JUDGMENT OF 28. 6. 1984 — JOINED CASES 187 AND 190/83 NORDBUTTER / GERMANY
In Joined Cases 187 and 190/83 ‘REFERENCE’ to the Court under Article 177 of the EEC treaty by the Verwaltungsgericht [Administrative Court] Frankfurt-am-Main for a preliminary ruling in the proceedings pending before that court between
THE COURT (Third Chamber) composed of: Y. Galmot, President of Chamber, U. Everling and C. Kakouris, Judges, Advocate General : P. VerLoren van Themaat Registrar: P. Heim
gives the following
JUDGMENT
Facts and Issues
The facts of the case, the course of the procedure and the written observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice of the European Community may be summarized as follows:
I — Legal background, facts and procedure
A — The relevant Community legislation
1. In order to reduce the milk surplus in the Community, Regulation (EEC) No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products (Official Journal, English Special Edition 1968 (I), p. 176) provides in Article 10 for the granting of aid for skimmed milk produced in the Community and used as animal feed. The most important detailed rules for the granting of that aid were laid down by the Council in Regulation (EEC) No 986/68 of 15 July 1968 (Official Journal, English Special Edition 1968 (I), p. 260).
2. The aid system, which was initially uniform, was subdivided in April 1977 by Council Regulation (EEC) No 876/77 (Official Journal 1977, L 106, p. 24). Skimmed milk used for feeding calves continued to qualify for the aid available since 1968, whilst a higher aid, known as “special aid”, was established for skimmed milk used for feeding animals other than calves and, in particular, pigs. The granting of that additional benefit was justified by the fact that fresh skimmed milk is, in any event, traditionally used for feeding calves, whereas it was necessary to provide a special incentive to ensure that skimmed milk was also used in larger quantities for feeding pigs.
3. The existence, since 1977, of two levels of aid inevitably laid the system open to the risk of abuse. In particular, on farms known as mixed farms, that is to say those in which calves as well as pigs or other animals for slaughter are bred, there was a tendency to obtain skimmed milk under the particularly favourable conditions governing the special aid and to use that milk for rearing calves. It therefore became necessary to counter that risk by means of a series of provisions which are set out in Commission Regulation (EEC) No 2793/77 of 15 December 1977 (Official Journal 1977, L 321, p. 30).
4. Article 3 of that regulation provides that the special aid is to be granted to a dairy only if the following conditions are satisfied: (i) The skimmed milk must be covered by an undertaking on the part of the farmer. In that regard the dairy concerned must produce a document in which the farmer undertakes to comply with the conditions laid down in Article 4 of the regulation, namely: to use the skimmed milk exclusively as animal feed on his farm; to take delivery of a minimum quantity of skimmed milk not qualifying for special aid, in the case of mixed farms; in principle not to keep young calves, in the case of specialized farms; and to declare before the beginning of each quarter the size of his herd. (ii) The skimmed milk concerned must be denatured in accordance with certain specified processes or subjected to an administrative control providing equivalent guarantees. (iii) The dairies must observe, in respect of that skimmed milk a maximum selling price which is extremely favourable for the farmer.
5. In accordance with Articles 3 (1) and 5 (3) of the regulation, the application for payment of the special aid must be submitted by the dairy and the special aid is granted to the dairy. Furthermore, Article 5 (3) (b) requires any dairy applying for special aid to submit together with its application a declaration that the dairy will forego or repay the special aid wholly or in part to the competent authority if it is found that the farmer has not abided by one of the undertakings referred to in Article 4. It is that obligation to repay aid that gave rise to the two actions now before the national court.
B — The events giving rise to the main actions
1. In the case between Nordbutter and the Federal Republic of Germany (Case 187/83) the Nordbutter dairy had sold skimmed milk at a reduced price to three mixed farms, that is to say farms on which both young calves and other animals were reared and which did not therefore confine themselves to the purchase of denatured skimmed milk. The three farmers in question undertook, in accordance with Article 4 (2) of Regulation No 2793/77, to take delivery each month of a quantity of skimmed milk not qualifying for special aid and equal to a given proportion of the quantity of milk supplied to the dairy during the months in question (15% or 10%). In the light of inspections carried out in January 1980 at those farms, it became apparent that none of the farmers in question had honoured his undertaking. Subsequently, the Bundesamt für Ernährung und Forstwirtschaft [Federal Office for Food and Forestry, hereinafter referred to as “the Federal Office”], Frankfurt-am-Main, claimed from the Nordbutter dairy, by a decision dated 1 October 1980, repayment of the aids, totalling DM 1704.54, which had been granted in respect of the supply of skimmed milk to the three farmers. The Nordbutter dairy brought an action against that decision before the Verwaltungsgericht Frankfurt-am-Main.
2. In the case between Bayerische Milchversorgungs GmbH and the Federal Republic of Germany (Case 190/83) the dairy in question supplied large quantities of skimmed milk at reduced prices to a farmer by the name of Górski. Following an inspection carried out at the farm, it became apparent that the conditions laid down for the payment of aid were not satisfied since, instead of using the skimmed milk supplied at a reduced price as animal feed on his own farm, as required by Article 4 (1) (a) of Regulation No 2793/77, Mr Górski had used it on his son's farm. Accordingly, by a decision dated 17 September 1979, the defendant in the main action demanded repayment of all the special aid, totalling DM 80782.58, paid to the dairy between January and August 1978 in respect of the skimmed milk supplied to Mr Gorski. Bayerische Milchversorgungs GmbH, the plaintiff in the main action, instituted proceedings against that decision before the Verwaltungsgericht Frankfurt-am-Main.
C — The references for a preliminary ruling and the accompanying observations
1. The references for a preliminary ruling
In both cases the Verwaltungsgericht Frankfurt-am-Main expressed reservations as to the validity of the rules on liability contained in Regulation No 2793/77.
Consequently, by two orders dated 11 August 1983, the Verwaltungsgericht requested the Court of Justice under Article 177 of the EEC Treaty to give a preliminary ruling on the following question:
“Is Article 5 (3) (b) of Commission Regulation (EEC) No 2793/77 of 15 December 1977 on detailed rules of application for granting special aid for skimmed milk for use as feed for animals others than young calves (Official Journal 1977, L 321, p. 30) valid in so far as it provides that a dairy is responsible for undertakings given by a farmer when it is unable to supervise the farmer's compliance therewith?”
2. The observations accompanying the references for a preliminary ruling
The national court observes that, although the Court of Justice has several times had occasion to consider the question of the imposition of liability on the recipient of a subsidy for the conduct of a third party (judgment of 11 May 1977 in Joined Cases 99 and 100/76, Beste Boter and Hoche v Bundesanstalt für landwirtschaftliche Marktordnung, [1977] ECR 861; judgment of 18 February 1982 in Case 77/81, Zuckerfabrik Franken GmbH, [1982] ECR 681), those cases can readily be distinguished from the present cases since they were both concerned with subsidies which were payable to an undertaking in return for the specified processing or use of products covered by the common organization of the market, such processing or use being principally the responsibility of the recipient.
It was therefore for the recipient to decide whether or not to introduce a third party and to select the contractual partner of his choice, and to ensure by making the appropriate stipulations that the third party fulfilled the delegated duties or laid himself open to legal action.
The position of the dairies in the present cases is quite different for the following reasons:
i) Special aid does not represent payment for some economic activity on the part of the dairy but is granted merely in consideration of the farmers' using on their own farm milk which they themselves have produced. Therefore it is not the dairy but the farmer who is intended to benefit from the aid and the dairy passes on the full amount of the aid to him.
ii) The dairy cannot choose the third party, that is to say the farmer, with whom it wishes to deal and it is therefore under an obligation to contract. The special aid must be available to every farmer in the Community who gives the undertaking set out in Article 4 of Regulation No 2793/77 and it would be contrary to that principle if the granting of the aid were at the discretion of the dairy.
iii) The dairy may not impose on the farmer special terms which are not provided for in the regulation as a condition for submitting the application or passing on the special aid. Thus it may not arrogate inspection rights to itself or insist that securities be lodged. It follows that the dairy is in no way able to protect itself against the farmer's breach of duty or against the financial consequences of that breach. In any event, that is the case for those of the farmer's duties set out in Article 4 of Regulation No 2793/77 which cannot be performed under the direct supervision of the dairy.
iv) There exists not just a legal relationship between the competent authority and the dairy but a genuine triangular relationship between the competent authority, the dairy and the farmer, in so far as the undertaking given by the farmer must also be given to the competent authority.
Thus the power and the duty of supervision in connection with the application for aid also rests with the authority that grants the aid, which alone possesses the right to carry out an audit and which for that reason is better placed than the dairies to verify whether the farmers have honoured their undertakings.
In conclusion, the Verwaltungsgericht Frankfurt-am-Main considers that: “It is contrary to the general principles of the law of liability to hold someone liable for conduct over which he has absolutely no influence and to make him responsible for risks which he has not himself created. The general principles of the law of liability must, like the principle of proportionality, belong to the general principles of law which are in force in all the Member States of the Community and which are therefore to be regarded as an integral part of Community law. In the Court's opinion, the fact that Article 5 (3) (b) of Regulation No 2793/77 is contrary to that superior rules of law must lead to its invalidity.”
D — The procedure before the Court of Justice
The orders for reference were lodged at the Court Registry on 7 September 1983 (in Case 187/83) and on 9 September 1983 (in Case 190/83).
By order of 19 October 1983 the Court decided to join the two cases for the purposes of the procedure and the judgment.
In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the European Economic Community, written observations were submitted to the Court by Bayerische Milchversorgungs GmbH, Nuremberg, represented by Klaus Kelling, Rechtsanwalt, by the Federal Office, on behalf of the Federal Republic of Germany, represented by Gisela Siebert, Regierungsrätin at the Federal Office, by the United Kingdom, represented by Mrs Dagtoglou of the Treasury Solicitor's Department, acting as Agent, and by the Commission of the European Communities, represented by Peter Karpenstein and Christine Berardis-Kayser, members of its Legal Department, with an address for service in Luxembourg at the office of Manfred Beschel, a member of the Commission's Legal Department, Jean Monnet Building, Kirchberg.
By order of 14 March 1984 the Court, on hearing the report of the Judge-Rapporteur and the views of the Advocate General, decided to assign the cases to the Third Chamber in accordance with Article 95 of the Rules of Procedure and to open the oral procedure without any preparatory inquiry.
II — Written observations submitted to the Court
A — Observations of Bayerische Milch-. versorgungs GmbH
The gist of these observations is that the Court should declare void the contested provision of Regulation No 2793/77 on the grounds set out in the order of the Verwaltungsgericht Frankfurt-am-Main, to which reference is made.
B — The Federal Office, on behalf of the Federal Republic of Germany, the United Kingdom and the Commission of the European Communities all submitted observations to the effect that Article 5 (3) (b) of Regulation No 2793/77 is valid
1. Alleged breach of the general rules on liability
(a) Determination for legal purposes of the recipient of the special aid
As far as this point is concerned, all the parties agree that although, ultimately, from an economic point of view, the special aid is beneficial mainly to the farmers, none the less, from a legal point of view, only the dairies are entitled to it.
Thus the observation contained in the order for reference to the effect that the dairies submit applications for special aid on behalf of the farmers is incorrect.
The Federal Office lays emphasis on the fact that only the dairy applies for the aid and not the farmer.
Nor is the aid transmitted to the farmer by the dairy; rather the granting of aid to the dairy depends on the latter's adherence to maximum prices.
The Federal Office also submits that the argument set out in the order for reference to the effect that there is a “triangular legal relationship” between the competent authority, the dairy and the farmer is incorrect.
It was not the intention of the regulation to create, between the farmer and the authority which grants the aid to the dairy, a direct relationship arising, for example, as a result of the transmission of the farmer's undertaking to the competent authority.
Thus only the daiiy receiving the aid stands in a direct relationship with the authority granting it.
A further argument against the existence of a triangular legal relationship is the fact that where the undertakings given are dishonoured the authority granting the aid cannot seek redress against the farmer: the action for reimbursement must be against the dairy.
(b) Determination for economic purposes of the recipient of the special aid
As far as this point in concerned, the Federal Office and the Commission consider that, in contrast to the view expressed by the Verwaltungsgcricht, dairies can derive, for their own benefit, a considerable profit from the system established by Regulations No 986/68 and No 2793/77.
On the basis of statistical evidence the Commission concludes that, in the fou rth quarter of 1979, which constitutes the reference period in the cases at issue, the dairies made a profit of 6.05 ECU per 1100 kg on sales of skimmed milk to farmers.
It is precisely that difference in the net income which dairies can earn, depending on their decision as to how the milk is to be used, which constitutes the incentive for using in preference liquid skimmed milk as animal feed.
An incentive of that kind reflects the wishes of the Community legislature and its purpose is to reduce the production of skimmed-milk powder, which is expensive to store and which can be sold only at a substantial loss in the Community and on the world market.
It is therefore wrong to assume, as the national court does, that the dairy passes on the whole of the aid to the farmer.
In that connection, the Federal Office adds the following observations:
i) The case regarded as typical by the national court, namely where the farmers use on their own farm the milk which they themselves have produced, in practive constitutes the exception.
ii) The special aid granted in accordance with Regulation No 2793/77 cannot be regarded as constituting a measure intended to benefit milk suppliers alone. On the contrary, the grant of the special aid enables dairies to sell at a loss skimmed milk which whould otherwise be most unlikely to be sold and it encourages the sale óf skimmed milk to a new group of purchasers, namely specialized animal-rearing farms.
(c) The theory that the dairies are under an obligation to contract with farmers
As far as this point is concerned, the Federal Office, the United Kingdom and the Commission all challenge the view expressed by the national court in its order for the reference.
They argue that the contested provision of Regulation No 2793/77 in no way means that the Commission unilaterally imposed liability on dairies, but merely that it decided that the special aid for skimmed milk could be granted only if the dairies, upon submission of their applications, undertook to repay that aid where the substantive requirements for the grant thereof were not fulfilled. In other words, the dairies are involved not by virtue of a provision whose application they cannot avoid, but in consequence of a undertaking freely given.
Thus, even if it seems particularly desirable for the objectives of Regulations No 986/68 and No 2793/77 to be achieved and for the benefits provided for by those regulations to be enjoyed by as many persons as possible, it does not follow that the dairies are subject to a general duty to apply for those benefits either in their own interests or in the interests of the farmers associated with them.
In the absence of an express rule to that effect, each dairy must therefore be free to decide, in the light of its commercial policy, whether or not to market the milk purchased by it and whether it is in its interests to denature skimmed milk and sell it back to the farmers.
In view of the risks involved in recourse to the special aid, it is for the dairy alone to decide whether or not to apply for it. In those circumstances, its freedom of decision is not restricted to the acceptance or rejection of the aid system as suchbut also extends, to the selection of farmers.
In that regard, even if the view is taken that once a dairy decides to participate in the scheme established by the common organization of the market in milk it is bound by the principle embodied in Article 40 (3) of the EEC Treaty whereby all producers must be treated on a basis of equality (although the Commission wishes to leave that question open), that does not prevent a dairy from establishing, on the basis of commercial considerations and without creating discrimination, criteria for the selection of farmers. In that connection considerations of volume and distance, may be just as relevant as the trustworthiness of individual farmers.
The fact that farmers cannot, in their personal capacity, apply for the special aid and are entirely dependent on the dairy's decision is not an argument in support of the view that the dairies are under an obligation to contract.
In fact, the purpose of Regulations No 986/68 and No 2793/77 is to reduce intervention stocks of skimmed-milk powder, not to grant an additional benefit to farmers.
Thus the possibility of purchasing skimmed milk at a reduced price is merely the means used by the Community legislature to achieve the real objective, which is to prevent the production of surpluses of skimmed milk.
Even if farmers exert psychological or economic pressure on a dairy, an indirect constraint of that kind cannot impose any legal obligation on the dairy to apply systematically for special aid.
The Federal Office and the United Kingdom lay emphasis on the further argument that the existence of such an obligation to contract with farmers would place a dairy in an impossible position if it were called upon by an indeterminate number of farmers to provide more skimmed milk than it could supply.
In that regard, it is pointed out that practice has shown that livestock farms wishing to purchase skimmed milk on the conditions laid down by Regulation No 2793/77 cannot purchase it in unlimited quantities since the capacity of dairies situated within a reasonable radius cannot satisfy that kind of demand.
The inability of dairies to satisfy demand is partly due to the fact that it is sometimes more profitable for them to dry the skimmed milk and to offer it to the intervention agencies.
(d) The alleged impossibility for dairies to supervise compliance with the undertakings given by farmers and to take precautions against the risk that skimmed milk which has attracted special aid may be used in a manner inconsistent with those undertakings
As regards this point, the Federal Office, the United Kingdom and the Commission challenge the reasoning of the national court.
According to their observations, the legal relationship between the dairy and the farmers supplied by it is of a contractual nature and is governed by private law.
According to the Federal Office, it follows that a dairy is free to take precautions against the risk of the misuse of skimmed milk qualifying for special aid and by amending the supply contract accordingly.
Since the relationship between the dairy and the farmer is not one of subsidy-payer and subsidy-recipient, such contractual protection could not constitute an unlawful extension of the conditions laid down by Regulation No 2793/77.
Furthermore, the undertakings which were customary at the material time contained, in addition to the information specified by Article 4 of Regulation No 2793/77, stipulations whereby the farmer undertook to allow a representative of the dairy to enter the farm premises, to submit for inspection the documents needed as evidence that the milk had been properly used, to supply any necessaiy information and to provide compensation equal to the amount of the repayment claimed, should a claim for repayment arise as a result of the farmer's conduct.
The United Kingdom points out that since the relationship between the dairy and the farmer is consensual, should the latter breach any of the undertakings given by him, the dairy will have a right of recovery against the farmer under national civil law, irrespective of whether the breach was established by the competent national authority or by the dairy itself.
Finally, the Commission also contends that it is for the dairies to take all necessary precautions, lest the farmers supplied by them fail to comply with the conditions laid down by the Community regulation in question, in particular by the insertion in the contract of a clause entitling them to carry out an inspection.
If the farmer refused to accept such a clause the dairy would be entirely within its rights in refusing to supply him with skimmed milk at the reduced price.
In the Commission's view, the dairy's possibilities of ensuring compliance with the conditions in force are not restricted to the inspection of herds on the farm but may also take different forms, such as the provision of a guarantee, the insertion in the contract of appropriate clauses against the risks involved in the application of Article 5 (3) (b) and, where the farmers are also the dairy's suppliers, deductions from the monthly payments for milk supplies.
In the Commission's opinion, therefore, the dairy's liability is only provisional since it can always protect itself, on a contractual basis, against any loss occasioned by the conduct of the farmer, who is ultimately liable.
Summing up on this point, the Commission observes that it is difficult to take the view that it is contrary to the general rules governing liability to impose liability for certain irregularities which are relatively easy to verify, not on the perpetrator, but on a third party upon whom a function is conferred under the aid system, in the case of a system:
which those concerned are all free to have recourse to or otherwise;
under which all undertakings benefit by applying for specific economic advantages which are not restricted to any individual undertaking; and
which enables precautions to be taken against the risk of liability by means of appropriate contractual clauses.
2. The alleged contravention of the principle of proportionality
Most of the observations on this point were submitted by the Commission, which contends that the view expressed by the national court is legally and factually incorrect.
(a) Legally incorrect
Whereas the national court seems to imply that the Community legislature is obliged to choose systematically the rule which is least onerous on the parties concerned, it is clear, in the Commission's view, from previous judgments that the Court in fact focuses exclusively on the question whether the means selected by the Community legislature are necessary and appropriate, regard being had to the objectives pursued in a particular set of circumstances.
(b) Factually incorrect
The Commission maintains that reliance on the dairies was inevitable since they are one of the cornerstones of the organization of the market in milk, are in constant contact with the farmers and are therefore better placed than government officials to form an impression of the specific situation of each of their customers, particularly as regards the nature and the size of their herds, the use to which the skimmed milk is put and the reliability of each farmer.
Furthermore, in view of the increased risk of abuse and in view of the benefit which dairies themselves derive from the system in question, it seems reasonable to expect the dairies to make a small sacrifice by asking their van drivers to inspect farmers' premises from time to time in the course of their daily rounds.
Finally, the Commission observes that, in view of the general benefits derived by dairies from the unrestricted obligation of the competent authorities to intervene on the market for butter and skim-med-milk powder and from the guarantee of sale which that provides, the transfer to that category of undertakings, on the ground that they are closer to the potential perpetrator of the damage, of a risk which is limited and which they can further reduce does not constitute an unacceptable and disproportionate burden, since they accept it voluntarily, themselves derive considerable benefit from the system and can take precautions against the consequences resulting from the conduct of farmers by means of appropriate contractual stipulations.
3. In conclusion, the United Kingdom suggests that the Court should answer the question submitted for a preliminary ruling as follows:
“Article 5 (3) (b) of Commission Regulation No 2793/77 is valid even in circumstances where the dairy is responsible for undertakings given by a farmer when it is unable to supervise the farmer's compliance therewith.”
The Federal Office and the Commission suggest that the Court should answer the question as follows:
“Examination of the question submitted for a preliminary ruling has failed to disclose any factor of such a kind as to affect the validity of Article 5 (3) (b) of Commission Regulation (EEC) No 2793/77 of 15 December 1977.”
III — Oral procedure
At the sitting on 5 April 1984 oral argument was presented for the Federal Republic of Germany, by Rainer Wilker, acting as Agent, and for the Commission of the European Communities, by Peter Karpenstein, acting as Agent.
On that occasion the representative of the Government of the Federal Republic of Germany submitted a copy of a contract between Bayerische Milchversorgungs GmbH and a farmer.
The Advocate General delivered his opinion at the sitting on 30 May 1984.
Decision
1. By two orders of 11 August 1983, which were received at the Court on 7 and 9 September 1983 respectively, the Verwaltungsgericht (Administrative Court] Frankfurt-am-Main referred to the Court for ą preliminary ruling under Article 177 of the EEC Treaty a question on the validity of Article 5 (3) (b) of Commission Regulation No 2793/77 of 15 December 1977 on detailed rules of application for granting special aid for skimmed milk for use as feed for animals other than young calves (Official Journal 1977, L 321, p. 30).
2. Since the questions posed by the two orders were identical, on 19 October 1983 the Court ordered that the cases should be joined for the purposes of the proceedings and the judgment.
3. The question was raised in the course of litigation regarding decisions by which the competent national intervention agency required the repayment by the dairies concerned of all special aids received by them in respect of skimmed milk supplied to certain farmers.
4. With a view to promoting milk consumption, Article 10 of Regulation No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk-products (Official Journal, English Special Edition 1968 (I), p. 176) provided for the granting of aid for skimmed milk produced in the Community and used as animal-feed. The essential rules for the payment of that aid were laid down by Regulation No 986/68 of the Council of 15 July 1968 (Official Journal, English Special Edition 1968 (I), p. 260),
5. That aid system, which was initially uniform, was subdivided by Council Regulation No 876/77, laying down general rules for granting aid for skimmed milk and skimmed-milk powder for use as feed (Official Journal 1977, L 106, p. 24), Pursuant to that regulation, skimmed milk used for feeding calves continued to qualify for the aid available since 1968, while a higher aid, known as “special aid”, was established for skimmed milk used for feeding animals other than calves. The granting of that additional benefit was justified by the fact that, whereas fresh skimmed milk was in any event traditionally used for feeding calves, it was necessary to provide a special incentive to ensure that skimmed milk was also used in larger quantities for feeding other animals, in particular pigs.
6. The existence since 1977 of two levels of aid laid the system open to the risk of abuse. In particular, on farms known as mixed farms, that is to say those on which calves as well as pigs or other animals for slaughter are reared, there might be a tendency to obtain skimmed milk under the particularly favourable conditions governing the special aid and to use that milk for rearing calves. Commission Regulation No 2793/77 of 15 December 1977 on detailed rules of application for granting special aid for skimmed milk for use as feed for animals other than young calves (Official Journal 1977, L 321, p. 30) was intended in particular to counter that risk.
7. Article 3 of that regulation provides that the special aid is to be granted to a dairy only if the following conditions are satisfied : (i) The skimmed milk must be covered by an undertaking on the part of the farmer. In that regard, the dairy concerned must produce a document in which the farmer undertakes to comply with the conditions laid down in Article 4 of the regulation, namely: to use the skimmed milk exclusively as animal feed and only on the farm in question; to take delivery of a minimum quantity of skimmed milk not qualifying for special aid, in the case of mixed farms; in principle not to keep young calves, in the case of specialized farms; and to declare before the beginning of each quarter the size of his herd. (ii) The skimmed milk concerned must be denatured in accordance with certain specified processes or subjected to an administrative control providing equivalent guarantees. (iii) The dairies must observe, in respect of that skimmed milk, a maximum selling price which is favourable for the farmer.
8. In accordance with Articles 3 (1) and 5 (3) of the regulation, the application for payment of the special aid must be submitted by the dairy and the special aid is granted to the dairy.
9. Finally, Article 5 (3) (b) requires any dairy applying for special aid to submit together with its application a declaration that the dairy will forgo or repay the special aid wholly or in part to the competent authority if it is found that the farmer has not abided by one of the undertakings referred to in Article 4.
10. Inspections carried out by the competent authorities at farms in the Federal Republic of Germany revealed that two dairies, Nordbutter GmbH (Case 187/83) and Bayerische Milchversorgungs GmbH (Case 190/83), had supplied skimmed milk at a reduced price, that is to say, skimmed milk covered by the special aid, to one or more farmers who had not observed the provisions of Article 4 of Regulation No 2793/77, in spite of the undertakings which they had given. The Bundesamt für Ernährung und Forstwirtschaft (Federal Office for Food and Forestry, hereinafter referred to as “the Federal Office”), Frankfurt-am-Main, required the dairies concerned to repay the whole of the special aid paid to them in respect of the skimmed milk supplied to the farmers in question.
11. The dairies brought actions against those decisions before the Verwaltungsgericht Frankfurt-am-Main. That court expressed doubts as to the validity of the rules on liability laid down by Regulation No 2793/77 and considered it necessary, before giving judgment, to obtain from the Court of Justice a preliminary ruling on the following question: Is Article 5 (3) (b) of Commission Regulation (EEC) No 2793/77 of 15 December 1977 on detailed rules of application for granting special aid for skimmed milk for use as feed for animals other than young calves (Official Journal 1977, L 321, p. 30) valid in so far as it provides that a dairy is responsible for undertakings given by a farmer when it is unable to supervise the farmer's compliance therewith?”
12. The orders requesting a preliminary ruling were accompanied by observations from which it appears that the national court considers that the relevant provision of Regulation No 2793/77 is contrary to the general principles of the law of liability recognized by Community law, in so far as it may be construed as holding dairies liable for the actions of third parties which they cannot supervise and against the consequences of which they cannot protect themselves.
13. It must be pointed out, first, that according to Article 3 of Regulation No 2793/77 it is the dairies who are the sole recipients of the special aid established by the Community regulations, even if from the economic point of view farmers derive considerable advantage from that aid in the form of particularly advantageous prices for the skimmed milk which they buy.
14. It should be noted, secondly, that the relevant provision of Regulation No 2793/77 neither imposes, nor seeks to impose, a unilateral obligation on dairies to apply for the special aid which it establishes.
15. In fact, the dairies take part in the Community scheme for special aid on the basis of a commitment freely entered into and for the sake of the advantage which they can derive from it. Once a dairy has decided to participate in the scheme established by the aforesaid regulation no provision or general principle of Community law obliges it to enter into contracts with all farmers who request supplies of skimmed milk benefiting from the special aid, or prevents it from choosing, according to objective and non-discriminatory criteria, the farmers with whom it wishes to do business.
16. The Court notes that, in exercising that choice, a dairy may restrict the benefit of the aid to those farmers who agree to permit verification of their observance of the undertakings entered into and to provide the dairy with guarantees intended to protect it against the financial consequences of any breaches.
17. In fact, no provision of Community law prevents dairies from including in the supply contract entered into with each farmer clauses according to which the. farmer agrees to permit a representative of the dairy to enter the farm premises and undertakes to submit all documents and information needed as evidence that the milk has been used in accordance with the Community regulations and the undertakings entered into. Nothing, moreover, prevents dairies from making the conclusion of contracts subject to the inclusion of clauses intended to make the farmers themselves bear the financial consequences of any breach of their undertakings, such as the provision of security, bank guarantees or even authorization for compensatory deductions from the monthly payments, for milk supplied, where the farmers in question are also the dairy's suppliers.
18. It follows from the foregoing that, in requiring any dairy applying for the special aid to accompany its application with a declaration that the dairy will forgo or repay the special aid if it is found that the farmer has not abided by one of the undertakings given by him, Article 5 (3) (b) of Regulation No 2793/77 is not contrary to the general principles of the law of liability recognized by Community law.
19. It must therefore be concluded that none of the arguments raised by the national court is of such a nature as to entail the invalidity of that provision of Regulation No 2793/77.
Costs
20. The costs, incurred by the Government of the United Kingdom and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the actions pending before the national court, the decision on costs is a matter for that court.
On those grounds, THE COURT (Third Chamber), in answer to the questions submitted to it by the Verwaltungsgericht Frankfurt-am-Main, by two orders of 11 August 1983, hereby rules: