Judgment of the Court of 24 March 1994. - Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland. - Failure to fulfil obligations - Special rights of the Milk Marketing Boards - Skimmed and semi-skimmed milk - Supervision of the Milk Marketing Boards by the Member State - Notification. - Case C-40/92.



European Court reports 1994 Page I-00989



Summary

Parties

Grounds

Decision on costs

Operative part



Keywords

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1. Agriculture - Common organization of the markets - Milk and milk products - Special rights of the Milk Marketing Boards - Purchase of milk produced and marketed "without processing" - Concept - Skimmed and semi-skimmed milk - Included

(Regulation No 804/68 of the Council, Art. 25(1)(a), as amended by Regulation No 1421/78)

2. Agriculture - Common organization of the markets - Milk and milk products - Special rights of the Milk Marketing Boards - Obligation on the Member State to supervise the activities of those bodies - Toleration of divergent policies regarding the exercise of special rights in respect of skimmed and semi-skimmed milk - Not permissible

(EEC Treaty, Art. 40(3); Council Regulation No 1422/78, Art. 10(1))

3. Agriculture - Common organization of the markets - Milk and milk products - Special rights of the Milk Marketing Boards - Draft amendments to the relevant national legislation - Obligation to notify the Commission

(EEC Treaty, Art. 5)

Summary

1. The exclusive right to purchase milk referred to in Article 25(1)(a) of Regulation No 804/68, as amended by Regulation No 1421/78, on which the Milk Marketing Boards, milk producer bodies in the United Kingdom, can rely covers not only whole milk but also low-fat milk, that is to say, skimmed and semi-skimmed milk.

2. The United Kingdom is required to comply strictly with the obligations to supervise the activities of the Milk Marketing Boards imposed on it by Article 10 of Regulation No 1422/78 as a specific condition of the recognition of the marketing schemes in question since they represent an exception from the common organization of the markets. In so far as there are five separate bodies responsible for the implementation of those marketing schemes, the principle that their activities should be subject to very strict control is particularly important in view of the objective of the above regulation to ensure that those bodies do not apply the rights granted to them in a manner incompatible with the general principles of the Treaty and Community law, in particular the principle of non-discrimination set out in Article 40(3) of the Treaty. Hence the said Member State breached its obligations under Article 10(1) of Regulation No 1422/78 by allowing the various Milk Marketing Boards, in the exercise of their rights, to pursue divergent policies on the marketing of skimmed and semi-skimmed milk.

3. In view of the fact that it was at the United Kingdom' s request, and solely as far as the latter was concerned, that the Commission introduced derogations from the common organization of the market in milk and milk products, that Member State is under an obligation, on pain of being in breach of its duties under Article 5 of the EEC Treaty, to inform the Commission of any draft amendments to national legislation likely to affect the overall consistency and effectiveness of the marketing schemes based on the Milk Marketing Boards.

Parties

In Case C-40/92,

Commission of the European Communities, represented by P. Gilsdorf, Principal Legal Adviser, and C. Docksey, a member of its Legal Service, acting as Agents, with an address for service in Luxembourg at the office of G. Kremlis, also a member of the Commission' s Legal Service, Wagner Centre, Kirchberg,

applicant,

v

United Kingdom of Great Britain and Northern Ireland, represented by J. Collins, of the Treasury Solicitor' s Department, acting as Agent, and S. Richards and R. Anderson, Barristers, with an address for service in Luxembourg at the British Embassy, 14 Boulevard Roosevelt,

defendant,

APPLICATION for a declaration that, by failing to take the necessary measures to ensure compliance with Community requirements with regard to the production and marketing of skimmed and semi-skimmed milk and by failing to take certain other appropriate measures, the United Kingdom has failed to fulfil its obligations under the EEC Treaty,

THE COURT,

composed of: O. Due, President, G.F. Mancini, M. Díez de Velasco (Rapporteur) and D.A.O. Edward (Presidents of Chambers), R. Joliet, F.A. Schockweiler, G.C. Rodríguez Iglesias, P.J.G. Kapteyn and J.L. Murray, Judges,

Advocate General: C. Gulmann,

Registrar: H. von Holstein, Deputy Registrar,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 8 June 1993,

after hearing the Opinion of the Advocate General at the sitting on 14 September 1993,

gives the following

Judgment

Grounds

1 By application lodged at the Court Registry on 13 February 1992, the Commission of the European Communities brought an action under Article 169 of the EEC Treaty for a declaration that:

1. (a) by failing to ensure that the Milk Marketing Boards ("MMBs") do not exceed the exclusive rights granted to them only in relation to whole milk, the United Kingdom has failed to fulfil its obligations under Article 25(1) of Regulation (EEC) No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products (Official Journal, English Special Edition 1968 (I), p. 176), as amended by Council Regulation (EEC) No 1421/78 of 20 June 1978 (Official Journal 1978 L 171, p. 12);

(b) by failing to prevent the MMBs from restricting the possibilities of producers to legally produce and market milk products outside the exclusive rights of the MMBs, the United Kingdom has failed to fulfil its obligations under Regulation No 804/68;

(c) by failing to supervise the Boards, the United Kingdom has failed to fulfil its obligations under Article 10 of Council Regulation (EEC) No 1422/78 of 20 June 1978 concerning the granting of certain special rights to milk producer organizations in the United Kingdom (Official Journal 1978 L 171, p. 14);

(d) by failing to ensure that competition is not affected more than is absolutely necessary, the United Kingdom has failed to fulfil its obligations under Article 25(3) of Regulation No 804/68;

(e) by extending the Milk Marketing Schemes in Scotland to low-fat milk, the United Kingdom has failed to fulfil its obligations under Article 25(1) of Regulation No 804/68;

(f) by failing to notify the Commission for several years of the statutory changes to the Scottish schemes to cover low-fat milk, the United Kingdom has failed to fulfil its obligations under Article 5 of the Treaty;

2. in the event of the Court holding that low-fat milk falls within the scope of the exclusive rights of the MMBs, the producers and/or processors who have relied upon the interpretation of Community law that was accepted by the United Kingdom until its change of position in June 1991, namely that low-fat milk falls outside the scope of the Milk Marketing Schemes concerned, enjoy a legitimate expectation to carry on trading in low-fat milk outside the exclusive purchasing rights of the MMBs of England and Wales and Northern Ireland for a reasonable period and at least up to the date of the judgment of the Court.

The background to the dispute

2 Prior to its accession to the Community, the United Kingdom had a national organization for the market in milk of which one of the main features was the operation of the MMBs. The purpose of those bodies was to improve the production and marketing of milk products. To that end, all producers sold their milk through the MMBs. The MMBs accepted all milk supplied, sold it at the best price available and paid the producers a single price calculated on the basis of the total profits realized.

3 The activities of the MMBs are regulated by the Milk Marketing Schemes. Under those schemes, the MMBs are obliged to buy, subject to certain exceptions, all milk of marketable quality offered by producers. In return, the schemes empower the MMBs to require producers to sell the milk which they produce to the MMBs, subject to the possibility of authorizing certain categories of producers to market their milk directly under independent arrangements. The MMBs purchase the raw milk from producers at a common price and sell it at prices which vary according to the intended use.

4 Following the United Kingdom' s accession to the Community, operation of the MMBs was integrated into the common organization of the market in milk and milk products, as established by Regulation No 804/68 of the Council. Article 25 of that regulation, as amended by Council Regulation No 1421/78, made the activities of the MMBs subject to certain conditions and provided that the exclusive right of those bodies to buy from producers established in their area should relate to the milk which the latter produced and marketed without processing.

5 The general rules governing the conditions for exercise of the special rights granted by the United Kingdom to the MMBs were laid down by Council Regulation No 1422/78. Article 10(1) of that regulation requires the United Kingdom to take the necessary measures for continuing supervision of compliance by the MMBs with Community principles and rules and with the special conditions governing the authorization.

6 The practice of the various MMBs of the United Kingdom regarding the marketing of skimmed and semi-skimmed milk differed somewhat.

7 The Milk Marketing Board for Northern Ireland has had a consistent policy of including skimmed and semi-skimmed milk within the scope of its exclusive purchasing rights. So it has challenged producers who wished to sell such milk themselves in disregard of its exclusive purchasing rights.

8 In Scotland, two of the three Milk Marketing Schemes, that is to say, those regulating the activities of the Scottish Milk Marketing Board and the North of Scotland Milk Marketing Board, were amended in 1982 in order to make low-fat milk expressly subject to the exclusive purchasing rights conferred on the MMBs by Article 25(1) of Regulation No 804/68. The Milk Marketing Scheme of the Aberdeen and District Milk Marketing Board was similarly amended in 1984.

9 Up to 1991, the Milk Marketing Board of England and Wales had not claimed exclusive purchasing rights vis-à-vis producers who skimmed whole milk and then marketed low-fat milk.

10 By letter of 22 February 1991, the Commission drew the attention of the United Kingdom authorities to the fact that the Milk Marketing Board of England and Wales had decided that milk marketed by producers in liquid form came under its exclusive purchasing rights, irrespective of its fat content. On 8 May 1991, the Commission sent formal notice to the United Kingdom calling on it, pursuant to Article 10 of Regulation No 1422/78, to take the measures necessary to ensure continuing supervision of compliance by the MMBs with the Community rules.

11 By letter of 21 June 1991, the United Kingdom informed the Commission that after a review of the legal position it had reached the conclusion that the phrase "milk which [producers] produce and market without processing", which was the subject of the MMBs' exclusive rights under Article 25(1) of Regulation No 804/68, covered all liquid milk intended for direct human consumption, a definition which, according to the United Kingdom, includes skimmed and semi-skimmed milk.

12 On 1 October 1991, the Commission sent the United Kingdom a reasoned opinion in which it confirmed its position regarding the scope of the MMBs' exclusive purchasing rights and requested the United Kingdom to take the measures necessary to preserve the status quo until the matter had been decided by the Court.

The principal claim

Complaints 1(a), (b), (d) and (e)

13 In support of these heads of claim, the Commission argues that under Article 25(1) and (3) of Regulation No 804/68 the MMBs' exclusive purchasing rights relate only to whole milk and not to skimmed and semi-skimmed milk, that is to say, milk from which most or part of the fat has been removed. Exceptions to the common organization of the market in milk and milk products must be construed narrowly. A distinction must therefore be drawn between whole milk and processed products such as skimmed and semi-skimmed milk.

14 According to the United Kingdom, the concept of "milk which [producers] produce and market without processing" covers low-fat milk since the intended commercial use of this type of milk is the same as for whole milk. If the MMBs' exclusive purchasing rights did not extend to low-fat milk, producers would be able to sell their milk directly to dairies, wholesalers, retailers or consumers. The result would be an increase in the amount of milk withheld from sale to the MMBs, to the detriment of producers as a whole and particularly those whose geographical location places them at a disadvantage.

15 In this context, it is to be noted that the Court held in Case C-372/88 Milk Marketing Board of England and Wales v Cricket St Thomas [1990] ECR I-1345 that the scope of the exclusive purchasing rights relating to "milk which [producers] produce and market without processing" within the meaning of Article 25(1)(a) of Regulation No 804/68 is defined by Community law by reference to a criterion based on the main characteristics of the product in question and its intended commercial use. The Court pointed out that the relevant question is whether the product concerned can still be regarded as milk or whether it is a different product, derived from milk.

16 Skimmed and semi-skimmed milk have characteristics similar to whole milk. The various types of low-fat milk have essentially the same intended commercial use as whole milk, that is to say, direct human consumption. Skimmed milk, semi-skimmed milk and whole milk are sold in the same retail outlets in cartons or bottles, in competition with each other and at prices which are identical or very similar.

17 Further, standardized whole milk, the fat content of which has been fixed at a constant 3.5%, undergoes processes similar to those designed to produce skimmed and semi-skimmed milk. Like low-fat milk, standardized whole milk is produced either by separating the basic elements of whole milk or by diluting whole milk with low-fat milk. This alteration of the fat content of the milk cannot therefore be regarded as processing properly so called.

18 It should be added that a restriction of the MMBs' exclusive purchasing rights to whole milk alone would jeopardize the attainment of the objectives of the marketing system in question, which are to stabilize markets and ensure a fair standard of living for the agricultural community in question. According to the first recital in the preamble to Regulation No 1421/78, the MMBs were recognized by the Community precisely because they allow those objectives to be realized, thereby reducing recourse to Community intervention measures.

19 Restriction of exclusive purchasing rights would lead to the opening of an alternative channel for the sale of low-fat milk. Such a situation would compromise the effectiveness of the marketing scheme in question (the maintenance of which in the common organization of the market in milk and milk products was accepted in a declaration annexed to the Treaty of Accession) and consequently the very existence of the various MMBs recognized under Article 1(2) of Regulation No 1422/78.

20 It follows that heads of claim 1(a), (b), (d) and (e) in the Commission' s application must be dismissed as unfounded.

Complaint 1(c)

21 Under this head of claim, the Commission seeks a declaration that the United Kingdom has failed to fulfil its obligations under Article 10(1) of Regulation No 1422/78, under which it was required to take the necessary measures for continuing supervision of compliance by the MMBs with Community principles and rules and with the special conditions governing the authorization accorded to those bodies.

22 The United Kingdom accepts that in the past the MMBs had divergent practices as regards situations where producers themselves were marketing what they produced in the form of low-fat milk. In Scotland, since the changes to the Milk Marketing Schemes in 1982 and 1984, the MMBs no longer draw a distinction between whole milk and low-fat milk. The MMB in Northern Ireland has always taken the view that low-fat milk is covered by its exclusive rights. In England and Wales, the MMB has redefined its position and now considers that low-fat milk falls under its exclusive purchasing rights. It follows that all the MMBs now take the view that low-fat milk is covered by their exclusive purchasing rights.

23 The United Kingdom considers that the obligations imposed on it by Article 10 of Regulation No 1422/78 do not allow it to prevent private persons, in particular the MMBs, from asserting in good faith rights conferred by the Community legal order. Its duty of supervision does not require it to intervene in national proceedings between private parties concerning the scope of those rights or to take such steps as the Commission suggests.

24 The United Kingdom also submits that this complaint was not formulated in the reasoned opinion.

25 This last argument must be rejected. From the many factors referred to in the documents sent by the Commission prior to the initiation of proceedings it is clear that the Commission' s complaint was that the United Kingdom authorities had failed to supervise the MMBs' application of the Milk Marketing Schemes effectively.

26 As regards the substance of the complaint, it must be emphasized that the United Kingdom is required to comply strictly with the obligations imposed on it by Article 10 of Regulation No 1422/78 as a specific condition of the recognition of the marketing schemes in question since they represent an exception from the common organization of the markets.

27 As the Court has already held, the scheme underlying all the Community provisions authorizing the MMBs is based on the principle that their activities should be subject to very strict control (judgment in Case 23/84 Commission v United Kingdom [1986] ECR 3581, paragraph 40). That obligation to exercise control is particularly important since there are five separate bodies responsible for the implementation of those marketing schemes.

28 In the present case, it is common ground that neither the legal situation nor the MMBs' practice has, over many years, been consistent with the requirement that the rules in question be uniformly applied.

29 The competent authorities in the United Kingdom have tolerated differences in the application of the Milk Marketing Schemes. As the fourth recital in the preamble to Regulation No 1422/78 makes clear, one of the objectives of that regulation is to ensure that the MMBs do not apply the rights granted to them in a manner incompatible with the general principles of the Treaty and Community law, in particular the principle of non-discrimination set out in the second subparagraph of Article 40(3) of the Treaty.

30 It follows that, by allowing the MMBs to pursue divergent policies on the marketing of skimmed and semi-skimmed milk, the United Kingdom has failed to fulfil its obligations under Article 10(1) of Regulation No 1422/78.

Complaint 1(f)

31 The Commission considers that the United Kingdom' s failure to inform it of the MMBs' policy changes constitutes an infringement of the duty to act in good faith laid down by Article 5 of the Treaty.

32 The United Kingdom disputes that it has failed to fulfil its obligations. It argues that it was faced with a difficult situation in which the MMBs were asserting, in good faith and on the basis of the Community rules, exclusive purchasing rights in respect of low-fat milk.

33 It should be noted that the scheme derogating from the common organization of the market in milk and milk products was recognized by the Community at the request of the United Kingdom and the latter is therefore under an obligation to inform the Commission of any change in the Milk Marketing Schemes which is likely to affect the overall consistency and effectiveness of those marketing schemes.

34 It is common ground that the Commission was not notified of the changes to the three Milk Marketing Schemes in Scotland which brought skimmed and semi-skimmed milk within their scope.

35 In view of the significance of the changes envisaged, and in order to allow the Community authorities to check that those measures were consistent with the applicable rules, the United Kingdom ought to have notified them to the Commission.

36 It follows that in failing to notify the proposals for the changes made in 1982 and 1984 to the Milk Marketing Schemes in Scotland, the United Kingdom has failed to fulfil its obligations under Article 5 of the Treaty.

The claim in the alternative

37 On the assumption the Court would hold that low-fat milk does come within the exclusive rights of the MMBs, the Commission asked that producers who relied on the contrary interpretation, accepted by the United Kingdom before its change of position, should be recognized as having the right, by virtue of the principle of legitimate expectations, to continue to market their low-fat milk outside the framework of the exclusive purchasing rights of the Milk Marketing Board of England and Wales and the Milk Marketing Board for Northern Ireland for a reasonable period and at least until the date of the Court' s judgment.

38 The United Kingdom submits that this claim was not raised during the pre-litigation procedure.

39 That argument must be accepted. No claim relating to the protection of the principle of legitimate expectations was made by the Commission in its letter of formal notice or in its reasoned opinion.

40 The claim submitted by the Commission in the alternative must therefore be dismissed as inadmissible.

Decision on costs

Costs

41 Under the first subparagraph of Article 69(3) of the Rules of Procedure, 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. In this case, as the parties have each failed on some heads, each party should be ordered to bear its own costs, including those relating to the application for interim measures submitted by the Commission in the proceedings for interim relief.

Operative part

On those grounds,

THE COURT

hereby:

1. Declares that, by allowing the Milk Marketing Boards to pursue divergent policies on the marketing of skimmed and semi-skimmed milk, the United Kingdom of Great Britain and Northern Ireland has failed to fulfil its obligations under Article 10(1) of Council Regulation (EEC) No 1422/78 of 20 June 1978 concerning the granting of certain special rights to milk producer organizations in the United Kingdom;

2. Declares that, in failing to notify the Commission of the proposals for the changes made in 1982 and 1984 to the Milk Marketing Schemes in Scotland, the United Kingdom has failed to fulfil its obligations under Article 5 of the EEC Treaty;

3. Dismisses the Commission' s remaining principal claims as being unfounded;

4. Dismisses the claim submitted by the Commission in the alternative as inadmissible;

5. Orders each of the parties to bear its own costs, including those relating to the proceedings for interim relief.