JUDGMENT OF 23. 2. 1983 — CASE 66/82 FROMANÇAIS v FORMA

In Case 66/82 REFERENCE to the Court under Article 177 of the EEC Treaty by the Tribunal Administratif [Administrative Court], Paris, for a preliminary ruling in the action pending before that court between

THE COURT (First Chamber) composed of: A. O'Keeffe, President of Chamber, G. Bosco and T. Koopmans, Judges, Advocate General: G. Reischl Registrar: P. Heim

gives the following

JUDGMENT

Facts and Issues

I — Facts and written procedure

1. Legislation

In order to facilitate the disposal of excess butter, the Commission introduced by Regulation No 1259/72 a system for the sale of butter to certain Community processing undertakings at a reduced price. Under that system butter is sold to the interested parties by means of a tendering procedure. In exchange for the reduced price, the successful tenderer agrees in particular to process the butter or to cause it to be processed, within a certain period, into specified products such as pastry and other fine bakers' wares and ice-cream. On taking over the butter, the successful tenderer must not only pay the reduced price but also lodge a processing security, the amount of which is intended to cover the difference between the market price of butter and the minimum selling price. Article 18 (2) of Regulation No 1259/72 provides that except in cases of force majeure, the security is to be released only for the quantities in respect of which the tenderer provides the proof that he has fulfilled his obligations.

With effect from 1 February 1975, Regulation No 1259/72 was replaced by Regulation No 232/75 of the Commission of 30 January 1975 on the sale of butter at reduced prices for use in the manufacture of pastry products and ice-cream, which essentially duplicated the provisions of Regulation No 1259/72. In particular, Article 18 (2) of Regulation No 1259/72 was reproduced in the first subparagraph of Article 18 (2) of Regulation No 232/75.

Article 19 of Regulation No 232/75 relaxed the principle that the security should not be released where the time-limit for processing had not been observed. It provides that where the prescribed period has been exceeded by no more than 30 clays, otherwise than as a result of serious negligence on the part of the person concerned, the amount of the security to be retained is only two units of account per tonne for each day by which the prescribed period has been exceeded.

2. Facts

Between 1973 and 1980 Fromançais SA purchased quantities of butter sold at a reduced price pursuant to Regulations Nos 1259/72 and 232/75 and lodged the requisite processing securities. Some of that butter, which had been sold by Fromançais to Italian undertakings, either was not processed at all, or was processed after the expiry of the prescribed period or on an unconfirmed date.

By a decision of 21 January 1981, the Fund refused to release the securities in respect of the consignments of butter for which Fromançais had been unable to furnish proof that the requirements of the Community legislation had been observed, in particular the conditions relating to the time-limit.

On 20 March 1981 Fromançais brought an action against that decision before the Tribunal Administratif, Paris.

It claimed, inter alia, that the Community regulations on which the decision was based constituted a breach of the principle of proportionality inasmuch as they made the release of the security conditional upon observance of the time-limit for processing, although the time-limit had no decisive influence on the achievement of the aims of those regulations.

By judgment of 26 January 1982, the Tribunal Administratif, Paris, stayed its proceedings and asked the Court of Justice for a preliminary ruling on :

“The validity of Article 18 (2) of Regulation (EEC) No 1259/72 of the Commission, Article 18 (2) and 19 of Regulation (EEC) No 232/75 of the Commission and Article 13 (4) of Commission Regulation (EEC) No 1687/76.”

It should be noted that Article 13 (4) of Regulation No 1687/76, which was discussed in the judgment of the national court, relates to administrative checks on the destination of the butter and the release of the security, and therefore does not directly concern the subject-matter of the case, namely the principle that the security should not be released when the processing period is exceeded.

3. Procedure

The judgment making the reference was received at the Court on 17 February 1982.

In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were lodged by Fromançais, represented by Xavier de Roux and Charles-Henry Leger of the Paris Bar; by the Fund, represented by Philippe Villey of the Paris Bar; and by the Commission of the European Communities, represented by François Lamoureux, a member of its Legal Department, acting as Agent.

Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry.

By an order of 29 June 1982 the Court decided to assign the case to the First Chamber pursuant to Article 95 (1) and (2) of the Rules of Procedure.

II — Written observations submitted to the Court

Fromançais notes that the question which has been referred to the Court is intended to establish whether forfeiture of the security in full when the denaturing or processing provided for under the Community regulations has in fact taken place but only after the prescribed period has expired constitutes a breach of the principle of proportionality.

In its view, it is manifestly disproportionate to treat a tenderer who adheres to the Commission's fundamental aim inasmuch as he actually processes the butter, albeit after the expiry of the prescribed period, in the same way as the tenderer who does not process the butter and who sells it on the market as unprocessed butter. A real penalty is inflicted on the former solely because he has failed to observe an administrative time-limit, whereas the second, in losing his security (which corresponds to the difference between the market price of the butter and the special price paid by the successful tenderer), merely pays the market price for the butter which he has resold as such on the market.

Fromançais considers that in order to assess the validity of a provision in relation to the principle of proportionality, the object of the provision must first be identified. It must then be ascertained whether the provision represents a means which is proportionate to that objective.

The principal aim of the security provided for by Regulations Nos 1259/72 and 232/75, as clearly indicated in the identical fourth recitals in the preambles to those regulations, is to ensure that the butter is processed. The preambles to the regulations do not, however, refer to the period within which the processing must be carried out.

In contrast to the obligation to process the butter, the obligation to observe certain time-limits does not appear to be intended to ensure that “the butter is not diverted from its destination”. The purpose of that obligation is different and clearly less important, as is shown by the alterations in the processing period, which was fixed by Regulation No 1259/72 at 120 days calculated from the taking over of the butter, subsequently increased to six months under the provisions of Regulation No 232/75 and, finally, set at eight months from the last day for the submission of tenders by Regulation No 262/79.

The failure to carry out processing within the prescribed period, for which the same penalty is to be imposed as for the complete nonperformance of the obligation to carry out the processing, would not even have been an infringement if it had occurred after the entry into effect of Regulation No 262/79.

In fact, the obligation to observe the time-limits for processing is designed to meet two requirements.

The first and most important of those is to prevent speculation. It may be considered, however, that the risk of speculation is strictly limited when the processing takes place a few days after the expiry of the processing period. Accordingly, to impose on a tenderer who is suspected of speculating because he has exceeded the processing period by a few days the same penalties as if he had completely disregarded his obligations is clearly disproportionate.

Furthermore, it is clear that the processing period, which has been the subject of repeated alterations, is by no means so crucial an element of the Commission's policy that to exceed it, however slightly, might compromise the implementation of that policy.

The second requirement is purely administrative in nature: the purpose of the time-limit is to enable the Commission to obtain information as to the results of the measures which it has adopted, as quickly as possible, and to ensure that the administrative burden which each tenderer causes it to incur is removed as soon as possible. That aim cannot be as important as the principal purpose of the security. The Commission certainly attaches more importance to the fact that the butter sold at a reduced price has been processed than to the possibility of closing its files at a slightly earlier date. The two purposes are of very different weight and should therefore, in accordance with the principle of proportionality, be subject to penalties, which are likewise different, as is shown, moreover, by the judgment of the Court of 20 February 1979 in Case 122/78 Buitoni[l979] ECR 677).

That the failure to observe the processing time-limit is not particularly serious is confirmed by the way in which the requirement in Regulation No 1259/72 was amended in Regulation No 232/75. Article 19 of that regulation provides that where the processing period has been exceeded by less than 30 day for reasons other than serious negligence, the amount of the processing security to be retained is much reduced. That article thus applies the principle of proportionality, but there remains nevertheless a considerable and unjustifiable difference between the tenderer who has carried out the processing on the 30th day of the additional period, and who loses only a small part of the security, and the tenderer- who- has carried out the processing after the 30th day, who forfeits the entire security solely because he has failed to observe an administrative time-limit, the arbitrary.nature of which is illustrated by the fact that it was doubled and thus extended to 60 days by Regulation No 262/79.

Finally, Fromançais submits that this case is to be distinguished from Joined Cases 99 and 100/76 De Beste Boter [1977] ECR 861, in which the Court, by its decision of 11 May 1977, declared that Article 18 (2) of Regulation No 1259/72 was valid as regards the principle of proportionality. The problem raised in that case was what should happen to the security in the event of failure to process the butter, while in the present case the processing took place after the expiry of the prescribed period. It is therefore not possible to apply the Court's decision in De Beste Boter to the present case automatically.

The Fund points out that in the abovementioned judgment in Joined Cases 99 and 100/76 the Court stated that before the processing security could be released it had to be established that the processed products met the conditions laid down by Article 6 (1) (c) of Regulation No 1259/72 and that they had been produced within the period fixed by that provision. The Fund suggests therefore that that judgment may provide the answer to the question raised in the present case.

The Fund notes, moreover, that under Article 19 of Regulation No 232/75 the position of a tenderer who fulfils his obligation with regard to processing after a certain delay may now be taken into account in relation to the system of processing securities. In the view the.Fund the relevant question- is therefore whether in the light of the purpose of the system, that provision makes a sufficient distinction between the failure to process and the delay in processing even if that delay exceeds the 30-day limit.

The Fund refrains from suggesting a solution, however, and leaves the question to be decided by the Court.

The Commission considers that, as the question submitted by the national court in Joined Cases 99 and 100/76 also concerned the compatibility of the refusal to release the security where the processing period has been exceeded with the principle of proportionality and as that aspect of the question was expressly referred to in the observations submitted by the parties and in the Advocate General's opinion, the decision given by the Court in its judgment of 11 May 1977 applies to all cases in which the conditions laid down in Article 6 are not fulfilled and in which the penalty imposed is the refusal to release the security, even for failure to observe the time-limit for processing.

If, however, the Court finds that it has not yet dealt with the question, the Commission contends that:

In the light of the purpose of Regulations Nos 1259/72 and 232/75 the duty to observe the time-limit is inseparable from the obligation to process;

Consequently, the requirements with regard to the lodging of a security are not disproportionate to the aims to be achieved.

The Commission takes the view that the aim of Regulations Nos 1259/72 and 232/75, which is to create new possibilities for the disposal of butter in the food industry, may be achieved only if the processing of the butter is carried out within a relatively short period. The processing period is in fact fixed in order to oblige the tenderer actually to process the butter purchased and not to lay up cheap reserves for speculative purposes. If the time-limit did not have to be observed, there would be a risk of speculation, because the tenderer might be tempted to accumulate stocks in anticipation of an increase in the price of butter sold at reduced prices. Such action would defeat the purpose of the system, to the detriment of the Community budget.

The Commission points out that the obligation to observe the time-limit was shown to be essential in the Beste Boter case by Mr Advocate General Reischl, who noted that the prescribed period enabled the Commission to administer the system established with the maximum efficiency and in accordance witli the objects of the legislation.

The imposition of a time-limit also enables the Commission to complete the necessary checks within a reasonable period of time. It is clear, however, that that second aim is independent of the purpose of the legislation and that it does, in itself, justify forteiture of the security when the period has been exceeded. Thus the argument based on the judgment in Case 122/78, Bnitoni, in which the time-limit was justified exclusively on administrative grounds connected with recordkeeping, does not apply in this case.

Having thus argued that the obligation to observe the processing time-limit is essential, the Commission maintains that the forfeiture of the security where the period is exceeded is not a disproportionate means of achieving the aims of the legislation.

The processing time-limit is one of the conditions accepted as part of the contractual agreement by the tenderer in return for the considerable advantage represented by the reduction in price. As the security amounts to the exact value of the difference between the reduced price and the market price, its forfeiture is not a penalty, since it merely reflects the additional amount of the original market price and is therefore no more than what is appropriate and necessary in order to achieve the required aim.

As regards Article 19 of Regulation No 232/75, which relaxed the terms for the forfeiture of the security in cases where the period was exceeded only slightly and not exclusively as a result of the successful tenderer's negligence, the Commission fails to see how that relaxation constitutes a breach of the principle of proportionality. It was introduced in the light of the experience of the functioning of the system and gave effect to the intention not to impose excessive penalties on buyers who are victims of administrative delays not attributable to force majeure. It considers that, on the contrary, it demonstrates the Commission's concern not to inflict excessive penalties on the persons concerned in such cases of minor overstepping of the time-limit, where there is no intention to speculate.

On the basis of the above considerations, the Commission proposes that the question referred to the Court by the Tribunal Administratif, Paris, be answered as follows:

“Examination of the question referred to the Court has disclosed no factor of such a kind as to affect the validity of Article 18 (2) of Regulation No 1259/72, Articles 18 (2) and 19 of Regulation No 232/75, or Article 13 (4) of Regulation No 1687/76.”

III — Oral procedure

Fromançais, represented by Xavier de Roux of the Paris Bar, the Fund, represented by Philippe Villey of the Paris Bar, and the Commission of the European Communities, represented by François Lamoureux, a member of its Legal Department, acting as Agent, presented oral argument at the hearing on 7 October 1982.

The Advocate General presented his Opinion at the hearing on 11 November 1982.

Decision

1. By a judgment of 26 January 1982 which was received at the Court on 17 February 1982 the Tribunal Administratif [Administrative Court], Paris, referred to the Court under Article 177 of the EEC Treaty a preliminary question as to the effect of the principle of proportionality on the validity of Article 18(2) of Regulation (EEC) No 1259/72 of the Commission of 16 June 1972 on the disposal of butter at a reduced price to certain Community processing undertakings (Official Journal, English Special Edition 1972 (II), p. 559), Article 18 (2) and 19 of Regulation (EEC) No 232/75 of the Commission of 30 January 1975 on the sale of butter at reduced prices for use in the manufacture of pastry products and ice-cream (Official Journal, 1975, L 24, p. 45) and Article 13 (4) of Commission Regulation (EEC) No 1687/76 of 30 June 1976 laying down common detailed rules for verifying the use and/or destination of products from intervention (Official Journal, 1976, L 190, p. 1).

2. The question was raised in the course of an action brought by Fromançais SA against the Fonds d'Orientation et de Régularisation des Marchés Agricoles (“the Fund”), which refused to release processing securities lodged by Fromançais in the period from 1973 to 1977 inclusive, when the latter bought on different occasions intervention butter sold at a reduced price for the manufacture of pastry products and ice-cream.

3. The Fund considered that as Fromançais had not provided proof that the quantities of butter in question had been processed within the period prescribed by the Community legislation, it had not fulfilled the conditions for the release of the security applicable at that time under the regulations.

4. According to Article 18 (2) of Regulation No 1259/72, which came into force on 10 March 1973, and Article 18 (2) of Regulation No 232/75, which replaced it with effect from 1 February 1975, except in cases oí force majeure the processing security was to be released only for quantities in respect of which the successful tenderer furnished proof that certain conditions had been met. Among those conditions was the written agreement to carry out the processing of the butter within a specified period, which Regulation No 1259/72 fixed at 120 days to be calculated from the taking over of the butter and which Regulation No 232/75 subsequently extended to six months to be calculated from the same day. Article 19 (2) of Regulation No 232/75 provided that if the processing period was exceeded for reasons other than serious negligence on the part of the person concerned, that person could request, within a further 30-day period, that the amount of the processing security retained be only two units of account per tonne for each day by which the prescribed period was exceeded.

5. The judgment of the national court also refers to Article 13 (4) of Regulation No 1687/76, which came into force on 1 October 1976. That provision, however, which relates to administrative controls on the destination of the butter and on the release of the security, does not directly concern the subject-matter of the action.

6. Article 15 of that regulation states-that. Article.18 (2) of Regulation No 232/75 is repealed, but there are numerous reasons for supposing that it was not intended to repeal the first paragraph of that provision, which made the release of the security conditional on the fulfilment of certain conditions. The title of the regulation, which refers to “common detailed rules for verifying the use and/or destination of products from intervention”, suggests that the regulation was solely intended to amend the rules governing the furnishing of proof that the obligations undertaken by the successful tenderer had been fulfilled, in other words, just those rules which were provided for in the second paragraph of the provision in question. Moreover, Regulation No 1687/76 did not repeal Article 19 (2) of Regulation No 232/75, which provided that only part of the security was to be retained where the period was exceeded as a result of negligence, other than serious negligence, on the part of the person concerned, and which would be meaningless if exceeding the prescribed period did not prevent the release of the security. Finally, Commission Regulation No 262/79 of 12 February 1979, which, once again, amended the conditions required for the release of the security, expressly repeals only Regulation No 232/75, a fact which would be difficult to explain if Regulation No 1687/76 imposed the same conditions.

7. Fromançais claims that by totally excluding the release of the security in the event of processing after the expiry of the prescribed period, the provisions in question apply to a relatively minor infringement of the undertakings entered into by the successful tenderer the same treatment as that which is reserved for a far more serious breach, such as the complete absence of processing, and are therefore contrary to the principle of proportionality.

8. In order to establish whether a provision of Community law is consonant with the principle of proportionality it is necessary to establish, in the first place, whether the means it employs to achieve its aim correspond to the importance of the aim and, in the second place, whether they are necessary for its achievement.

9. The provisions which require forfeiture of the security in,, full when the processing period is exceeded seek to prevent tenderers who acquire butter at a reduced price from accumulating stocks for speculative purposes.

10. In view of the fact that the price of butter sold by intervention agencies is determined on the basis of the price of competing vegetable fats and that the price of the latter varies according to fluctuations on the world markets, increases in the purchase price of butter sold at a reduced price are foreseeable some time in advance.

11. If no processing period were imposed or if it could be extended for relatively long periods, the successful tenderer might be tempted to buy large quantities of butter in order to use it in conditions other than those envisaged by the Community legislation, in particular in order to create stocks which would enable him to avoid the effect of a subsequent increase in the purchase price,

12. Such speculation would conflict with the purpose of the regulations relating to the sale of butter at a reduced price, which is to remove surplus butter from the market by promoting its use as a substitute for other fats in the preparation of pastry products and ice-cream. It would be an incentive for the buyers with the most purchasing power to monopolize purchases, with the result that a veiy large percentage of the butter sold in that way would not be processed, but would be used to accumulate stocks which would be partly financed by the Community budget outside the framework of the regulations in question.

13. It must therefore be concluded that preventing speculation is an aim of fundamental importance to the proper functioning of the system established by Regulations Nos 1259/72 and 232/75.

14. The requirement of strict observance of the processing period in order to ensure that that aim is achieved may not be disputed by maintaining, as Fromançais has done, that by occasionally altering the length of the period the Commission has itself shown that no connection exists between the length of the processing period and the possibility of speculation.

15. It is true that the processing period fixed by Regulation No 1259/72 was extended first by Regulation No 232/75 and then, a few years later, by Regulation No 262/78, which extended it to eight months from the last day for the submission of tenders. However, such alterations in no way establish that the Commission considered that observance of the processing time-limit was unimportant.

16. In reality the experience gained over the years enabled the Commission, in the exercise of its discretion in the economic sphere, to consider that slightly longer periods might be allowed the traders concerned; that must not, however, be regarded as an acknowledgement that no connection exists between the processing period and the possibility of speculation.

17. The same observation applies to the supplementary period, which Regulation No 262/79 extended to 60 days. In that regard, likewise, there are no grounds for suggesting that, before deciding to extend the period, the Commission did not examine the question whether such an extension might lead to speculation.

18. It follows from those considerations that withholding the security in full when the periods prescribed by the Community legislation are exceeded is a step which is proportionate to the aims pursued by Regulations Nos 1259/72 and 232/75.

19. The reply to be given to the Tribunal Administratif, Paris, must therefore be that consideration of the question raised has disclosed no factor of such a kind as to affect the validity of Article 18 (2) of Regulation No 1259/72 or of Articles 18 (2) and 19 of Regulation No 232/75.

Costs

20. The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision as to costs is a matter for that court.

On those grounds, THE COURT (First Chamber) in answer to the question referred to it by the Tribunal Administratif, Paris, by judgment of 26 January 1982, hereby rules: