CELEX: 62000CJ0346
Language: en
Date: 2003-09-18 00:00:00
Title: Judgment of the Court (Fifth Chamber) of 18 September 2003. # United Kingdom of Great Britain and Northern Ireland v Commission of the European Communities. # EAGGF - Clearance of accounts - Financial years 1996 and 1997 - Arable crops. # Case C-346/00.

Case C-346/00 United Kingdom of Great Britain and Northern IrelandvCommission of the European Communities
            «(EAGGF – Clearance of accounts – Financial years 1996 and 1997 – Arable crops)»
            
               
                  Opinion of Advocate General Tizzano delivered on 23 January 2003 
                     
                
               
            
                   
               
               
            
               
                  Judgment of the Court (Fifth Chamber), 18 September 2003  
                     
                
               
            
                   
               
               
            
            Summary of the Judgment
         
         
                  1..
                  Agriculture – EAGGF – Clearance of accounts – Power of Commission to review validity of expenditure – Where reasonable doubt arises – Burden of proof on the Member State  
         
                  2..
                  Agriculture – Common agricultural policy – EAGGF financing – Procedure for the clearance of accounts – Conciliation procedure – Opinion expressed by the Commission following a bilateral meeting – No binding effect  (Commission Regulation No 1663/95, Art. 8) 
         
         1.
          Where the Commission refuses to charge certain expenditure to the EAGGF on the ground that it was incurred as a result of
         a breach of Community rules for which a Member State can be held responsible, the Commission is not required to demonstrate
         exhaustively that the checks carried out by the Member States are inadequate, but to provide evidence of the serious and reasonable
         doubt it entertains concerning the checks carried out by the national authorities. The reason for this mitigation of the burden
         of proof on the Commission is that it is the State which is best placed to collect and check the data required for the clearance
         of EAGGF accounts, and which is consequently required to adduce the most detailed and comprehensive evidence both that its
         checks are actually carried out and, if appropriate, that the Commission's assertions are incorrect. see para. 35
         
         2.
          In the context of the conciliation procedure provided for in Article 8 of Regulation No 1663/95 laying down detailed rules
         for the application of Regulation No 729/70 regarding the procedure for the clearance of the accounts of the EAGGF Guarantee
         Section, the mere fact that the conclusions which the Agriculture Directorate-General reached after consultation of other
         Commission services are inconsistent with the opinion which it expressed following the bilateral discussion and with the position
         of the Member State concerned does not mean that the Commission has infringed the second subparagraph of Article 8(1) by rendering
         meaningless the obligation to hold a bilateral discussion in accordance with that subparagraph. The bilateral discussion is
         merely a preliminary stage in the Commission's decision-making process and any opinion which it expresses at the end of such
         a discussion does not bind it in the future. Before formally communicating its findings, the Agriculture Directorate-General
         may consult other Commission services. Where the Agriculture Directorate-General alters an opinion which it has previously
         expressed, it must be pointed out that no agreement has been reached between the parties and the Member State concerned may
         still request initiation of a conciliation procedure. What is important is that the bilateral discussion enabled both parties
         to debate all the issues in dispute and that all the issues discussed were taken into account by the Commission when it formally
         presented its findings. see paras 69-70, 72
      

      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
            
            JUDGMENT OF THE COURT (Fifth Chamber)18 September 2003  (1)
         
         
            
         
               ((EAGGF – Clearance of accounts – Financial years 1996 and 1997 – Arable crops))
               
             In Case C-346/00, 
            
            
            United Kingdom of Great Britain and Northern Ireland, represented by R. Magrill, acting as Agent, assisted by P. Roth QC,
            
            
            applicant, 
            
            v
            Commission of the European Communities,   represented by M. Niejahr and K. Fitch, acting as Agents, with an address for service in Luxembourg,
            
            defendant, 
            
             APPLICATION for partial annulment of Commission Decision 2000/449/EC of 5 July 2000 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 2000 L 180, p. 49), in so far as it excluded from Community financing, for the financial years 1996 and 1997,
            expenditure of EUR 5 039 175.46 incurred by the United Kingdom in the arable crops sector,
            
            
            THE COURT (Fifth Chamber),,
            
             composed of: D.A.O. Edward, acting for the President of the Fifth Chamber, A. La Pergola, P. Jann, S. von Bahr (Rapporteur) and A. Rosas, Judges, 
            
             Advocate General: A. Tizzano, Registrar: L. Hewlett, Principal Administrator, 
            
            
            having regard to the Report for the Hearing, after hearing oral argument from the parties at the hearing on 20 June 2002, at which the United Kingdom was represented by
            P. Ormond, acting as Agent, and the Commission by M. Niejahr and K. Fitch,
            
            after hearing the Opinion of the Advocate General at the sitting on 23 January 2003,
         gives the following
         
         
         Judgment
         1
            
          By application lodged at the Court Registry on 20 September 2000, the United Kingdom of Great Britain and Northern Ireland
         brought an action under the first paragraph of Article 230 EC for partial annulment of Commission Decision 2000/449/EC of
         5 July 2000 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 2000 L 180, p. 49), in so far as it excluded from Community
         financing, for the financial years 1996 and 1997, expenditure of EUR 5 039 175.46 incurred by it in the arable crops sector.
         
         
            
               Legal background
            
         
         2
            
          Article 5(2)(c) of Council Regulation (EEC) No 729/70 of 21 April 1970 on the financing of the common agricultural policy
         (OJ, English Special Edition 1970 (II), 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) provides: 
         
         2.
          The Commission, after consulting the Fund Committee: 
         ...
         
         (c)
          shall decide on the expenditure to be excluded from the Community financing referred to in Articles 2 and 3 where it finds
         that expenditure has not been effected in compliance with Community rules. Before a decision to refuse financing is taken, the results of the Commission's checks and the replies of the Member State
         concerned shall be notified in writing, after which the two parties shall endeavour to reach agreement on the action to be
         taken. If no agreement is reached, the Member State may ask for a procedure to be initiated with a view to mediating between the
         respective positions within a period of four months, the results of which shall be set out in a report sent to and examined
         by the Commission, before a decision to refuse financing is taken. The Commission shall evaluate the amounts to be excluded having regard in particular to the degree of non-compliance found.
         The Commission shall take into account the nature and gravity of the infringement and the financial loss suffered by the Community.
         A refusal to finance may not involve expenditure effected prior to twenty-four months preceding the Commission's written communication
         of the results of those checks to the Member State concerned. ...
         
         
         
         3
            
          Article 8(1) and (2) of Commission Regulation (EC) No 1663/95 of 7 July 1995 laying down detailed rules for the application
         of Regulation No 729/70 regarding the procedure for the clearance of the accounts of the EAGGF Guarantee Section (OJ 1995
         L 158, p. 6) provides: 
         
         1.
           When, as a result of any enquiry, the Commission considers that expenditure was not effected according to Community rules,
         it shall communicate to the Member State concerned its findings, the corrective measures to be taken to ensure future compliance,
         and an evaluation of any expenditure which it may propose to exclude pursuant to Article 5(2)(c) of Regulation (EEC) No 729/70.
         The communication shall make reference to this Regulation. The Member State shall reply within two months, and the Commission
         may modify its position in consequence. In justified cases the Commission may agree to extend this period for reply. After expiry of the period allowed for reply, the Commission shall initiate a bilateral discussion, and both parties shall
         endeavour to come to an agreement as to the measures to be taken. The Commission shall then formally communicate its conclusions
         to the Member State, referring to Commission Decision 94/442/EC ... 
         
         
         2.
          The decisions referred to in Article 5(2)(c) of Regulation (EEC) No 729/70 shall be taken after an examination of any report
         drawn up by the Conciliation body according to the provisions laid down in [Decision] 94/442/EC.
         
         
         
         4
            
          Commission 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) established a conciliation
         body which may intervene in the clearance of the EAGGF accounts. Under Article 1(2)(a) of that decision,  
         the position of the Body shall be without prejudice to the Commission's final decision on the clearance of the accounts .... 
         
         
         5
            
          The guidelines for flat-rate corrections are laid down in Document VI/5330/97 of 23 December 1997 (
         Document VI/5330/97). Where it is not possible, on the basis of the information gathered in an inquiry, to assess the loss suffered by the Community
         by extrapolating that loss, by way of statistics or by reference to other verifiable data, a flat-rate correction may be proposed.
         The level of correction applied depends on the seriousness of the deficiencies identified in the performance of the controls.
         
         
         
         6
            
          The Commission distinguishes between two categories of controls: 
         
         
         ─
             Key controls are those physical and administrative checks required to verify substantive elements, in particular the existence
            of the subject of the claim, the quantity, and the qualitative conditions including the respect of time-limits, harvesting
            requirements, retention periods etc. They are performed on the spot, and by cross-checks to independent data such as land
            registers. 
          Key controls are those physical and administrative checks required to verify substantive elements, in particular the existence
         of the subject of the claim, the quantity, and the qualitative conditions including the respect of time-limits, harvesting
         requirements, retention periods etc. They are performed on the spot, and by cross-checks to independent data such as land
         registers. 
         
         
         
         ─
             Ancillary controls are those administrative operations required to correctly process claims, such as verification of the respect
            of time-limits for their submission, identification of duplicate claims for the same subject, risk analysis, application of
            sanctions and appropriate supervision of the procedures.
          Ancillary controls are those administrative operations required to correctly process claims, such as verification of the respect
         of time-limits for their submission, identification of duplicate claims for the same subject, risk analysis, application of
         sanctions and appropriate supervision of the procedures.
         
         
         
         7
            
          In accordance with Document VI/5330/97, the Commission applies the following levels of flat-rate corrections: When one or more key controls are not applied or applied so poorly or so infrequently that they are completely ineffective
         in determining the eligibility of the claim or preventing irregularity, then a correction of 10% is justified, as it can reasonably
         be concluded that there was a high risk of widespread loss to the Fund.When all key controls are applied, but not in the number, frequency or depth required by the regulations, then a correction
         of 5% is justified, as it can reasonably be concluded they do not provide a sufficient level of assurance of the regularity
         of claims, and that the risk to the Fund was significant.When a Member State has adequately performed the key controls, but completely failed to operate one or more ancillary controls,
         then a correction of 2% is justified in view of the lower risk of loss to the Fund, and in view of the lesser seriousness
         of the infringement.
         The facts and the clearance procedure in question
         
         8
            
          In the course of an audit relating to aid for arable areas in England and Wales carried out from 30 June to 4 July 1997 (
         the audit), the Commission's services inspected the Bristol Regional Service Centre (
         the Bristol Regional Centre). They carried out a detailed audit of three claims for payment which had been the subject of on-the-spot checks by the same
         inspector (
         the inspector concerned). 
         
         
         9
            
          The United Kingdom and the Commission disagree as to the choice of the three cases selected for audit. According to the United
         Kingdom, inspections carried out by other inspectors could have been subjected to checks. The Commission maintains, conversely,
         that, at the time of the audit, no other inspection had been completed and could thus have been the subject of a check by
         its officials. 
         
         
         10
            
          However, the United Kingdom and the Commission agree that serious deficiencies were discovered in the three selected cases.
         
         
         
         11
            
          The United Kingdom authority responsible for administering the system of payments relating to arable areas, the Ministry of
         Agriculture, Fisheries and Food (
         MAFF) immediately transferred the inspector concerned, who was responsible for the three deficient inspections, to other duties.
         With the agreement of the Commission's services, MAFF undertook to repeat all the inspections relating to 1997 which had been
         carried out by the inspector concerned and to check a sample of cases which had been inspected by other inspectors attached
         to the Bristol Regional Centre in order to determine whether there was a more widespread problem than that which the Commission's
         services had detected. 
         
         
         12
            
          By letter of 8 October 1997, the United Kingdom authorities submitted their report on the checks to the Commission. The checks
         had revealed that the inspector concerned had carried out five other inspections in 1997 and that anomalies had been detected
         in four of those five inspections. However, since no payments had yet been made in respect of the applications for funding
         at the time when those checks were performed, it was possible to correct those anomalies in time and the EAGGF suffered no
         financial loss for 1997 on their account. Moreover, the re-performance of the inspections carried out by other inspectors
         had not revealed any anomalies. 
         
         
         13
            
          By letter of 12 December 1997, the Commission's services, in accordance with Article 8 of Regulation No 1663/95, notified
         the United Kingdom of the anomalies discovered in the course of their audit and stated that there were deficiencies in the
         quality of the supervision of inspections. They acknowledged that the measures taken by the competent national authorities
         had prevented the Community from suffering financial loss for 1997 but requested details of the payments made in 1995 and
         in 1996 and of the measures taken to identify and correct any errors which might have been committed in those years. They
         stated that, given the seriousness of the irregularities discovered, they envisaged excluding part of the expenditure declared
         in 1995 and 1996 from Community funding. 
         
         
         14
            
          The United Kingdom authorities replied by letter of 17 March 1998, stating that, following re-performance of all the inspections
         carried out by the inspector concerned, the value of the irregularities detected amounted to 9.45% of the total of claims
         for payment which that inspector had checked in 1997. With respect to irregularities which the inspector concerned might have
         failed to detect in 1995 and 1996, the United Kingdom authorities undertook to examine all the applications submitted to that
         inspector. They also stated that the potential value of the losses for the EAGGF could be calculated by applying the same
         rate of 9.45% to the total value of the applications for aid checked by the inspector concerned in 1995 and 1996. Finally,
         by that letter, the United Kingdom authorities also supplied the details requested by the Commission with regard to the total
         expenditure made in those years under the EAGGF in the sector of arable crops in the region concerned. 
         
         
         15
            
          By letter of 21 August 1998, the United Kingdom authorities supplied the Commission with details of the system of training
         and supervision of inspectors. 
         
         
         16
            
          The bilateral discussion provided for in the second subparagraph of Article 8(1) of Regulation No 1663/95 (
         the bilateral discussion) was held on 16 September 1998. 
         
         
         17
            
          Following that meeting, the Commission's Agriculture Directorate-General (
         the Agriculture Directorate-General) informed the United Kingdom, by fax of 4 November 1998, that it intended to propose a flat-rate correction of 9.45%, which
         was equal to the rate of irregularities found for 1997, and to apply that correction to the applications for aid for 1995
         and 1996 which had been checked by the inspector concerned. 
         
         
         18
            
          However, by letter of 2 August 1999, the Agriculture Directorate-General informed those authorities that, after an examination
         by and consultation of the Commission's services, it had decided, in accordance with the guidelines on the calculation of
         financial corrections laid down in Document VI/5330/97, to make a correction of 2% to all of the expenditure checked by the
         Bristol Regional Centre. 
         
         
         19
            
          In that letter, the Commission explained that the deficiencies discovered related to a key control and could qualify for a
         higher correction. It stated that it had, however, taken into account the fact that, even though it was not of the same quality
         as that which was subsequently set up, MAFF had implemented a system of supervision in 1995 and 1996 and that effective measures
         had been taken to remedy the deficiencies as soon as they became apparent. 
         
         
         20
            
          The United Kingdom then sought, by letter of 6 October 1999, initiation of the conciliation procedure under Decision 94/442.
         The meeting before the Conciliation Body was held on 3 February 2000. 
         
         
         21
            
          In its final report of 8 March 2000, the Conciliation Body invited the services of the Commission to re-examine their assessment
         of the system of supervision applied in the region covered by the Bristol Regional Centre (
         the region concerned). It concluded that the three checks audited by the Commission were not representative of the quality of checks carried out
         in the whole of that region. In its view, the statements made by the United Kingdom authorities, explaining that the system
         of supervision had not yet detected the irregularities in question at the time of the audit but that it would not have failed
         to do so subsequently, were plausible. 
         
         
         22
            
          Notwithstanding the view taken by the Conciliation Body in its final report, the Commission informed the United Kingdom authorities,
         by letter of 16 April 2000, that it maintained its previous position, relying,  
         inter alia, on the deficiencies in the system of supervision of on-the-spot checks in the years prior to 1997. It pointed out, in particular,
         that, after introduction of a system entailing the re-performance of on-the-spot checks, the level of anomalies detected in
         the region concerned had risen from 5.86% in 1996 to 15.07% in 1997. The Commission found that this was a strong indication
         that the quality of field inspections had improved in 1997 following the Commission's audit. 
         
         
         23
            
          On 5 July 2000, the Commission adopted Decision 2000/449, which is the subject of the present action. By that decision, the
         Commission confirmed that a flat-rate correction of 2% was to be applied to all of the applications for aid processed by the
         Bristol Regional Centre in 1995 and 1996. 
         The first plea: erroneous finding that supervision of on-the-spot checks was inadequate Submissions of the parties
         
         
         24
            
          By its first plea, the United Kingdom submits that the Commission was wrong to find that it did not implement an adequate
         system of supervision of on-the-spot checks in the region concerned in 1995 and 1996. 
         
         
         25
            
          The United Kingdom points out that Decision 2000/449 is based on the irregularities, discovered in the course of the audit,
         in the three cases selected by the Commission's services and on the increase in the rate of anomalies detected in the region
         concerned in 1997 as compared with the rate in 1996. 
         
         
         26
            
          With respect to the irregularities discovered in the course of the audit, the United Kingdom asserts that the system of supervision
         which it had put in place would have uncovered those irregularities. It maintains that the reason why that had not yet been
         the case was that the Commission's audit took place at the end of the first month of the four-month period during which the
         national authorities carry out their inspections. The system of supervision had simply not yet been applied at the time of
         the audit. 
         
         
         27
            
          The United Kingdom states that this system of supervision consists of an examination by a Field Team Manager of some of the
         inspectors' reports, relating, in particular, to the duration of the on-the-spot checks carried out by them. In the present
         case, the duration of the on-the-spot checks carried out by the inspector concerned was so much shorter than the normal duration
         that such an examination would undoubtedly have revealed the anomalies. 
         
         
         28
            
          The system of supervision also consists of a number of inspections carried out jointly by an inspector and a Field Team Manager
         or a senior inspector. These inspections may take place either without warning or after having been announced. Supervision
         is weighted towards new and inexperienced inspectors. In the present case, since the inspector concerned was one of the most
         junior, she would have been the subject of such increased supervision. However, since only a small number of inspections had
         been carried out at the time of the Commission's audit, no joint inspections had yet been conducted. 
         
         
         29
            
          The United Kingdom claims that the Commission cannot rely on the increase in the rate of anomalies revealed in 1997 after
         the introduction of a systematic supervision regime in order to argue that the previous system was inadequate. That would
         be to take into account events occurring after those of the period concerned. Moreover, such reasoning is fallacious since
         the increased rate of anomalies subsequently detected can be explained by the deterioration in economic conditions and the
         tendency of farmers therefore to claim the maximum aid. 
         
         
         30
            
          The Commission contends that, following the checks carried out by the United Kingdom in 1997 with the agreement of the Commission,
         errors were detected in respect of most of the other inspections carried out by the inspector concerned in that year. 
         
         
         31
            
          The Commission also points out that, while the examination of the inspections carried out by the inspector concerned in 1995
         and 1996 did not reveal any significant errors, the United Kingdom nevertheless concedes that it is not always possible to
         detect errors where the harvests in respect of which aid has been granted have long since taken place. 
         
         
         32
            
          In the Commission's view, there can be no certainty that significant errors were not committed by the inspector concerned,
         or indeed by other inspectors, in 1995 and 1996. 
         
         
         33
            
          The Commission contends that the work of the inspector concerned was so unsatisfactory that it is compelled to conclude that
         she must have committed significant errors in 1995 and 1996. The fact that none of the errors committed by that inspector
         in those two years was detected by the system of supervision in place at the time leads the Commission to conclude that this
         system was inadequate. 
         
         
         34
            
          The Commission states that the fact that the number of detected anomalies increased markedly in 1997, as compared with previous
         years, as a result of the introduction of a system of increased supervision likewise leads it to conclude that errors went
         unnoticed in those previous years. 
          Findings of the Court
         
         
         35
            
          Where the Commission refuses to charge certain expenditure to the EAGGF on the ground that it was incurred as a result of
         a breach of Community rules for which a Member State can be held responsible, the Commission is not required to demonstrate
         exhaustively that the checks carried out by the Member States are inadequate, but to provide evidence of the serious and reasonable
         doubt it entertains concerning the checks carried out by the national authorities. The reason for this mitigation of the burden
         of proof on the Commission is that it is the State which is best placed to collect and check the data required for the clearance
         of EAGGF accounts, and which is consequently required to adduce the most detailed and comprehensive evidence both that its
         checks are actually carried out and, if appropriate, that the Commission's assertions are incorrect (see,  
         inter alia, Case C-377/99  
         Germany v  
         Commission [2002] ECR I-7421, paragraph 95). 
         
         
         36
            
          In the present case, the parties are agreed that serious errors were detected in the three cases selected by the Commission's
         services and, moreover, that significant errors were discovered in all of the files checked by the inspector concerned. 
         
         
         37
            
          It follows that the Commission was entitled to entertain serious doubts as regards the quality of the checks carried out in
         the region concerned. 
         
         
         38
            
          It was therefore for the United Kingdom to demonstrate, by as detailed evidence as possible, that the anomalies detected were
         not common to inspectors' checks in general and that there was an adequate system of supervision. 
         
         
         39
            
          In that regard, the United Kingdom provided proof that no anomalies were apparent in the work of the other inspectors in 1997.
         However, it acknowledged that errors had been committed by the inspector concerned in 1995 and 1996. It took the view that
         these were only minor errors but at the same time conceded that, since the checks were carried out long after the harvests,
         it was more difficult to detect errors. 
         
         
         40
            
          The Court finds that the fact that, following the checks carried out at the Commission's request, errors were detected in
         the cases examined by the inspector concerned in 1995 and 1996 which had not been not revealed by the system of supervision
         in place in those years confirmed the Commission's initial doubts. 
         
         
         41
            
          Accordingly, it must be held that the Commission was right to find that the system of supervision in place in the region concerned
         in 1995 and 1996 was inadequate, and it is not necessary to examine whether the Commission's second argument, which relates
         to a comparison of the system of supervision prior to and after 1997, is well founded. 
         The second and third pleas: miscalculation of the loss allegedly suffered by the EAGGF, and financial correction contrary
            to the principle of proportionality Submissions of the parties
         
         
         42
            
          By its second and third pleas, the United Kingdom submits, in the alternative, that, in any event, the Commission infringed
         Article 5(2)(c) of Regulation No 729/70 by miscalculating the amount to be excluded from Community funding and acted in breach
         of the principle of proportionality by imposing a financial correction which was disproportionate to the risk of loss run
         by the EAGGF. 
         
         
         43
            
          The United Kingdom submits that the irregularities identified in 1997 were limited to just one inspector and that the imposition
         of a correction calculated on the basis of a flat-rate deduction of 2% to be applied to all the claims for aid processed by
         Bristol Regional Centre in 1995 and 1996 was therefore unjustified. 
         
         
         44
            
          The United Kingdom observes that, with respect to 1997, the checks showed that 12 of the 13 inspectors had carried out their
         inspections correctly. Moreover, it has been acknowledged that, as a result of the corrective action taken by MAFF, the EAGGF
         suffered no loss in that year. 
         
         
         45
            
          According to the United Kingdom, only minor errors were made in the inspections carried out by the inspector concerned in
         1995 and 1996. The checks revealed no irregularities in the work which that inspector had carried out in 1995 and only three
         applications claiming slightly excessive amounts in 1996, and the excess, which amounted to GBP 919.66, was subsequently recovered
         and paid into the EAGGF account. The fact that the United Kingdom is unable to explain why the efficiency of the inspector
         concerned declined markedly in 1997 as compared with 1996 does not entitle the Commission to conclude that she committed a
         number of errors in 1996 which were greater than those revealed by the checks. 
         
         
         46
            
          In any event, the United Kingdom submits that, if, as a result of the limitations entailed in re-performing the checks a year
         later, it is held that a deduction is justified in respect of the previous years, that deduction should be limited to the
         payments relating to the applications checked by the inspector concerned. A flat-rate correction of 9.45%, which is equal
         to the rate of irregularities established for 1997, should be applied to the applications examined by that inspector in 1995
         and 1996. The United Kingdom points out that this correction is also the same as the financial deduction initially proposed
         by the Agriculture Directorate-General. 
         
         
         47
            
          The United Kingdom adds that the effect of the final deduction made by the Commission is to exclude from Community funding
         sums which are 23 times higher than the amount initially proposed by the Agriculture Directorate-General and that such a deduction
         must therefore be regarded as manifestly disproportionate. 
         
         
         48
            
          The Commission submits that, having regard to the guidelines laid down in Document VI/5330/97, a flat-rate correction of 2%
         is reasonable. 
         
         
         49
            
          The Commission states that two factors were of particular relevance in calculating the appropriate correction: first, the
         failure to carry out a key control, namely the lack of adequate on-the-spot checks by the inspector concerned, and, second,
         the lack of ancillary controls, that is to say, the lack of adequate training at the Bristol Regional Centre and of adequate
         supervision to prevent errors such as those committed. 
         
         
         50
            
          The Commission maintains that the application of a flat-rate correction is justified where, as in the present case, it is
         impossible to evaluate,  
         ex post facto, the impact on Community expenditure of the inadequacies in the quality of supervision. It points out that, in view of the
         serious irregularities identified in the performance of the key controls, it could have applied a 5% correction. Nevertheless,
         it considered that a rate of 2% was appropriate because the chief inadequacy concerned an ancillary control and corrective
         measures were rapidly and effectively taken as soon as the problem was identified. 
         
         
         51
            
          The Commission rejects the argument of the United Kingdom concerning the alleged disproportionality of the correction applied,
         namely that it is 23 times higher than that which would have been applied if solely the work of the inspector concerned had
         been taken into account. The Commission contends that that comparison is meaningless and points out that flat-rate corrections
         are determined with a view to reflecting the probable impact on Community expenditure of the inadequacies identified. 
          Findings of the Court
         
         
         52
            
          By its second and third pleas, the United Kingdom Government is challenging the application of a flat-rate correction to all
         of the expenditure examined in the region concerned in 1995 and 1996 and also the 2% level of the correction. 
         
         
         53
            
          As regards the type of correction applied, it should be noted that, in the light of Document VI/5330/97, a flat-rate correction
         may be applied where it is not possible to determine precisely the losses suffered by the Community. 
         
         
         54
            
          As is clear from the checks requested by the Commission in 1997, it was not possible to determine the precise extent of the
         errors committed by the inspector concerned in 1996 or whether any errors might have been committed by her in 1995 or by other
         inspectors over the course of those two years. 
         
         
         55
            
          Accordingly, the Commission rightly applied a flat-rate correction to all of the applications for aid inspected in the region
         concerned in 1995 and 1996. 
         
         
         56
            
          The correction rate of 2% is the lowest of the applicable rates. As the Commission pointed out, it could have applied a 5%
         correction in view of the guidelines laid down in Document VI/5330/97 but it took into account, in particular, the measures
         which the United Kingdom authorities had taken as soon as the errors committed in 1997 were discovered. 
         
         
         57
            
          In light of the seriousness of the anomalies found and of the fact that the United Kingdom was unable to provide sufficient
         proof that no errors of the same kind had been committed in 1995 and 1996 by the inspector concerned or the other inspectors,
         the rate of 2% is not disproportionate. 
         
         
         58
            
          It follows that the second and third pleas raised by the United Kingdom must be rejected as unfounded. 
         The fourth plea: infringement of essential procedural requirements Submissions of the parties
         
         
         59
            
          The United Kingdom submits that the Commission failed to observe the procedural rules laid down in the second subparagraph
         of Article 8(1) of Regulation No 1663/95 which require that the Commission and the Member State concerned hold a bilateral
         discussion on the basic expenditure which the Commission proposes to exclude from Community funding and endeavour to reach
         an agreement. 
         
         
         60
            
          The United Kingdom takes the view that the Commission's action in proposing the exclusion of modest sums from Community funding
         following the bilateral discussion but in then deciding, nine months later, to exclude a much larger sum, which was calculated
         on an entirely different basis and as a result of the intervention of other Commission services which did not participate
         in the bilateral discussion, runs counter to those procedural rules. It adds that, in such circumstances, the bilateral discussion
         ceases to have any point. 
         
         
         61
            
          The Commission contests the fourth plea relied on by the United Kingdom and contends that it did not infringe the rules laid
         down in Article 8 of Regulation No 1663/95. It submits, in particular, that, by letter of 12 December 1997, it duly notified
         the United Kingdom of the irregularities found. It adds that that letter stated its intention to apply a correction in respect
         of the preceding 24 months in accordance with Article 5(2)(c) of Regulation No 729/70 and that the United Kingdom must therefore
         have known that a correction of 2%, or even greater, might be applied. 
         
         
         62
            
          The Commission submits that a bilateral discussion was organised, in accordance with the applicable procedure, with the representatives
         of the Agriculture Directorate-General. It acknowledges that, as a result of that discussion, the Agriculture Directorate-General
         took the view that the financial correction should be applied only to the applications for aid inspected by the inspector
         concerned. Nevertheless, the Commission maintains that this was simply a point of view which that Directorate intended to
         submit to the Commission and not a final decision. 
         
         
         63
            
          The fact that the Commission collectively decided that the irregularities justified a more stringent correction than that
         initially envisaged does not render the bilateral discussion meaningless. That discussion allowed an in-depth exchange of
         views between the United Kingdom and the Commission, which served to clarify the legal issues and the facts. 
          Findings of the Court
         
         
         64
            
          By this plea, the United Kingdom claims that the Commission infringed the procedural rules laid down in Article 8 of Regulation
         No 1663/95 by rendering meaningless the obligation to hold a bilateral discussion in accordance with that article. 
         
         
         65
            
          The parties do not dispute that a bilateral discussion took place between the representatives of the Agriculture Directorate-General
         and the representatives of the United Kingdom. 
         
         
         66
            
          The disputed point is whether the purpose of the bilateral discussion was rendered meaningless because other Commission services,
         which had not participated in the discussion, were consulted after that discussion and because, following that consultation,
         the Commission presented conclusions which differed from those reflecting the common point of view which the parties to the
         discussion appeared to have reached. 
         
         
         67
            
          Following the bilateral discussion, the Commission, by fax of 4 November 1998, stated that it intended to propose a correction
         limited to 9.45% of the applications for aid checked by the inspector concerned. By that fax, in which it was expressing an
         opinion, the Agriculture Directorate-General referred to the same correction amount as that which the United Kingdom itself
         had suggested in its letter of 17 March 1998 and seemed therefore to indicate that the parties shared a common point of view.
         However, in its letter of 2 August 1999, the Agriculture Directorate-General proposed a much greater correction, namely 2%
         of all the applications for aid checked in the region concerned. 
         
         
         68
            
          The fact that the conclusions in the letter of 2 August 1999 were not consistent with either those contained in the fax of
         4 November 1998 or the common point of view reached by the parties during the bilateral discussion does not necessarily mean
         that the purpose of the discussion was rendered meaningless. 
         
         
         69
            
          The bilateral discussion is merely a preliminary stage in the Commission's decision-making process and any opinion which it
         expresses at the end of such a discussion does not bind it in the future. Before formally communicating its findings, the
         Agriculture Directorate-General may consult other Commission services. Where, as in the present case, the Agriculture Directorate-General
         alters an opinion which it has previously expressed, it must be pointed out that no agreement has been reached between the
         parties and the Member State concerned may still request initiation of a conciliation procedure. 
         
         
         70
            
          What is important is that the bilateral discussion enabled both parties to debate all the issues in dispute and that all the
         issues discussed were taken into account by the Commission when it formally presented its findings. Nevertheless, the Commission
         may arrive at an assessment of the extent of the risk for the EAGGF which differs from its assessment at the bilateral discussion
         and as a result of which it proposes a different correction from that initially envisaged. 
         
         
         71
            
          In the present case, there was a debate during the bilateral discussion, relating, in particular, to the deficiencies identified,
         the loss suffered by the EAGGF and the level of the correction to be applied, and the Commission took the issues discussed
         into account when it formally presented its conclusions. 
         
         
         72
            
          Thus, the mere fact that the conclusions which the Agriculture Directorate-General reached after consultation of other Commission
         services are inconsistent with the opinion which it expressed following the bilateral discussion and with the position of
         the United Kingdom does not mean that the Commission infringed the second subparagraph of Article 8(1) of Regulation No 1663/95
         by rendering meaningless the obligation to hold a bilateral discussion in accordance with that subparagraph. 
         
         
         73
            
          It follows that the fourth plea raised by the United Kingdom is unfounded. 
         
         
         74
            
          Since the United Kingdom has been unsuccessful in all of the pleas raised, the application must be dismissed. 
         
         Costs
         75
            
          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. Since the Commission has applied for costs and the United Kingdom has been
         unsuccessful, the latter must be ordered to pay the costs. 
         
         On those grounds, 
         
         
         
            
            THE COURT (Fifth Chamber)
         
         
          hereby: 
         
            
            1.
             Dismisses the application; 
            
            2.
             Orders the United Kingdom of Great Britain and Northern Ireland to pay the costs.
            
                  Edward
               
               
                  La Pergola 
               
               
                  Jann 
               
            
                  von Bahr
               
               
                  Rosas 
               
               
                  
               
            
                  
               
               
                  
               
               
                  
               
            
                  
               
               
                  
               
               
                  
               
            
                  
               
               
                  
               
               
                  
               
            
            
            
            
            
            
            
            
         
         
          Delivered in open court in Luxembourg on 18 September 2003. 
         
         
         
         
                  R. Grass 
               
               
                  M. Wathelet  
               
            
         
         
         
                  Registrar
               
               
                  President of the Fifth Chamber
               
            
      
      
          1 –
            
             Language of the case: English.