Report for the Hearing delivered in Case 199/87

I — Facts and written procedure

1. The applicable Community legislation

a) Council Regulation No 1078/77 of 17 May 1977 introducing a system of premiums for the non-marketing of milk and milk products and for the conversion of dairy herds (Official Journal L 131, p. 1) set up, inter alia, a system of non-marketing premiums granted on the application of milk producers who undertake not to dispose of milk from their holdings, whether for a consideration or free of charge, for a period of five years (Articles 1 and 2). According to the sixth recital in the preamble thereto, Regulation No 1078/77 is designed, on the one hand, to restore the balance on the market in the products concerned and, on the other, to bring about the changes necessary for the proper working of the common market. Article 2 (2) of Regulation No 1078/77 provides essentially that the premium is granted on condition that, during the five-year non-marketing period, neither milk nor milk products from the holding are disposed of, whether for a consideration or free of charge. That prohibition extends to the use of the holding by others for dairy farming or the leasing or disposal of dairy cattle. Special rules were laid down for cases in which holdings ceased to be farmed. In that regard, Article 6 (1) of Regulation No 1078/77 provides that:

‘Any person who takes over an agricultural holding may undertake in writing to continue to carry out the undertakings given by his predecessor. In such case, the sums already paid shall remain the property of the latter and the balance shall be paid to his successor.

Otherwise, the sums already paid shall be refunded by the predecessor.’

It should also be pointed out that the first subparagraph of Article 11 (1) of Regulation No 1078/77 provides that, in certain circumstances not relevant to this case, the Member States are to take ‘the measures necessary for the recovery of premiums already paid, in cases where the undertakings provided for have not been fulfilled’.

b) In order to implement the abovementioned rules laid down by the Council, the Commission adopted, inter alia, Regulation No 1391/78 of 23 June 1978 laying down amended rules for the application of the system of premiums for the non-marketing of milk and milk products and for the conversion of dairy herds (Official Journal L 167, p. 45), amended, in particular, by Regulation No 1799/79 of 13 August 1979 (Official Journal L 206, p. 12). Those measures replace Commission Regulation No 1307/77 of 15 June 1977 (Official Journal L 150, p. 24). Article 9 (1) of Regulation No 1391/78 (which is in essence identical to Article 8 (1) of Regulation No 1307/77, the regulation previously in force) repeats the obligation to repay the premium laid down in Article 11 (1) of Council Regulation No 1078/77. Furthermore, Article 9 (4) of Regulation No 1391/78 (which is in essence identical to Article 8 (4) of Regulation No 1307/77) gives effect to Article 6 (1) of Council Regulation No 1078/77 in regard to the cessation of farming activities. Article 12 of Regulation No 1391/78, as amended by Article 1 of Regulation No 1799/79, deals with cases of force majeure:

‘1. Where, by reason of a case of force majeure occurring after the day on which the application for a premium has been approved, the beneficiary or his successor referred to in Article 9 (2) is unable, or would be able only at the cost of excessive sacrifices, to fulfil an obligation arising from the system of premiums, the Member State concerned shall determine the measures which it shall deem necessary with regard to the circumstances invoked. Such measures may, according to the case, entail postponing the beginning of the non-marketing or conversion period referred to in Article 5 (3) or the suspension of the obligations for a specific length of time during that period and the non-recovery of the premiums already paid, which would have to be refunded in accordance with Article 9 (1).

2. Without prejudice to specific circumstances to be taken into consideration in individual cases, the following situations in particular may be deemed to justify one of the measures referred to in paragraph (1): (a) decease of the beneficiary if he ran the holding himself; (b) prolonged occupational incapacity of the beneficiary if he ran the holding himself; (c) compulsory purchase of a substantial part of the utilized agricultural area of the holding farmed by the beneficiary, provided that such compulsory purchase was not foreseeable on the day on which the application was approved ; (d) a natural disaster substantially affecting the agricultural area farmed by the beneficiary; (e) the accidental destruction of the beneficiary's buildings which were used for the rearing of cattle or sheep; (f) an outbreak of epizootic disease affecting some or all of the beneficiary's stock of cattle or sheep.

3. The Member States shall inform the Commission of all cases of force majeure accepted as such by them.

4. ...’

2. The main proceedings

On 12 September 1979, Mads Peder Jensen, the owner of an agricultural holding, entered into an agreement with the Danish Ministry of Agriculture in which he agreed to take part in the Community system of premiums for the non-marketing of milk and milk products. Under that contract, he undertook to comply with all the conditions for obtaining the said premiums resulting in particular from Council Regulation No 1078/77 and Commission Regulation No 1391/78. In particular, the contract stipulated that Mr Jensen could not, for a period of five years, sell, give or dispose of in any other way, the milk or milk products produced on his holding. The premium paid had to be refunded with interest ‘if he does not fulfil the obligations imposed on him or if a purchaser of the holding on which those obligations are imposed does not himself undertake to comply with the said obligations’.

It is apparent from the documents before the Court that half the premium at issue, amounting to DKR 289120, was paid on 23 November 1979 and the rest was to be paid in two equal instalments, each representing 25% of the premium, before the end of the third and fifth years of the non-marketing period respectively.

On 15 April 1981, the holding was sold at an auction held by court order to the Dansk Landbrugs Realkreditfond (Danish Agricultural Credit Fund) for an amount of DKR 1185000. On 23 August 1981, the Dansk Landbrugs Realkreditfond sold the property to Michael Christian Lyneborg. Since the latter did not undertake to fulfil the obligations entered into by Mr Jensen in regard to the system of premiums, the Ministry of Agriculture, in a letter of 25 November 1981, called upon the latter to repay the amount of the premium already paid, namely DKR 144 560.

Since Mr Jensen did not comply with that request, the Ministry of Agriculture brought an action before the Vestre Landsret (Western Division of the High Court) in reply to which Mr Jensen contended essentially that he had fulfilled the non-marketing contract entered into with the intervention agency. Since, by judgment of 31 August 1983, the application was granted at first instance, Mr Jensen brought an appeal before the Højesteret (Supreme Court). He is seeking principally the dismissal of the other party's application or, in the alternative, a declaration that he owes an amount inferior to that which he was ordered to pay by the Vestre Landsret which, in all events, should not be greater than DKR 28 912.

In support of his appeal, Mr Jensen claims that there was no breach of contract inasmuch as his holding was not transferred to a third party. In that connection, he claims, principally, that a breach of contract can only concern a voluntary transfer of ownership. He also claims that he cannot be blamed for the fact that the contract did not continue to run and argues that it should be specified in the text of the contract whether the refund obligation is also to cover the situation in which an agricultural holding undergoes the change of ownership as the result of a forced sale by court order. With regard to his alternative conclusions, he points out that the contract entered into with the Ministry of Agriculture was in any event fulfilled for a period of two years, corresponding to 40% of the term of the contract, which, as a proportion of the total amount of the premium, corresponds to DKR 115648. Since that amount should be deducted from the amount of DKR 144560 actually paid, the amount to be refunded is reduced to DKR 28 912.

For its part, the Ministry of Agriculture contends that the obligations under the non-marketing contract were not taken over by the purchaser of the holding and that, consequently, the premium paid must be refunded in its entirety, since Community rules make no distinction in that regard between a voluntary sale and a forced sale by court order.

In the light of those arguments, the Højesteret considered that the case raised questions concerning the interpretation of the Community regulations on the system of premiums for the non-marketing of milk and milk products. Therefore, by decision of 23 June 1987, it decided to stay the proceedings and refer the following questions to the Court of Justice for a preliminary ruling under Article 177 of the EEC Treaty:

‘(1) Do the term “taken over” (“overtager”) in Article 6 (1) of Council Regulation No 1078/77, the term “transfer” (“overdrager”) in Article 8 (4) of Commission Regulation No 1307/77 and the term “transfer” (“afstår”) in Article 9 (4) of Commission Regulation No 1391/78 also cover a situation in which an agricultural holding undergoes a change of ownership as the result of an auction by court order? (2) Is the situation in which an agricultural holding undergoes a change of ownership as the result of an auction by court order covered by the provisions on force majeure contained in Article 12 of Commission Regulation No 1391/78, as amended by Article 1 of Commission Regulation No 1799/79? (3) Must Articles 6 (1) and 11 (1) of Council Regulation No 1078/77 and Article 9 (1) of Commission Regulation No 1391/78, according to which the Member States shall take all necessary steps to recover any sums already paid in respect of the premium, be interpreted as meaning that a demand may be made only for the recovery of a sum which is proportionate to the period during which the undertakings under the premiums system were not complied with?’

3. Procedure before the Court

The order for reference was registered at the Court Registry on 26 June 1987.

Pursuant to Article 20 of the protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by the Landbrugsministeriet, represented by Ole Fentz and Falling Olsen, lawyers, and by the Commission of the European Communities, represented by its Legal Adviser, Denise Sorasio, and by Ida Langermann, a member of its Legal Department.

Upon hearing the report of the Judge-Rapporteur on the views of the Advocate General, the Court decided, by decision of 24 February 1988, to assign the case to the Third Chamber under Article 95 of the Rules of Procedure and to open the oral procedure without any preparatory inquiry.

II — Written observations

1. First question

Both the Ministry of Agriculture and the Commission propose that the reply to the first question should be in the affirmative.

a) The Ministry of Agriculture considers that the first question deals with the significance, from two points of view, of the fact that the holding of a person who has been awarded the premium changes hands in the context of a forced sale by court order. In the first place, it is necessary to determine whether the forced sale of the holding under a court order gives rise to the obligation to give prior notice provided for in Article 9 (4) of Regulation No 1391/78. In the second place, it must be determined whether, under Article 6 (1) of Regulation No 1078/77, the person to whom the premium has been granted is required to refund the amount of the premium already paid if the purchaser who acquires the holding under a forced sale by court order does not wish to continue to carry out the undertakings given by the person who received the premium. In the Danish version, the terms of Articles 6 (1) of Regulation No 1078/77 are perfectly clear. That provision refers to ‘enhver, der overtager’ (any person who takes over) an agricultural holding, regardless of the way in which the transfer was carried out. According to normal usage in Danish, the term ‘overtager’ covers both acquisition as a result of a voluntary sale and acquisition in the context of a forced sale by court order. Thus, according to the Danish version, it is clear that the article does not make it a condition that the acquisition should have taken place in the context of a free sale. The text of Article 6 (1) has the same meaning in the French version (‘tout successeur à une exploitation agricole’), the German version (‘jeder Betriebsnachfolger’) and the English version (‘any person who takes over an agricultural holding’). It cannot therefore be doubted that the terms of that provision also cover a situation in which a holding is acquired as a result of a forced sale by court order. That linguistic interpretation is confirmed by the fact that no rules were laid down either in Regulation No 1078/77 itself or in the implementing provisions concerning the procedure to be followed, in the case of forced sales by court order, in regard to that part of the total amount of the premium which has been paid and that which has not. The aforesaid interpretation of Article 6 (1) is also supported by the legal structure of the regulation. The amount of the premium must be refunded once the obligations under the premium scheme have not been fulfilled, for whatever reason. Thus, the purpose of Article 6 (1) is to ensure the refund of the amount of the premium already paid, even where the transfer of ownership of the property is the reason for the failure to fulfil the obligations. If, in such a situation, the purchaser of the holding does not agree to carry out the undertakings given by the person to whom the premium was granted, the premium scheme ceases to have effect during the non-marketing period fixed in advance in exactly the same way as if the undertakings given under Title I of the regulation had not been honoured. It is only where the transfer takes place under conditions which may be described as force majeure that the obligation to refund does not apply. Furthermore, if the transfer of a holding as a result of a forced sale by court order was not covered by Article 6 (1) it would be possible to avoid the terms of the regulation because a person who had been awarded a premium and wished to sell his holding could provoke a forced sale by court order solely in order to avoid paying the repayments which had fallen due. In the alternative, it must be accepted that the taking-over of the holding of a person to whom the premium has been awarded is in any event covered by Article 9 (4) of Regulation No 1391/78.

b) The Commission considers that the first question seeks essentially to ascertain whether the conditions on which the non-marketing premium is granted under Regulation No 1078/77 also apply to a case in which the ownership of an agricultural holding is transferred as a result of a forced sale by court order during the non-marketing period. Regulations Nos 1078/77 and 1391/78 contain no definition of what is meant by the taking-over of a holding. The Danish version uses the terms ‘overtager’ and ‘afstår’ and the French and English versions use the verbs ‘céder’ and ‘transfer’ respectively. It should also be noted that the first subparagraph of Article 6 (1) of Council Regulation No 1078/77 refers to ‘any person who takes over’ an agricultural holding, as regards the continued compliance with the undertakings given by his ‘predecessor’. The terms of that provision thus do not make it possible to conclude that the transfer of an agricultural holding as a result of a forced sale by court order is not covered by the regulation. The purpose of the premium scheme also militates in favour of the interpretation that any form of transfer is covered by the regulation, since the purpose of the scheme is to attempt to limit overproduction of milk by imposing on producers who take part in the scheme an obligation not to market either milk or milk products from their holdings for a period of five years. Non-marketing during the whole of the period under consideration is the underlying, fundamental criterion which determines the conditions governing the grant of the premium and the absolute entitlement of the recipient to retain the payment on account (see the judgment of 13 February 1980 in Case 77/79 Damas v FORMA [1980] ECR 247). It may also be deduced from Article 2 (2) of Regulation No 1078/77 that the obligation not to market milk and milk products is expressly linked to the holding. In order to ensure that no products from the holding are marketed during the whole of the period under consideration and that the premium is lost if that is not the case, Article 6 of Regulation No 1078/77 must be interpreted as meaning that the term ‘successor’ includes any person to whom the holding is transferred, regardless of the way in which he acquired it. That interpretation is also supported by the fact that Article 2 (3), (4) and (5) provides for an express exemption in favour of producers who, after completing a period of at least two years of non-marketing, ceased farming in accordance with Directive 72/160 of the Council of 17 April 1972 (Official Journal, English Special Edition 1972 (II), p. 332). It can be seen from Article 5 of that directive that the Member States are required to ensure that at least 85% of the holding is used for precisely defined purposes. In conclusion, the Commission proposes the following reply to the first question:

‘The term “overtager” (taken over) in Article 6 (1) of Council Regulation No 1078/77 and the term “afstår” (transfer) in Article 9 (4) of Commission Regulation No 1391/78 must be interpreted as covering also a situation in which an agricultural holding undergoes a change of ownership as a result of forced sale by court order.’

2. Second question

The Ministry of Agriculture and the Commission agree in proposing that the reply to the second question should be in the negative.

a) The Ministry of Agriculture considers that that question is intended to determine the extent to which the fact that a holding undergoes a change of ownership as a result of a forced sale order due to economic difficulties suffered by the beneficiary of the premium constitutes in itself a case of force majeure within the meaning of Article 12 of Regulation No 1391/78, as amended by Regulation No 1799/79. Article 12 (2) contains a list of examples of situations which may be regarded as force majeure in regard to the obligations arising under the premium scheme. Forced sales by court order are not included in that list. A forced sale by court order is also not covered by the general concept of force majeure in Community law to which Article 12 (1) refers. According to the settled case-law of the court, force majeure must be understood as meaning highly unusual circumstances, beyond the trader's control, the consequences of which could, not withstanding all the care taken, have been avoided only by making disproportionate sacrifices. It is also accepted that the concept of force majeure is an exception to the principle that the provisions of the law should be scrupulously complied with. It must therefore be interpreted strictly. Circumstances which may be regarded as ordinary economic risks arising from everyday life, such as the economic difficulties encountered by the owner of the holding sold by court order, do not therefore come within the scope of that concept.

b) The Commission states that Article 12 (2) and (3) of Regulation No 1391/78, as amended by Article 1 of Regulation No 1799/79, sets out the cases in which premiums already paid which must be refunded under Article 9 (1) are not required to be refunded by reason of force majeure. Those provisions do not mention the transfer of a holding as a result of a forced sale by court order. It should also be noted that no Member State has informed the Commission under Article 12 (3) that it has recognized a transfer of a holding as a result of a forced sale by court order as a case of force majeure. According to the court's case-law, the concept of force majeure must be understood ‘in the sense of unusual and unforeseeable circumstances, beyond the trader's control, the consequences of which could not have been avoided even if all due care had been exercised’ (judgment of 22 January 1986 in Case 266/84 Denkavit v FORMA [1986] ECR 149). In principle, a change in the ownership of a holding as a result of forced sale by court order does not fulfil those conditions because it is merely the consequence of financial difficulties resulting from the farmer's own management. Furthermore, all the examples set out in Article 12 of Regulation No 1391/78 are cases of circumstances beyond the beneficiary's control the consequences of which he could not have avoided even if he had exercised all due care; one instance given is his own death. In conclusion, the Commission considers that the second question should be answered as follows:

‘The provisions concerning force majeure in Article 12 of Commission Regulation No 1391/78, as amended by Article 1 of Commission Regulation No 1799/79, must be interpreted as meaning that they do not apply to a case in which an agricultural holding undergoes a change of ownership as a result of a forced sale by court order.’

3. Third question

The Ministry of Agriculture and the Commission consider that the third question should be answered in the negative.

a) According to the Ministry of Agriculture the express terms of Article 6 (1) and Article 11 (1) of Regulation No 1078/77 and Article 9 (1) of Regulation No 1391/78 show that the entire amount of the premium already paid must be refunded in a case in which the person who takes over a holding does not undertake to continue to fulfil the obligations arising under the premium scheme or in which those obligations are for other reasons not fulfilled. The articles concerned contain no general provision providing for a refund in proportion to the period during which the obligations were not fulfilled. The very structure of the rules of the premium scheme governing refunds in principle require, without any possibility of an exception, the refund of the entire amount of the premium already received once the obligations arising under the premium scheme have not been fulfilled. That scheme does not make it possible to cease to comply with the rules during the non-marketing period while retaining the amount of the premium paid in respect of the period during which the obligations were fulfilled. Exceptions to the rule requiring a complete refund were provided only in cases of force majeure (Article 12 of Regulation No 1391/78) or in certain specific situations not arising in this case (Articles 9 (3) and 12 (4) of Regulation No 1391/78, as amended by Article 1 of Regulation No 1799/79 and Article 1 (4) of Regulation No 84/83; Article 7 a of Regulation No 1078/77, in the version contained in Regulation No 1300/84). Those considerations are not changed by the fact that 50% of the premium is normally paid at the beginning of the non-marketing period, followed by 25% during the third and fifth year respectively, because the reason for that payment by instalments is solely the desire to facilitate verification of compliance with the obligations undertaken.

b) The Commission argues that it can be seen from the very terms of the provisions whose interpretation is sought that the amounts already paid must be entirely refunded if the conditions on which they were granted have not been fulfilled during the entire five-year non-marketing period. With regard, more particularly, to the obligation not to market milk or milk products from the beneficiary's holding, the regulations laid down the principle of a complete refund, except in the very special case in which the farmer ceases his activities in accordance with the provisions of Directive 72/160, cited above, and in cases of force majeure. An interpretation which excludes the possibility of the beneficiary's being entitled to retain a certain proportion of the premium when the obligation not to market milk from his holding was not fulfilled during the latter part of the non-marketing period is also in conformity with the purpose of the regulations since the premium scheme is based essentially on an obligation on the part of the beneficiary not to market milk during a given period. The interpretation being proposed is not contrary to the principle of proportionality. It may be seen in that regard from the Court's case-law, and in particular from the judgment of 23 February 1983 in Case 66/82 (Fromançais v FORMA [1982] ECR 395), that, if the purpose to be achieved forms part of the general objectives or is of fundamental importance to the proper functioning of the mechanisms of the common agricultural policy, provisions which provide for identical consequences either for the total or partial failure of the beneficiary to carry out the operation which he undertook to carry out, on the one hand, or for his failure to carry it out or the fact of his carrying it out outside the prescribed timelimits, on the other, may be regarded as in conformity with the principle of proportionality. Having regard to the foregoing, the Commission proposes that the answer to the third question should be as follows:

‘Articles 6 (1) and 11 (1) of Council Regulation No 1078/77 and Article 9 (1) of Commission Regulation No 1391/78 must be interpreted as meaning that any sums already paid in respect of the premium must be refunded in their entirety if the obligations to which the grant of such sums was subject have not been fulfilled, except where those regulations expressly provide for an exception to that principle.’

U. Everling

Judge-Rapporteur

1 Language of the Case: Danish.