1 BY AN APPLICATION LODGED AT THE COURT REGISTRY ON 6 NOVEMBER 1985, THE KINGDOM OF THE NETHERLANDS BROUGHT AN ACTION UNDER THE FIRST PARAGRAPH OF ARTICLE 173 OF THE EEC TREATY FOR A DECLARATION THAT COMMISSION DECISIONS 85/463/EEC AND 85/464/EEC OF 28 AUGUST 1985 ON THE CLEARANCE OF THE ACCOUNTS PRESENTED BY THE KINGDOM OF THE NETHERLANDS IN RESPECT OF THE EUROPEAN AGRICULTURAL GUIDANCE AND GUARANTEE FUND, GUARANTEE SECTION, ARE VOID IN SO FAR AS THEY DISALLOW COMMUNITY FINANCING IN RESPECT OF EXPENDITURE ON AID FOR SKIMMED MILK PROCESSED INTO ANIMAL FEED AND FOR SKIMMED-MILK POWDER INTENDED TO BE USED AS FEED FOR CALVES AMOUNTING TO HFL 66 167 616.62 FOR THE 1980 FINANCIAL YEAR AND HFL 19 324 624.21 FOR THE 1981 FINANCIAL YEAR .
2 IN ORDER TO ENSURE COMPLIANCE WITH THE PROVISIONS OF COMMISSION REGULATION ( EEC ) NO 1725/79 OF 26 JULY 1979 ON THE RULES FOR GRANTING AID FOR SKIMMED MILK PROCESSED INTO COMPOUND FEEDINGSTUFFS AND SKIMMED-MILK POWDER INTENDED FOR FEED FOR CALVES ( OFFICIAL JOURNAL 1979, L 199, P . 1 ), ARTICLE 10 OF THAT REGULATION REQUIRES MEMBER STATES TO TAKE CERTAIN INSPECTION MEASURES AND ARTICLE 10 ( 2 ) LAYS DOWN THE CONTROL MEASURES WITH REGARD TO THE USE OF SKIMMED MILK AND SKIMMED-MILK POWDER IN THE MANUFACTURE OF COMPOUND FEED .
3 ARTICLE 10 ( 2 ) ( B ) PROVIDES THAT INSPECTION OF UNDERTAKINGS IS TO BE ON THE PREMISES AND IS TO RELATE IN PARTICULAR TO THE CONDITIONS OF MANUFACTURE AS ESTABLISHED BY : ( I ) AN INSPECTION OF THE BASIC PRODUCT USED, ( II ) CHECKING OF RECEIPT AND CONSIGNMENTS OF GOODS, ( III ) TAKING SAMPLES, AND ( IV ) CHECKING THE SPECIFIC ACCOUNTS .
4 THE FIRST SUBPARAGRAPH OF ARTICLE 10 ( 2 ) ( C ) PROVIDES THAT INSPECTIONS OF UNDERTAKINGS ON THEIR PREMISES ARE TO BE FREQUENT AND UNANNOUNCED, THAT THEY ARE TO BE MADE AT LEAST ONCE IN EVERY 14 DAYS OF MANUFACTURE AND THAT WHEN THEIR FREQUENCY IS DETERMINED ACCOUNT IS TO BE TAKEN OF THE QUANTITIES OF SKIMMED-MILK POWDER USED BY THE UNDERTAKING AND OF THE FREQUENCY OF THE SCRUTINY OF ITS ACCOUNTS CARRIED OUT FURTHER TO THE REQUIREMENTS SET OUT IN SUBPARAGRAPH ( D ). THE SECOND SUBPARAGRAPH OF ARTICLE 10 ( 2 ) ( C ) PROVIDES THAT UNDERTAKINGS NOT PERMANENTLY USING SKIMMED MILK OR SKIMMED-MILK POWDER ARE TO COMMUNICATE THEIR PROGRAMME OF MANUFACTURE TO THE INSPECTION AGENCY OF THE MEMBER STATE CONCERNED SO THAT THE LATTER MAY ARRANGE CORRESPONDING INSPECTIONS . ARTICLE 10 ( 2 ) ( D ) PROVIDES THAT INSPECTIONS OF UNDERTAKINGS ON THEIR PREMISES ARE TO BE SUPPLEMENTED BY THOROUGH AND UNANNOUNCED SCRUTINY OF COMMERCIAL DOCUMENTS AND OF THE ACCOUNTS RELATING TO THE RECORDS OF THE BASIC PRODUCTS REFERRED TO IN ARTICLE 8 OF THE REGULATION AND THAT SUCH SCRUTINY IS TO BE CARRIED OUT AT LEAST ONCE EVERY 12 MONTHS . ARTICLE 10 ( 2 ) ( E ) PROVIDES THAT, WHERE SUCH SCRUTINY IS CARRIED OUT AT LEAST ONCE EVERY THREE MONTHS, THE FREQUENCY OF THE INSPECTIONS ON THE PREMISES MAY BE REDUCED FROM AT LEAST ONCE IN EVERY 14 DAYS TO AT LEAST ONCE IN EVERY 28 DAYS OF MANUFACTURE .
5 IN THE SUMMARY REPORT OF 22 OCTOBER 1984 ON THE RESULTS OF THE AUDIT FOR CLEARING THE ACCOUNTS OF THE GUARANTEE SECTION OF THE EAGGF FOR THE 1980 AND 1981 FINANCIAL YEARS, THE COMMISSION MADE PROVISION FOR ADJUSTING EXPENDITURE BY THE KINGDOM OF THE NETHERLANDS FOR 1981 BY HFL 3 060 405.36 . IT HAD BEEN ESTABLISHED, IN CONNECTION WITH THE INVESTIGATION OF AN UNDERTAKING, THAT THE INSPECTION FOLLOWING THE ONE CARRIED OUT ON 14 SEPTEMBER 1981 DID NOT TAKE PLACE UNTIL 3 NOVEMBER 1981 WHEN, ACCORDING TO THE COMMISSION, IT SHOULD HAVE BEEN CARRIED OUT WITHIN 28 DAYS AT THE LATEST, THAT IS TO SAY BY 11 OCTOBER 1981 . ACCORDINGLY, THE PERIOD FROM 12 OCTOBER 1981 TO 2 NOVEMBER 1981 WAS NOT TAKEN INTO CONSIDERATION FOR FINANCING PURPOSES .
6 ACCORDING TO THE INFORMATION SET OUT IN ADDENDUM NO 1 OF 15 APRIL 1985 TO THE SUMMARY REPORT, THE NETHERLANDS HAD OPTED TO CARRY OUT, UNTIL FEBRUARY-MARCH 1981, AN INSPECTION EVERY 14 DAYS, WITH THOROUGH SCRUTINY ONCE A YEAR, IN THE CASE OF LARGE UNDERTAKINGS, WHICH AT THAT TIME ACCOUNTED FOR OVER 90% OF PRODUCTION, WHILST OTHER UNDERTAKINGS WERE TO BE INSPECTED EVERY 28 DAYS WITH THOROUGH SCRUTINY EVERY QUARTER . AS FROM FEBRUARY-MARCH 1981, THE LATTER SYSTEM WAS APPLIED TO ALL UNDERTAKINGS . ON THE BASIS OF AN ON-THE-SPOT INVESTIGATION CARRIED OUT IN VIEW OF THE FINDINGS IN THE SUMMARY REPORT, THE COMMISSION' S DEPARTMENTS FURTHER ESTABLISHED THAT THE 14-DAY TIME-LIMIT HAD BEEN EXCEEDED ON 45 OCCASIONS IN 1980, THAT THE 28-DAY TIME-LIMIT HAD BEEN EXCEEDED ON FIVE OCCASIONS IN 1980 AND THAT THE 28-DAY TIME-LIMIT HAD BEEN EXCEEDED ON EIGHT OCCASIONS IN 1981 . ACCORDINGLY, THE COMMISSION' S DEPARTMENTS ADJUSTED EXPENDITURE FOR 1980 BY HFL 66 167 616.62 AND BY HFL 19 324 624.21 FOR 1981 . ADDENDUM NO 1 TO THE SUMMARY REPORT SETS OUT IN DETAIL THE REASONING BEHIND THOSE ADJUSTMENTS AND THE CALCULATION ON WHICH THEY ARE BASED .
7 IN ADDENDUM NO 3 OF 24 MAY 1985 TO THE SUMMARY REPORT, THE COMMISSION' S DEPARTMENTS SUGGESTED TO THE COMMISSION, HAVING REGARD TO THE RESULTS OF THE QUARTERLY INSPECTIONS CARRIED OUT EX POST FACTO IN 1985 BY THE NETHERLANDS AND IN VIEW OF THE FACT THAT THE SAMPLES ANALYSED DID NOT REVEAL ANY ANOMALIES, THAT THE POSSIBILITY SHOULD BE CONSIDERED OF ASSIMILATING THE NETHERLANDS SYSTEM OF MANAGEMENT WITH THE SUPERVISORY SYSTEM PROVIDED FOR BY ARTICLE 10 ( 2 ) ( E ) OF REGULATION NO 1725/79 . THE COMMISSION' S DEPARTMENTS CALCULATED THAT, IF THAT SUGGESTION WERE ADOPTED, THE ADJUSTMENT FIGURES IN ADDENDUM NO 1 WOULD HAVE TO BE REPLACED AS FOLLOWS : 1980 : HFL 6 482 249.09 1981 : HFL 19 324 624.21
8 BY DECISION 85/463 THE COMMISSION REFUSED TO RECOGNIZE THE SUM OF HFL 66 167 616.62 AS CHARGEABLE TO THE GUARANTEE SECTION OF THE EAGGF FOR THE 1980 FINANCIAL YEAR AND BY DECISION 85/464 IT REFUSED TO RECOGNIZE THE SUM OF HFL 19 324 624.21 AS CHARGEABLE TO THE GUARANTEE SECTION OF THE EAGGF FOR THE 1981 FINANCIAL YEAR . THOSE FIGURES CORRESPOND TO THOSE SET OUT IN ADDENDUM NO 1 OF 15 APRIL 1985 TO THE SUMMARY REPORT .
9 IN CHALLENGING THOSE DECISIONS, THE KINGDOM OF THE NETHERLANDS RELIES ON THREE SUBMISSIONS : ( I ) INFRINGEMENT OF ESSENTIAL PROCEDURAL REQUIREMENTS INASMUCH AS THE DECISIONS DO NOT CONTAIN AN ADEQUATE STATEMENT OF THE REASONS ON WHICH THEY ARE BASED; ( II ) INFRINGEMENT OF REGULATION ( EEC ) NO 729/70 OF THE COUNCIL OF 21 APRIL 1970 ON THE FINANCING OF THE COMMON AGRICULTURAL POLICY ( OFFICIAL JOURNAL, ENGLISH SPECIAL EDITION 1970 ( I ), P . 218 ) IN CONJUNCTION WITH COMMISSION REGULATION NO 1725/79; ( III ) BREACH OF THE PRINCIPLE OF PROPORTIONALITY .
10 REFERENCE IS MADE TO THE REPORT FOR THE HEARING FOR A FULLER ACCOUNT OF THE FACTS OF THE CASE, THE COURSE OF THE PROCEDURE AND THE SUBMISSIONS AND ARGUMENTS OF THE PARTIES, WHICH ARE MENTIONED OR REFERRED TO HEREINAFTER ONLY IN SO FAR AS IS NECESSARY FOR THE REASONING OF THE COURT . INFRINGEMENT OF ESSENTIAL PROCEDURAL REQUIREMENTS
11 IN ITS FIRST SUBMISSION, THE KINGDOM OF THE NETHERLANDS CLAIMS THAT THE CONTESTED DECISIONS DO NOT CONTAIN AN ADEQUATE STATEMENT OF THE REASONS ON WHICH THEY ARE BASED, HAVING REGARD TO ARTICLE 190 OF THE EEC TREATY . IT ACKNOWLEDGES THAT IT COOPERATED WITH THE COMMISSION IN DRAWING UP THE SUMMARY REPORT . HOWEVER, IT MAINTAINS THAT, IN VIEW OF THE SUBSTANTIAL DIFFERENCES BETWEEN THE SUMMARY REPORT AND THE ADDENDA, THE COMMISSION SHOULD HAVE EXPLAINED IN THE DECISIONS IN QUESTION THE BASIS ON WHICH IT FINALLY MADE ITS CHOICE . IT CANNOT CONFINE ITSELF TO STATING IN THE FOURTH RECITAL IN THE PREAMBLE TO ITS DECISIONS THAT THE INSPECTIONS CARRIED OUT SHOW THAT A PART OF THE EXPENDITURE DECLARED DOES NOT SATISFY THE REQUIREMENTS OF REGULATION NO 729/70 AND CANNOT THEREFORE BE FINANCED, AND THAT THE MEMBER STATE HAS BEEN FULLY INFORMED OF THAT CORRECTION AND HAS BEEN ABLE TO GIVE ITS VIEWS THEREON .
12 THE COMMISSION MAINTAINS THAT THE REASONS FOR THE EAGGF' S DECISIONS MUST BE SOUGHT NOT ONLY IN THE TEXT OF THOSE DECISIONS BUT ALSO IN THE RESULTS OF THE CONSULTATION PROCEDURE, AND THAT IT IS UNDER NO OBLIGATION TO STATE IN THOSE DECISIONS THE REASONS FOR WHICH IT DOES NOT TAKE UP A SUGGESTION MADE BY ITS DEPARTMENTS .
13 THE COURT HAS CONSISTENTLY HELD THAT THE EXTENT OF THE DUTY TO STATE THE REASONS ON WHICH A DECISION IS BASED, LAID DOWN IN ARTICLE 190 OF THE EEC TREATY, DEPENDS ON THE NATURE OF THE ACT IN QUESTION AND ON THE CONTEXT IN WHICH IT WAS ADOPTED .
14 IN THIS CASE, IT IS NOT DISPUTED THAT THE NETHERLANDS GOVERNMENT WAS CLOSELY INVOLVED IN THE PROCESS OF DRAWING UP THE CONTESTED DECISIONS AND WAS WELL AWARE OF THE REASONS FOR WHICH THE COMMISSION CONSIDERED THAT IT SHOULD NOT CHARGE THE CONTESTED AMOUNTS TO THE EAGGF . A SIMPLE COMPARISON OF THE FIGURES SET OUT IN ADDENDA NOS 1 AND 3 TO THE SUMMARY REPORT SHOWS THAT THE COMMISSION ADOPTED ITS DECISIONS ON THE BASIS OF ADDENDUM NO 1, WHICH STATED CLEARLY AND IN DETAIL THE REASONS ON WHICH THE AMOUNTS IN QUESTION WERE BASED . FURTHERMORE, THE OBLIGATION TO STATE REASONS RELATES TO DECISIONS THAT ARE ACTUALLY ADOPTED AND IN THOSE DECISIONS THE COMMISSION IS NOT REQUIRED TO EXPLAIN THE REASONS FOR WHICH IT DID NOT ADOPT A SUGGESTION MADE BY ITS DEPARTMENTS . IN ANY EVENT, THE GOVERNMENT OF THE NETHERLANDS MUST HAVE REALISED THAT THAT SUGGESTION WAS NOT COMPATIBLE WITH THE WORDING OF THE REGULATION .
15 CONSEQUENTLY, HAVING REGARD TO THE PARTICULAR CIRCUMSTANCES IN WHICH DECISIONS ON THE CLEARANCE OF ACCOUNTS ARE DRAWN UP, THE STATEMENT OF THE REASONS ON WHICH THE CONTESTED DECISIONS WERE BASED MUST BE CONSIDERED ADEQUATE . INFRINGEMENT OF REGULATION NO 729/70 IN CONJUNCTION WITH REGULATION NO 1725/79
16 IN ITS SECOND SUBMISSION, THE KINGDOM OF THE NETHERLANDS MAINTAINS THAT THE COMMISSION IS RELYING ON A MISINTERPRETATION OF ARTICLE 10 ( 2 ) ( C ) OF REGULATION NO 1725/79 . ACCORDING TO THE APPLICANT, THE PHRASE "AT LEAST ONCE IN EVERY 14 DAYS OF MANUFACTURE" DOES NOT MEAN, AS THE COMMISSION CLAIMS, THAT NOT MORE THAN 14 DAYS MAY ELAPSE BETWEEN TWO INSPECTIONS, BUT THAT AT LEAST ONE INSPECTION MUST BE CARRIED OUT DURING EACH 14-DAY PERIOD OF MANUFACTURE . THE WORDS "AT LEAST ONCE IN EVERY 28 DAYS OF MANUFACTURE" IN ARTICLE 10 ( 2 ) ( E ) SHOULD BE INTERPRETED IN THE SAME WAY . THE APPLICANT ALSO CLAIMS THAT THE COMMISSION DID NOT ALLOW IT TO CARRY OUT, EX POST FACTO, A SCRUTINY OF THE ADMINISTRATIVE DOCUMENTS UNDER THE CONDITIONS LAID DOWN BY ARTICLE 10 ( 2 ) ( E ) OF REGULATION NO 1725/79, AS SUGGESTED IN ADDENDUM NO 3, AND THAT INSPECTIONS CARRIED OUT IN 1985 ESTABLISHED THAT THE UNDERTAKINGS CONCERNED WERE NOT GUILTY OF ANY IRREGULARITY . THE KINGDOM OF THE NETHERLANDS ALSO COMPLAINS THAT THE COMMISSION HAS DENIED IT THE POSSIBILITY, WHICH AN UNDERTAKING IN WHICH IRREGULARITIES HAD ALLEGEDLY TAKEN PLACE WOULD HAVE, OF ESTABLISHING BY MEANS OF A SPECIAL INVESTIGATION THAT THE INFRINGEMENT RELATES TO A QUANTITY SMALLER THAN THAT RESULTING FROM THE APPLICATION OF ARTICLE 9 ( 4 ) OF REGULATION NO 1725/79 . FINALLY, THE COMMISSION CANNOT REFUSE FINANCING FOR THE WHOLE AMOUNT RELATING TO THE PERIOD UP TO THE LAST PROPER INSPECTION BECAUSE A TARDY INSPECTION CANNOT BE REGARDED AS EQUIVALENT TO AN INSPECTION THAT REVEALS IRREGULARITIES .
17 WITH REGARD TO THE INTERPRETATION OF THE PHRASE "AT LEAST ONCE IN EVERY 14 DAYS OF MANUFACTURE" APPEARING IN THE FIRST SUBPARAGRAPH OF ARTICLE 10 ( 2 ) ( C ) OF REGULATION NO 1725/79, IT MUST BE POINTED OUT THAT THE SECOND SUBPARAGRAPH OF THAT PROVISION REQUIRES UNDERTAKINGS NOT PERMANENTLY USING SKIMMED MILK OR SKIMMED-MILK POWDER TO COMMUNICATE THEIR MANUFACTURING PROGRAMME TO THE INSPECTION AGENCY OF THE MEMBER STATE CONCERNED SO THAT THE LATTER MAY ARRANGE CORRESPONDING INSPECTIONS . IT FOLLOWS THAT THE FIRST SUBPARAGRAPH OF THE PROVISION IN QUESTION APPLIES TO UNDERTAKINGS USING SKIMMED MILK OR SKIMMED-MILK POWDER CONTINUOUSLY, WITHOUT ANY INTERRUPTION IN THE PRODUCTION CYCLE . THE WORDS "ONCE IN EVERY 14 DAYS" CAN THEREFORE RELATE ONLY TO SEPARATE 14-DAY PERIODS OF PRODUCTION AND, AS THE COMMISSION RIGHTLY ARGUES, THEY MEAN THAT NOT MORE THAN 14 DAYS OF MANUFACTURE MAY ELAPSE BETWEEN TWO INSPECTIONS . THAT INTERPRETATION ALSO MAKES IT POSSIBLE FULLY TO ENSURE THAT INSPECTIONS ARE UNANNOUNCED . THE FIRST PART OF THE APPLICANT' S SECOND SUBMISSION IS THEREFORE UNFOUNDED .
18 WITH REGARD TO THE POSSIBILITY OF PARTIALLY REGULARIZING THE SITUATION EX POST FACTO BY SCRUTINIZING DOCUMENTS, IT MUST BE NOTED THAT UNDER ARTICLE 10 OF THE REGULATION INSPECTION VISITS AND THE SUPPLEMENTARY SCRUTINY OF COMMERCIAL DOCUMENTS AND OF THE SPECIFIC ACCOUNTS FORM PART OF A SINGLE INSPECTION SYSTEM THE TWO PARTS OF WHICH ARE INTENDED TO COMPLEMENT ONE ANOTHER . AS THE COMMISSION HAS CONVINCINGLY EXPLAINED, THE CONTEMPORANEOUS EXISTENCE OF THE TWO TYPES OF INSPECTION IS ESSENTIAL IN ORDER TO ENABLE POSSIBLE IRREGULARITIES TO BE DETECTED SINCE NEITHER INSPECTION VISITS NOR SCRUTINY OF DOCUMENTS CAN BY THEMSELVES AFFORD A SUFFICIENT GUARANTEE THAT THE COMMUNITY PROVISIONS ARE BEING COMPLIED WITH . FURTHERMORE, SCRUTINY OF DOCUMENTS EX POST FACTO CANNOT ENABLE IRREGULARITIES TO BE DETECTED WHICH WOULD HAVE BEEN REVEALED ONLY BY AN INSPECTION VISIT UNDER THE CONDITIONS PROVIDED FOR BY THE REGULATION .
19 IT MUST ALSO BE EMPHASIZED THAT THE PROVISIONS OF REGULATION NO 1725/79 SHOULD BE APPLIED UNIFORMLY IN ALL THE MEMBER STATES AND SHOULD, AS FAR AS IS POSSIBLE, HAVE THE SAME EFFECT THROUGHOUT THE TERRITORY OF THE COMMUNITY . SCRUTINY EX POST FACTO DIFFERENT FROM THAT PROVIDED FOR BY THE REGULATION CANNOT THEREFORE TAKE THE PLACE OF THE SUPERVISORY SYSTEM PROVIDED FOR .
20 IN THE THIRD PART OF ITS SECOND SUBMISSION, THE APPLICANT COMPLAINS THAT THE COMMISSION DID NOT GIVE IT THE POSSIBILITY, WHICH UNDERTAKINGS THAT HAVE COMMITTED AN INFRINGEMENT HAVE, OF SECURING, ON THE BASIS OF ARTICLE 9 ( 4 ) OF REGULATION NO 1725/79, BY MEANS OF A SPECIAL INVESTIGATION, A REDUCTION OF THE AMOUNT IN RESPECT OF WHICH FINANCING WAS REFUSED . IN THAT REGARD, IT IS SUFFICIENT TO STATE THAT ARTICLE 9 ( 4 ) RELATES TO THE PRESUMPTION THAT THE FAILURE OF THE UNDERTAKING CONCERNED TO COMPLY WITH THE PROVISIONS GOVERNING AID CONCERNS ALL THE SKIMMED MILK OR SKIMMED-MILK POWDER USED DURING THE ENTIRE PERIOD BETWEEN THE DATE OF THE LAST FAVOURABLE INSPECTION AND THE FIRST INSPECTION IN WHICH IT IS ESTABLISHED THAT THE UNDERTAKING IS ONCE AGAIN COMPLYING WITH THE PROVISIONS OF REGULATION NO 1725/79 . IN THIS CASE, HOWEVER, THE REFUSAL OF FINANCING BY THE EAGGF IS BASED ON THE FINDING THAT THE KINGDOM OF THE NETHERLANDS FAILED TO APPLY THE REQUISITE INSPECTION MEASURES DURING THE PERIODS IN QUESTION . ACCORDINGLY, THIS PART OF THE APPLICANT' S SUBMISSION CANNOT BE ACCEPTED .
21 FINALLY, THE REASONING BASED ON THE FINAL PART OF THE APPLICANT' S SUBMISSION, IN WHICH IT MAINTAINS THAT THE COMMISSION CANNOT REFUSE FINANCING IN RESPECT OF THE ENTIRE PERIOD UP TO THE LAST PROPER INSPECTION, CANNOT BE ACCEPTED . THE WHOLE OF THE AID GRANTED SINCE THE LAST INSPECTION WITHOUT REGARD TO THE REQUISITE FREQUENCY OF INSPECTIONS WAS GRANTED WITHOUT THE REQUISITE INSPECTIONS BEING CARRIED OUT .
22 IT FOLLOWS FROM THE FOREGOING THAT EACH LIMB OF THE SECOND SUBMISSION IS UNFOUNDED AND THAT THE INTERVENTION IN QUESTION WAS NOT UNDERTAKEN ACCORDING TO COMMUNITY RULES WITHIN THE FRAMEWORK OF THE COMMON ORGANIZATION OF AGRICULTURAL MARKETS, AS REQUIRED BY ARTICLE 3 OF REGULATION NO 729/70 . BREACH OF THE PRINCIPLE OF PROPORTIONALITY
23 IN ITS THIRD SUBMISSION, THE KINGDOM OF THE NETHERLANDS COMPLAINS THAT THE COMMISSION ACTED IN BREACH OF THE PRINCIPLE OF PROPORTIONALITY BY DECIDING ON A REDUCTION OF EXPENDITURE THAT WAS DISPROPORTIONATE TO THE FAULTS COMMITTED . THE COMMISSION FOUND A NUMBER OF PROCEDURAL IRREGULARITIES BUT IN THE MEANTIME SHOULD HAVE REALIZED, FROM THE SCRUTINY OF THE COMMERCIAL DOCUMENTS, THAT THERE WERE NO GROUNDS FOR ASSUMING THAT SUBSTANTIVE IRREGULARITIES HAD TAKEN PLACE .
24 WITH REGARD TO THE ASSESSMENT OF THIS SUBMISSION, IT MUST BE POINTED OUT THAT THE COURT HAS CONSISTENTLY HELD ( JUDGMENT OF 7 FEBRUARY 1979 IN CASE 11/76 NETHERLANDS V COMMISSION (( 1979 )) ECR 245 ) THAT THE PROVISIONS OF 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 WHILE 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 AUTHORIZED TO PAY IN THE CONTEXT OF THE COMMON ORGANIZATION OF THE MARKETS .
25 IN ITS JUDGMENT OF 14 JANUARY 1981 IN CASE 819/79 FEDERAL REPUBLIC OF GERMANY V COMMISSION (( 1981 )) ECR 21, THE COURT EMPHASIZED THAT THE FUNCTION OF A COMMISSION DECISION RELATING TO THE CLEARANCE OF ACCOUNTS IN RESPECT OF EXPENDITURE FINANCED BY THE EAGGF IS TO ESTABLISH WHETHER THE EXPENDITURE WAS INCURRED BY THE NATIONAL AUTHORITIES IN ACCORDANCE WITH COMMUNITY PROVISIONS . IN CASES WHERE COMMUNITY RULES AUTHORIZE PAYMENT OF AID ONLY ON CONDITION THAT CERTAIN FORMALITIES RELATING TO PROOF OR SUPERVISION ARE OBSERVED, AID PAID IN DISREGARD OF THAT CONDITION IS NOT IN ACCORDANCE WITH COMMUNITY LAW AND THE EXPENDITURE INCURRED THEREIN MAY NOT THEREFORE BE CHARGED TO THE EAGGF, EVEN IF IT WERE ESTABLISHED THAT NO SUBSTANTIVE IRREGULARITY HAS BEEN COMMITTED .
26 IN THIS CASE, STRICT OBSERVANCE OF THE REQUIREMENT REGARDING THE INSPECTION OF THE UNDERTAKINGS CONCERNED IS AN ESSENTIAL CONDITION FOR THE GRANT OF THE AID IN QUESTION SINCE THE REINFORCEMENT OF THE INSPECTION MEASURES IS, ACCORDING TO THE SECOND AND FOURTH RECITALS IN THE PREAMBLE TO REGULATION NO 1725/79, ONE OF THE PRINCIPAL OBJECTIVES OF THAT REGULATION .
27 IT FOLLOWS FROM THE FOREGOING THAT THE CONTESTED DECISIONS ARE NOT CONTRARY TO THE PRINCIPLE OF PROPORTIONALITY .
28 THE APPLICATION LODGED BY THE KINGDOM OF THE NETHERLANDS MUST THEREFORE BE DISMISSED IN ITS ENTIRETY .