpretation of certain findings (point 5). It concluded that the hearings it had held had not enabled it to ascertain whether the changes introduced by the French authorities met the Commission's requirements. It had gained the clear impression that the Commission had reconsidered its previous conclusions in late 1994, judging them too lenient, by finding that the improvements made by the French Republic after the 1993 visit justified reducing, but not cancelling, the financial correction applicable to 1992.

73 In view of those factors, the Conciliation Body made the following determination:

`it is certainly to be regretted that the Commission should give the impression of having retrospectively gone back on its original conclusions, which, here again, can only serve to corroborate the relevant Member State's observations as to the uncertainty of the clearance procedure. Moreover, the Commission's observations and conclusions would indeed be more solidly founded if they were based on a thorough examination of the system in France.

Nevertheless, the French authorities do not, essentially, deny that they should have modified significantly their previous procedure in order to fall into line with the Commission's requirements and that the Community inspections have identified various irregularities, which the French authorities have admitted and penalised.'

74 In its Final Report of 26 January 1996, the Conciliation Body, after referring to its intermediate report, concluded that the financial correction advocated by the Commission staff was not unjustified.

75 The contested decision applied the proposed correction of 2% of the expenditure on technical costs, financial charges and other costs, amounting to FF 84 061 448.

76 In support of its claim for annulment, the French Government relies on three pleas in law alleging that the national management and control system was in accordance with Community legislation and that there has been a breach of the principles of legal certainty and proportionality.

The submission that the national management and control system was in accordance with Community legislation

77 The French Government submits that the national system for the management and control of the quantities and quality of cereals delivered into intervention during 1992 met the requirements laid down by Community legislation.

78 In France, all storage facilities are subject to technical approval. They are recorded in a technical storage register maintained by the Office National Interprofessionnel des Céréales. Since it possesses no storage facilities of its own, the Office relies on service providers with which it enters into storage contracts.

79 Under those contracts, storage agencies are liable in particular where there are found to be goods outside the scope of the contract or where the quality of the cereals is not identical with that recorded on entry into storage. Failure to observe the obligations provided for entails financial penalties in addition to the reimbursement of the storage aid to which entitlement is forfeited; they are implemented systematically and are a deterrent intended to prevent misappropriation of goods or deficiencies in monitoring the stored cereals.

80 The French Government denies that the Commission's remarks contained, in particular, in the memorandum appended to its letter of 20 September 1993, could justify the conclusion that there were failings which exposed the EAGGF to the risk of losses.

81 A number of the Commission's comments concerned requirements not provided for by the legislation in force. Thus, nothing in Community law requires stocks to be entered in real time using the computer system of the intervention agency's head office. The same is true of the systematic placing of signs in storage areas as well as of the affixing of seals in view of the significant increase in quantities taken into intervention. Finally, there is no Community provision specifying the conditions under which storage organisations' stock records are to be kept.

82 In this connection, the first point to bear in mind is that, according to the statements of the Conciliation Body, the French authorities do not deny that they should have modified significantly their previous procedure in order to fall into line with the Commission's requirements and that the Community inspections have identified various irregularities, which the French authorities have admitted and penalised (see paragraph 73 above).

83 Next, the improvements announced by the French authorities were not introduced until 1993, so that the irregularities found by the Commission during 1992 must be considered to have been established.

84 Finally, so far as concerns the measures required by the Commission but which are not provided for by the legislation in force, it need only be observed that Article 8(1) of Regulation No 729/70, which defines the principles according to which the Community and the Member States must ensure the implementation of Community decisions on agricultural intervention financed by the EAGGF and combat fraud and irregularities in relation to those operations (see Joined Cases 146/81, 192/81 and 193/81 BayWa, cited above, paragraph 13), imposes on the Member States the general obligation to take the measures necessary to satisfy themselves that the transactions financed by the EAGGF are actually carried out and are executed correctly, even if the specific Community act does not expressly provide for the adoption of particular supervisory measures (see Case C-8/88 Germany v Commission [1990] ECR I-2321, paragraphs 16 and 17).

85 In view of the foregoing considerations, the first plea in law must be rejected.

Principle of legal certainty

86 By its second plea in law, the French Government alleges that the Commission breached the principle of legal certainty by going back on the undertaking it had made in its letter of 8 April 1994 not to give effect to any financial measure in the context of the clearance of accounts on account of `persistent trade rumours ... that stocked goods and market cereals are switched in particular upon the sale of stocks into intervention'.

87 The Commission denies having given any undertaking to the French authorities to the effect that the deficiencies found in the control system would not give rise to any financial correction whatever. According to the Commission, the possibility of financial correction had been expressly raised in the correspondence with the French authorities.

88 Without its being necessary to consider whether an alleged undertaking given by the Commission after the end of the year at issue not to impose an overall financial penalty is capable of permitting a Member State to escape the financial consequences of its failure to comply with its obligations under Community agricultural legislation, it need only be observed that, as is evident from paragraphs 65 to 67 of the present judgment, that undertaking was, in any event, given subject to the proviso that cereal bought into intervention should not prove to have been replaced by privately-held cereal. The decision to impose a correction was in fact taken after Commission staff had discovered substitutions in the presence of representatives of the national authorities and following an inquiry, as is clear from the Commission's letter of 16 November 1994.

89 In view of the foregoing considerations, the second plea in law must be rejected.

The principle of proportionality

90 In the alternative, the applicant claims that the contested decision was contrary to the principle of proportionality. In its view, the correction could not, in any event, be applied in respect of budget item 10-13, which concerns losses in stocks sold, which were fully offset by Regulation No 3597/90.

91 In that connection, it need only be observed that the Commission was able to establish not only that quantities of stock in intervention were in fact missing but more generally that there were deficiencies in the control system. Such deficiencies made it conceivable that there could be further amounts missing and thus that there was a risk of additional losses which it was not possible to make good pursuant to Regulation No 3597/90.

92 The third plea must therefore be rejected.

93 In view of the foregoing considerations, the application must be dismissed in its entirety.

Decision on costs

Costs

94 Under the first sentence of 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. Since the French Republic has been unsuccessful, it must be ordered to pay the costs.

Operative part

On those grounds,

THE COURT

(Fifth Chamber),

hereby:

95 Dismisses the application;

96 Orders the French Republic to pay the costs.