Report for the Hearing delivered in Case C-372/88
I — Legal background
1. National legislation
1. The Milk Marketing Board of England and Wales, the plaintiff before the national court (hereinafter referred to as ‘the Board’), was established as a statutory corporation under the Agricultural Marketing Act 1931, modified in 1958. Its principal activities are the purchase and wholesaling of milk and, by its commercial subsidiary, Dairy Crest Limited, the sale by retail of milk for human consumption and the manufacture and sale of milk products of various kinds.
2. The marketing of milk produced in England and Wales is regulated by the Milk Marketing Scheme 1933, as now in force, which was created pursuant to the abovementioned Act. Subject to certain exceptions, the scheme imposes on the Board the obligation to purchase any milk of marketable quality offered to it by registered producers and gives it the power to require registered producers to sell such milk to it. Under the scheme, again subject to certain exceptions, producers are prohibited from selling milk unless they are registered or exempt from registration. The Board buys raw milk from producers at a common, or ‘pooled’, price, and sells it at differing prices according to the use to which it is put. The common price reflects the average of the prices realized by the Board on resale, less operating costs. The Board distributes the whole of its income to the producers. Under the Milk Marketing Scheme, two categories of producer may be permitted, subject to certain conditions, to withhold their milk from the Board and to market it on their own account. In order to maintain effectively the role of the Board, the scheme gives the Board regulatory powers, together with the power to prescribe certain contributions which those producers must pay. The two categories of producer who may withhold their milk from the Board are, firstly, producer-retailers who hold a retail licence issued by the Board and, secondly, producer-processors who are parties to a withholding agreement with the Board. The contributions payable by those producers are determined by calculating the difference between the price at which the Board sells milk to the liquid market and the average pooled price paid to producers by the Board, together with an allowance for transport costs.
2. Community legislation
1. After the United Kingdom's accession to the European Communities, Council Regulation (EEC) No 1421/78 of 20 June 1978 amending Regulation (EEC) No 804/68 on the common organization of the market in milk and milk products enabled the Milk Marketing Boards operating in the United Kingdom to be recognized with regard to the prerogatives they enjoy in the marketing of milk, in particular their exclusive right to buy milk from producers established in their area. That was made possible by the modification of Article 25 of Regulation No 804/68, which is now in the following terms :
‘1. At its request a Member State may be authorized to grant to an organization representing at least 80% of the number and at least 50% of the production of the milk producers established in the area in which the organization is carrying out its activities: (a) the exclusive right within the limits laid down in paragraph 3, to buy from producers established in the area in question the milk which they produce and market without processing, provided it satisfies minimum requirements to be determined. This right shall be coupled with the obligation on the organization in question to buy milk satisfying these minimal requirements offered to it by the producers concerned; (b) the right to equalize the prices paid to producers, irrespective of the use for which the milk purchased from them is intended.
2. Authorization within the meaning of paragraph 1 may be granted only if the Council, acting by a qualified majority on a proposal from the Commission, has established that the quantity of milk used in the Member State concerned for direct human consumption in the form of whole milk or other fresh products constitutes: (a) in relation to the milk produced and marketed in the Member State concerned, a percentage equal to at least 150% of the corresponding proportion for the Community as a whole, and (b) a greater per capita consumption than that for the Community as a whole. Authorization shall be maintained only for as long as these conditions are fulfilled.
3. At the same time as it acts under paragraph 2, and in accordance with the same procedure, the Council shall in each individual instance adopt general rules governing the granting and maintenance of the rights referred to in paragraph 1. These rules shall include provisions: (a) to ensure that exercise of such rights : (i) is consistent with the general principles of the Treaty, in particular as regards the free movement of goods, and avoids discrimination against producers selling their milk to the organization and persons wishing to buy milk from it, (ii) does not affect competition in the agricultural sector more than is absolutely necessary, and (iii) does not jeopardize the efficient functioning of the market in milk and milk products, particularly as regards price and intervention arrangements; (b) relating to the circumstances in which the authorization referred to in paragraph 1 shall be withdrawn; (c) enabling the organizations concerned to adapt progressively to these provisions within a maximum period to be determined; these provisions may not, however, affect the principles referred to in the first indent of subparagraph (a). 4...’
2. Pursuant to Article 25(2) and (3) of Regulation No 804/68, the Council adopted Regulation (EEC) No 1422/78 of 20 June 1978 concerning the granting of certain special rights to milk producer organizations in the United Kingdom (Official Journal 1978, L 171, p. 14). Article 1(2) of that regulation provides that the United Kingdom may, under certain conditions, Article 5(1) of Regulation No 1422/78 stipulates that any operations of the Milk Marketing Boards in the processing of milk for direct human consumption and the manufacture of milk products are to be subject to a separate system of financial management and administration with a view to placing their processing undertakings on an equal footing with other independent undertakings. Article 5(3) of the regulation provides that Milk Marketing Board contributions from producers are to be authorized only in so far as is necessary for the performance of their statutory functions, and are to be proportional to the services rendered in the case of contributions from the producer-retailers referred to in Article 8(2)(c) of the regulation.
‘... be authorized to grant to the following producer organizations the rights set out in Article 25(1) of Regulation (EEC) No 804/68:
i) the Milk Marketing Board of England and Wales,
ii) the Scottish Milk Marketing Board,
iii) the Aberdeen and District Milk Marketing Board,
iv) the North of Scotland Milk Marketing Board,
v) the Milk Marketing Board for Northern Ireland’.
3. Articles 7 and 8 of Regulation No 1422/78 are worded as follows:
1. The rights referred to in Article 25(1) of Regulation (EEC) No 804/68 shall not apply to the quantities of milk which the producer withholds from sale to the MMB either by agreement with that organization or with a view to:
a) marketing, in either unprocessed or processed form, in another Member State or in a third country, or
b) conversion into butter or skimmed-milk powder to be sold to the intervention agency, where it is established that the price paid to the producer by the MMB has fallen, over a period to be determined, below the level which would have resulted from the intervention prices applicable during the same period, taking account of the market situation.
2. Producers may form groups and/or resort to intermediaries to carry out the operations referred to in paragraph 1(a) and (b).
3. The rules for implementing this article shall specify in particular the supervision measures to be introduced.
1. The rights referred to in Article 25(1) of Regulation (EEC) No 804/68 shall not apply to:
a) quantities of milk produced by a producer-retailer as defined in paragraph 2;
b) quantities of milk sold to a producer-retailer by other producers within the limits referred to in paragraph 3(b).
2. A producer-retailer within the meaning of paragraph 1 shall be an individual producer:
a) whose total production has not exceeded an average annual quantity of 100000 kilograms over a period of three calendar years preceding the date of lodging of the declaration referred to in (c);
b) who sells the milk of his cows kept on his holding directly to the final consumer in the form of liquid milk, and
c) who has declared to the MMB concerned that he wishes to be exempted from all obligations and to forgo all rights to sell to the MMB for a period of at least five years.
3. The producer-retailer may, however:
a) sell up to 25% of his annual production to buyers other than the final consumer;
b) sell to the final consumer, in the form of liquid milk, a quantity of milk bought from other producers which shall not exceed 25% of his own annual production.’
4. After the five Milk Marketing Boards had carried out a poll of milk producers showing that each board was representative within the meaning of Article 25 of Regulation No 804/68, the Commission adopted Regulation (EEC) No 1565/79 of 25 July 1979 laying down rules for implementing Regulation (EEC) No 1422/78 concerning the granting of certain special rights to milk producer organizations in the United Kingdom (Official Journal 1979, L 188, p. 29). Article 1 of that regulation authorizes the United Kingdom to grant the rights set out in Article 25(1) of Regulation No 804/68, subject to the conditions laid down in Regulation No 1422/78 and in Regulation No 1565/79 itself. Articles 3 to 5 of that regulation lay down detailed provisions for the application of Articles 7 and 8 of Regulation No 1422/78, including the notification procedures to be followed by producers wishing to withhold milk from sale. Producers must specify the period of withholding and whether all milk or only a proportion of the total will be withheld. On 7 April 1981, pursuant to Article 1 of Regulation No 1565/79, the Minister for Agriculture, Fisheries and Food and the Secretary of State for Wales granted the Board the rights set out in Article 25(1) of Regulation No 804/68.
II — Facts and procedure in the main proceedings
1. Cricket St Thomas Estate, the defendant in the main proceedings (hereinafter referred to as ‘Cricket St Thomas’), is a partnership which carries on the business of farming an estate comprising four dairy units of approximately 150 cows each. It has facilities for the bulk storage and pasteurization of milk. The milk which is pasteurized in its dairies comes not only from its own herds but is also bought in from the Board. Cricket St Thomas sells that pasteurized milk to consumers both directly and through roundsmen, shops and supermarkets. It holds a producer-retailer licence and sells milk through intermediaries under a producer-processor agreement concluded with the Board in 1981, in accordance with the provisions of the Milk Marketing Scheme.
2. In 1984, Cricket St Thomas stopped paying contributions to the Board, which brought an action to recover those sums in 1986. The action relates to contributions payable by registered producers under the Milk Marketing Scheme, that is to say ‘capital contributions’, which are calculated by reference to the total quantity of milk sold and are used to finance the Board's capital investments, ‘producer-retailer (PR) contributions’ due under producer-retailer licences, and ‘producer-processor (PP) contributions’ due under the terms of the producer-processor agreement concluded between the Board and Cricket St Thomas, as well as penalties and awards in respect of losses caused to the Board, imposed or determined by a disciplinary committee pursuant to the scheme for failure to comply with obligations thereunder, particularly failure to furnish returns of the quantities of milk withheld from the Board.
3. Before the High Court, Cricket St Thomas contended that each of those claims was contrary to Community law. It claimed that the Board's exclusive purchasing prerogative does not extend to milk which the producer pasteurizes, on the ground that pasteurizing is ‘processing’ within the meaning of Article 25(1) of Regulation No 804/68 inasmuch as the milk is not left in its original state. Cricket St Thomas further contended that the Board has no power under Community law to require producers who withhold their milk from the Board to pay contributions, and that the sums demanded were in any event unreasonable in amount.
4. By an order of 3 November 1988, the High Court of Justice, Queen's Bench Division, referred the following questions to the Court for a preliminary ruling: The order for reference was registered at the Court Registry on 23 December 1988.
‘(1) Whether, and if so in what circumstances, the exclusive right referred to in Article 25(l)(a) of Regulation (EEC) No 804/68 as amended by Council Regulation (EEC) No 1421/78 is exercisable in respect of pasteurized milk?
2)
a) Is the Milk Marketing Board in England and Wales (“the Board”) entitled as a matter of Community law, and if so in what circumstances, to require a producer who produces pasteurized milk in England and Wales and sells it there (otherwise than to the Board), to pay to the Board a levy on such milk (“the contribution”) so that the producer is treated in principle as if he had sold his milk to the Board at the producer price and bought it back at the Board's trade selling price?
b) Is the Board so entitled, and if so in what circumstances, if the milk is not pasteurized?
3) Does the answer to Question 2 vary according to whether the sale of milk is by retail, by semi-retail or by wholesale?
4) If the Milk Marketing Scheme (as amended) (“the Scheme”) does not expressly empower the Board to impose the contribution upon such producers who are “producer-processors”, may the Board none the less impose the contribution on producer-processors in reliance upon any Community law entitlement which may be found to exist in answer to Questions 1 or 2 above?
5) In any event is the Board entitled as a matter of Community law to require the producers mentioned in Question 2 to pay the Board additional sums by way of:
a) capital levies pursuant to paragraphs 51(2) and 71(2) of the Scheme;
b) losses pursuant to Section 10 of the Agricultural Marketing Act 1958 and paragraph 77(6) of the Scheme;
c) penalties pursuant to paragraph 77 of the Scheme?’
5. In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted by the plaintiff in the main proceedings, represented by Wedlake Bell, solicitors, by the defendant in the main proceedings, represented by J. B. Havenhand, solicitor, D. Vaughan QC and M. McEwan and D. Anderson, barristers, by the United Kingdom, represented by Susan J. Hay of the Treasury Solicitor's Department, acting as Agent, and by the Commission of the European Communities, represented by P. Oliver, acting as Agent.
6. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral proceedings without any preparatory inquiry and to assign the case to the Sixth Chamber.
III — Written observations submitted to the Court
1. The plaintiff in the main proceedings maintains that the Milk Marketing Boards' prerogatives with respect to the exclusive right to purchase milk from producers established in their area are necessary for the boards to operate effectively. If the Board's exclusive right were construed so as to remove from its prerogative milk which a producer intended to pasteurize, that right would be so weakened as to put in jeopardy the beneficial economic results which Regulation No 1421/78 identified as contingent upon the Board's functions and the milk marketing scheme in question. In the Board's view, the question thus arises whether Article 25(1) of Regulation No 804/68 is to be construed in a way that would risk defeating the purpose of that regulation. With regard to the different language versions of Regulations Nos 1421/78 and 1422/78, the Board points out that the word ‘processing’ used in the English text must be interpreted to connote a transformation of the milk into another product. In its view, all the other language versions of those regulations make a distinction between a product that can still be described as milk and other products made from milk, and show that the Board's exclusive right attaches to the former category. It stresses that pasteurized milk is still milk and not another product made by converting or transforming milk. Pasteurization adds nothing to and subtracts nothing from the unpasteurized product; all that changes is that harmful bacteria are killed as a result of the heat treatment. On the question whether, under Community law, the Board is entitled to require payment of contributions by producers, the plaintiff considers that both producer-retailers and producer-processors withhold milk by agreement with the Board and thus fall within Article 7(1) of Regulation No 1422/78. That regulation specifically recognizes the need to define the cases in which producers may withhold milk without compromising the efficient functioning of the Milk Marketing Boards. Therefore, whether payment of contributions is a lawful condition of withholding is a matter for Community law. The Board maintains that Community law permits the inclusion of provisions in withholding agreements that are reasonably related to the purpose of the legislation or are required by general principles of Community law. It states that the conditions of those agreements and the contributions in question comply with those requirements, particularly those laid down in Article 25(3) of Regulation No 804/68. In the Board's view, the contributions at issue are reasonable in amount and place producer-retailers and processors in a position broadly comparable to that of commercial dairies. Failure by the Board to include in withholding agreements provisions for payment of a contribution would infringe the Community principle of equal treatment and would discriminate against producers selling their milk to the Board and persons wishing to buy milk from it inasmuch as it would give undue preference to producer-retailers and producer-processors. The plaintiff also observes that a producer withholding milk from sale in the liquid market would, in the absence of a contribution, enjoy an unfair advantage over producers who sell to the Board and commercial dairies who buy milk from the Board for sale in that market, whether or not the withholding producer pasteurizes the milk. The contribution is therefore justifiable in relation to all milk withheld which is destined for the liquid market. With regard to the third question, the plaintiff considers that the only relevant criterion to justify the contribution is whether the withheld milk is ultimately destined for the liquid market. The precise manner in which the producer disposes of the milk is immaterial. As regards the fourth question, the plaintiff states that the validity of contributions required of producer-processors is a matter of Community law. As the contributions are lawful under Community law, no express authority to impose them is required under national legislation. With regard to the fifth question, the plaintiff observes that it is clear from Article 5 of Regulation No 1422/78 that the Milk Marketing Boards may require producer-retailers and producer-processors to pay contributions in so far as they are necessary for the performance of their statutory functions, such as the financing of certain investments under the Milk Marketing Scheme. It points out that producers are obliged to furnish returns of milk withheld from the Board and to pay contributions in respect of such milk. In its view, there can be no legal objection to their collection by a statutory arbitration procedure in the event of a failure to comply with the obligation to provide that information. The plaintiff states that, in order to ensure that that duty is observed, the Board is empowered under the Milk Marketing Scheme to collect penalties from defaulting producers. The disciplinary procedure is intended to ensure compliance with the scheme in question and to assist the Board to carry out its statutory functions.
2. In the view of Cricket St Thomas, the defendant in the main proceedings, the case involves the question whether the Board is entitled, as a matter of Community law, to require the contributions at issue from producers who withhold their production of milk in order to pasteurize it. It claims that all of those contributions are irrecoverable, being unlawful under Community law and the common organization of the market in milk and milk products because they are excessive and not proportionate. Cricket St Thomas explains that one of the problems raised relates to the terminology used. Thus ‘milk’ means cows' milk, ‘raw milk’ means milk in the state and condition as it comes from the cow, and ‘pasteurized milk’ means milk which has undergone the pasteurizing process and has been packaged in a state so as to be sold as such in a ‘whole’ form, either homogenized or not. Cricket St Thomas states that as a result of the implementation of Council Directive 85/397/EEC of 5 August 1985 on health and animal-health problems affecting intra-Community trade in heat-treated milk (Official Journal 1985, L 226, p. 13) pasteurized milk may be imported into and sold in the United Kingdom without the payment of any levy or other countervailing charge on milk produced in another Member State. Accordingly, if it had to pay a contribution, Cricket St Thomas would be at a competitive disadvantage to producers who pasteurize in other Member States and sell into the United Kingdom market. Cricket St Thomas claims that, as a producer of pasteurized milk, it is not subject to the prerogatives of the Board provided for in Article 25(1) of Regulation No 804/68. In its view, that provision applies the exclusive right to buy only to milk which is produced and marketed ‘without processing’. Cricket St Thomas contends that the pasteurizing of milk which is carried out on the estate, together with the concomitant separating, homogenizing and packaging, constitute ‘processing’ within the meaning of Article 25(1) of Regulation No 804/68. It stresses that the term ‘processing’ in the context of the relevant regulations includes pasteurizing and the associated processes carried out in the Cricket St Thomas dairy. It is inconceivable that the word ‘processing’ should have been intended to refer solely to processes which convert or transform milk into another product such as butter or cheese. The phrase ‘the milk which they produce and market without processing’ used in Article 25(1) of Regulation No 804/68 implies, in its view, that it is possible to market milk as milk which has been processed. Cricket St Thomas also refers to the distinction made in Article 7(1) of Regulation No 1422/78 between the marketing of milk in either processed or unprocessed form and the conversion of milk into butter or skimmed-milk powder. In that provision, processed milk is treated as milk and a different word is used to described the transformation of milk into another product. Cricket St Thomas also refers to Article 3(1) of Regulation No 1565/79, which requires producers wishing to exercise the right of withholding their milk from sale to inform the Board of their intention, stating in what form the milk withheld is intended to be marketed outside the United Kingdom. Cricket St Thomas therefore observes that it would be inconsistent with the purpose of the Community legislation to construe ‘processing’ as limited to transformation into products other than milk. The consistent usage of the word ‘processed’ in English-language sources supports the view that it includes pasteurizing and is not restricted to operations whose result is a different product. With regard to the non-English versions of the relevant Community legislation, Cricket St Thomas considers that Regulations Nos 1421/78, 1422/78 and 1565/79 are unusual inasmuch as they were adopted for the stated purpose of enabling an existing United Kingdom institution with no parallel in the other Member States to operate. It points out that the regulations governing relations between United Kingdom Milk Marketing Boards and United Kingdom milk producers are invariably read, applied and relied upon exclusively in their English-language versions. It therefore considers that the requirement that every language version be looked at for the sake of a uniform interpretation in each Member State is diminished if not extinguished. Conversely, in its view, the need for legal certainty requires that the natural or legal persons concerned with the subject-matter of the regulations, that is to say, in practice, the United Kingdom Milk Marketing Boards, United Kingdom producers and United Kingdom courts, none of which will generally be equipped to compare nine different language versions, should be able to rely on the only language version which is ever likely to be consulted. In the exceptional circumstances of Community legislation which is intended solely to regulate matters in one Member State, the language of that Member State should be given priority in construing such legislation. Cricket St Thomas adds that the English meaning of Article 25(1) of Regulation No 804/68, seen in the context of the legislation as a whole, is perfectly clear and that the obligation to consult other versions arises only when there is doubt as to the meaning of the language version in question. Cricket St Thomas points out that, even if the different language versions do conflict, the choice between them must be made by reference to the purpose and general scheme of the relevant rules. Cricket St Thomas considers that the exclusive right to buy was intended to be more restricted than the Board's former rights under the Milk Marketing Scheme. In its view, the effect of the narrowing of the exclusive right to buy by virtue of Regulation No 1421/78 is to prohibit any exercise of that right only if the producer of the milk intended to pasteurize and then market it. That would bring the law into line with the practice followed by the Milk Marketing Boards since 1933, that is to say, to purchase only raw milk which the producer does not intend to pasteurize or otherwise process before marketing. Cricket St Thomas contends that Community law not only does not authorize but forbids the requirement that it pay the contributions at issue. The Board's compulsory purchase right does not extend to milk which is pasteurized by the producers and there is consequently no basis in the Community legislation for the existence of any obligation to pay the contributions demanded. Cricket St Thomas also remarks that Article 7 of Regulation No 1422/78 does not authorize the inclusion of contributions as part of a withholding agreement. If the contributions had been necessary to avoid discrimination or unfair competition, they would have been expressly included in that regulation. Cricket St Thomas maintains that in the absence of express words in a provision of Community law the authorization to require contributions cannot be implied, particularly in so far as it imposes a financial burden upon traders, creates an exception to a common organization of the market or affects the machinery of price formation at the production and marketing stage. It claims that to allow contributions to be required would itself distort competition between withholders and other pasteurizers, and would discriminate against withholders. The freedom given to producers by Article 7 of Regulation No 1422/78 to enter into withholding agreements with the Board would be pointless if, as part of that agreement, the Board could require contributions with entirely the same financial effect as if the producer had been compelled to sell his milk to the Board and buy it back again at the Board's firsthand selling price. Cricket St Thomas concludes that neither the Treaty nor the relevant regulations authorize the Board to require the contributions at issue from withholders. In its view, Community law also forbids the recovery of sums in respect of losses or the imposition of penalties in lieu of such contributions. It is immaterial whether the milk withheld is subsequently sold in pasteurized or untreated form and whether it is subsequently sold by retail, semi-retail or wholesale. Cricket St Thomas maintains that even if the contributions are lawful, they are excessive and unreasonable in amount. The disproportionate nature of the amount of the contributions precludes any justification. Cricket St Thomas explains that the quantum of such contributions reflects the Board's policy of subsidizing milk sold to manufacturers and selling such milk at a greatly reduced price. If such milk were sold to manufacturers at the same price as to the liquid market, the amount of the contribution would be nil, or at most minimal. If the quantum of the contribution were to reflect the value of the services provided directly and individually to withholders by the Board, or the extent to which it is necessary to ensure the performance of the Board's statutory functions, the amount of the contribution would again be at most minimal. It stresses that contributions, penalties and sums recoverable in respect of losses are not claimed by the Board to represent the value of any services provided directly or indirectly by the Board to Cricket St Thomas. It adds that capital contributions are used to finance capital acquisitions and include items such as the cost of plant and machinery for the Board's commercial activities, that is to say the activities of Dairy Crest Limited which have to be kept under a separate system of financial management and administration. Accordingly, capital contributions should be nil, or at least limited to the extent to which such contributions were in fact used in the relevant years by the Board for its statutory functions and not its commercial activities. Cricket St Thomas remarks that, given that the common organization of the market in milk and milk products has been achieved by Regulation No 804/68, and a fortiori when based on a common price system, a Member State is not entitled to take any action which might create exceptions to that common organization. Requiring a contribution to be paid affects price formation, for it increases the price of the withholders' raw material. The need, if any, to avoid discrimination against producers who sell their milk to the Board cannot justify the unilateral imposition of levies to negate alleged advantages, in the same way as alleged disadvantages cannot justify giving a subsidy to compensate for disadvantages. The assertion that the Board needs the contributions to operate effectively has no factual basis at all. The absence of contributions would be of minimal consequence to the Board's operations and of minimal importance to other producers. Cricket St Thomas sets out in detail the reasons for which a withholder is not comparable with other categories of producer. It stresses that the contributions at issue do not promote the sale or consumption of milk. They are not necessary to equalize the advantages supposedly enjoyed by the producer-processor. Such advantages as he has in the price of raw material are easily outweighed by the disadvantages detailed by Cricket St Thomas. It remarks, finally, that the working of the scheme in question would in no way be jeopardized by the absence of the contributions. Cricket St Thomas therefore proposes that the questions be answered in the following terms:
‘The Board is not entitled to enforce the exclusive right to buy provided for in Article 25(1) of Regulation No 804/68, as amended by Regulation No 1421/78, in respect of milk withheld by a producer, whether that milk is withheld for the purpose of pasteurizing or not, nor is the Board in such circumstances entitled to impose a levy upon such a producer, whether the milk is subsequently sold by retail, semi-retail or wholesale.
The Board is not entitled to require withholders to pay the capital levies, sums in respect of losses and penalties referred to in the fifth question.’
3. In the view of the United Kingdom, the Board's exclusive right to buy referred to in Article 25(1) of Regulation No 804/68 is exercisable in respect of all milk marketed by producers as milk, including pasteurized milk. If that provision were to be construed in such a way as to exclude pasteurized milk from the Board's exclusive right, the purpose of the regulation would be placed in jeopardy. The United Kingdom explains that, if the Board's exclusive right did not extend to pasteurized milk, producers would be able to bypass the Board and sell directly to wholesalers, retailers or final consumers. If producers were able to withhold milk, pasteurize it and sell it through their own dairies, they could command the Board's selling price for liquid milk, whereas those selling to the Board would continue to receive only the pooled price. Producers withholding their milk would thus enjoy an advantage over commercial dairies who purchase milk destined for human consumption at the Board's liquid milk price. The result would be an increase in the numbers of producer-retailers and producer-processors either pasteurizing their own milk or entering into joint arrangements with other producers to pasteurize milk, together with an increase in direct relationships between commercial dairies and milk producers with access to or the use of pasteurizing equipment. As a consequence, there would be an increase in the amount of milk withheld from the Board and a reduction in the effectiveness of the Board's pricing arrangements to the detriment of producers as a whole, and particularly those whose geographical location would place them at a disadvantage in supplying milk directly or indirectly to the liquid market. In the United Kingdom's view, the term ‘processing’ does not include pasteurization. It considers that a distinction must be drawn between operations carried out on cow's milk which have the consequence of creating a product other than cow's milk and operations which only involve treating the milk, after which the milk remains cow's milk. It explains that ‘processing’ within the meaning of Article 25(1) of Regulation No 804/68 refers to the first category of operation whereby the milk is transformed or converted into a different product. The pasteurization process, however, does not involve the transformation or conversion of milk into a different product. Pasteurization is, in its view, merely a form of heat or temperature treatment which could be compared to the cooling of milk. The United Kingdom submits that it is clear from reading other provisions of the relevant Community regulations that the words ‘processing’ or ‘process’ are used in the English language versions to include, in different contexts, both categories of operation identified above. It claims, nevertheless, that a consideration of the other language versions of Regulations Nos 1421/78 and 1422/78 resolves such ambiguity as may exist in the English language version. The United Kingdom examines the other language versions and concludes that the two categories of operation identified above are clearly recognized and that the term ‘processing’ in Article 25(1) of Regulation No 804/68 involves transformation or conversion into another product. Consequently, the United Kingdom considers that the Board's exclusive right to buy attaches to milk which has not been transformed or converted into a different product. Pasteurization does not transform or convert milk into a different product, but merely renders it safer for human consumption. It follows that the Board's exclusive right attaches to pasteurized milk. With regard to the second question, the United Kingdom states first of all that the question whether provisions of national law requiring the payment of contributions in respect of milk withheld by agreement are permitted is governed by principles of Community law. In its submission, the payment of the contributions is necessary to give effect to the objectives of the relevant Community regulations and to accord with the general principles of Community law. The United Kingdom observes that the purpose of the producer-retailer and producer-processor contributions is to ensure that producers who withhold their milk and market it independently do not receive disproportionate benefits in relation to milk producers generally and in relation to the dairies buying milk from the Board. Thus, the producer-retailers and producer-processors are placed in broadly the same position as if they had sold their milk to the Board at the producer price and bought it back at the Board's selling price for milk for resale as liquid drinking milk. Moreover, all registered producers enjoy the benefit of the Board's facilities which enable it to accept all milk offered to it, including milk offered which is surplus to the requirements of the producer-retailers and producer-processors. In the absence of the contributions, producer-retailers and producer-processors would enjoy an unfair advantage over dairies who buy from the Board in the form of a notional transfer price. In the United Kingdom's view, such an unfair advantage would constitute unlawful discrimination against persons buying milk from the Board. The contributions are therefore necessary to avoid such discrimination. The United Kingdom points out that, in the absence of the contributions, there would be an incentive for producers to withhold milk for pasteurization and sale on the liquid milk market. Such a development would jeopardize the Board's differential pricing policy, authorized under Article 9(1) of Regulation No 1422/78. If the Board did not include the payment of contributions within its arrangements for withholding milk by agreement, it would infringe the principle of equal treatment by conferring an unfair advantage on producer-retailers and producer-processors and by discriminating against producers selling to the Board and persons wanting to buy from the Board. With regard to the third question, the United Kingdom Government maintains that the contributions are permissible and not affected by whether the producer-retailer or the producer-processor sells the withheld milk by retail, semi-retail or by wholesale. The unfair advantages which such producers would enjoy, in the absence of the contributions, over producers selling to the Board and persons buying from the Board are unaffected by the precise means by which the producer-retailer or the producer-processor disposes of his milk. As regards the fourth question, in the United Kingdom's submission, the validity of the contributions is a matter to be determined under Community law, which does not permit them in order to give effect to the objectives of the relevant Community regulations. In its view, therefore, no separate authority under domestic legislation is required. With regard to the fifth question, the United Kingdom claims that there is no reason why producer-retailers and producer-processors should have been exempted from the payment of capital contributions to the Board. It states that to have exempted producer-retailers and producer-processors from payment of contributions would have placed an unfair burden on other producers, whilst producer-retailers and producer-processors continued to benefit from the Board's operations. Finally, the United Kingdom maintains that the sums which may be awarded in respect of losses caused to the Board and the penalties provided for under the marketing scheme in question are required to enable the Board to perform its statutory functions. Obligations (for example, to furnish returns) without sanctions in the event of noncompliance would be of little effect. It points out that the penalties are modest in amount and are not disproportionate in relation to the overall objectives of the legislation in issue. In its opinion, the marketing scheme in question is in conformity with Community law.
4. The Commission observes that the first question asks whether pasteurization constitutes processing within the meaning of Article 25(1) of Regulation No 804/68 so that the Board's exclusive right does not apply. With regard to the translation of the concept in the other language versions, the Commission considers that, although pasteurization is a process, the question cannot be answered on the basis of such a simplistic linguistic approach. In its view, a reading of the French version of the relevant provision shows that it is not identical in meaning to the English. The Commission considers that the discrepancy becomes even more apparent on comparison of the English, French and German versions of the provision and of certain provisions of Regulation No 1422/78 which might be expected to use the same terminology. It points out that in Community agricultural legislation ‘processing’ frequently corresponds to ‘transformation’ in French and ‘Verarbeitung’ in German. The Commission states that, in Article 25(1) of Regulation No 804/68, the phrase ‘the milk which they produce and market without processing’ corresponds to ‘le lait produit et mis en vente en l'état’ and ‘die ... erzeugte und in unverarbeitetem Zustand auf den Markt gebrachte Milch’. Read in isolation, the French text unequivocally, in the Commission's view, refers to milk sold as liquid milk as opposed to any other dairy product. Thus the French text may be relied on in support of the view that the Board's monopoly applies to pasteurized milk. According to the Commission, the English text is particularly haphazard, while the French and German texts are in fact consistent. Thus, in the French the term ‘en l'état’ is consistently used as the opposite of ‘transformé’. In Article 5(1) of Regulation No 1422/78, the words ‘lait en l'état’ are used to described liquid milk, and ‘traitement’ to denote heat treatment or some other treatment which nevertheless enables the milk to be sold as milk. The terms ‘transformation’ and ‘traitement’ are matched in the German text, where ‘unverarbeitet’ is consistently used as the opposite of ‘verarbeitet’. The Commission points out that the German text uses ‘verarbeitet’ every time the French text uses ‘transformé’ and ‘unverarbeitet’ whenever the French uses ‘en l'état’. In Article 5(1) of Regulation No 1422/78, the German word ‘Bearbeitung’, which is used to refer to an operation falling short of ‘Verarbeitung’, corresponds to the French ‘traitement’. It explains that, in contrast, the English text appears to refer to ‘processing’, ‘manufacture’ and ‘conversion’ indiscriminately. Had the word ‘treatment’ been used in Article 5(1) of Regulation No 1422/78 in place of ‘processing’, the construction of Article 25(1) of Regulation No 804/68 advanced by Cricket St Thomas would have been much more difficult to maintain. The Commission maintains that it is plainly not possible to resolve the issue in the first question referred to the Court on the basis of the English text alone. A reading of the French and German texts reveals that the terminology used in each is consistent and that there are no discrepancies between the French and the German texts. Both the French and German texts provide unequivocal support for the view that the Board's exclusive right applies unless milk undergoes an operation such as to turn it into a product which cannot be regarded as milk. With regard to the context and purpose of Article 25(1) of Regulation No 804/68, the Commission takes the view that the question should be answered in the manner put forward by the Board. Firstly, since the Board's exclusive right applies to the milk which producers produce and market without processing, it is plain, in the Commission's view, that where a producer first processes his milk and then markets it the monopoly in question does not apply. The same must be true where a producer has recourse to a processing undertaking and sells the finished product. The Commission states that the one thing that the producer must not do if he wishes to fall within the processing exception to the Board's monopoly is to sell the milk to the dairy before it is processed; instead he must retain his property in the milk until after it is processed. The Commission stresses that, if pasteurization constituted processing for the purpose of Article 25(1) of Regulation 804/68, producers would be able to escape the Board's monopoly by pasteurizing their milk or having it pasteurized by a dairy before selling it. In those circumstances, the Board's purchasing powers could not possibly be described as an exclusive right. It adds that every producer would then be able to avoid the Board's monopoly, and all the more so because Article 10(2) of Regulation No 1422/78 required the United Kingdom to abolish the power of the Milk Marketing Boards to hinder, by means of a licensing system, the free establishment of processing undertakings in the area concerned. The Commission claims that the existence of the detailed and restrictive rules set out in Article 8 of Regulation No 1422/78 and Article 5 of Regulation No 1565/79 conflicts with the interpretation advanced by Cricket St Thomas. It asks why the Council and the Commission should regulate in minute detail the rights of withdrawal of a small group of commercially insignificant producers who were incapable of doing any significant economic damage to the Board by withholding their milk, if much larger producers could arbitrarily decide to withdraw their milk without incurring any of the obligations placed on the small producers. The Commission considers that the legislative intent shown by the wording of the other language versions of Article 25(1) of Regulation No 804/68 and the two arguments derived from the context and purpose of that provision must lead to the conclusion that pasteurization does not constitute processing for the purposes of Article 25(1) of that regulation. Since the Board's exclusive right to buy is thus applicable, it is entitled to levy certain contributions, subject to Article 5(3) of Regulation No 1422/78. With regard to the rate of the contributions in issue in this case, the Commission feels unable to say whether they fall within the limits set by Article 5(3) of Regulation No 1422/78. As regards the fifth question referred to the Court, the Commission states that where a producer withholds milk from the Board other than by agreement and that milk is covered by the Board's exclusive right to buy, Community law entitles the Board to impose a penalty on him for infringing that monopoly. The further question arises, however, as to whether Community law requires the Board to ensure that that penalty is proportionate to the nature of the infringement of its monopoly on the purchase of pasteurized milk. The Commission therefore proposes that the questions referred to the Court should be answered as follows:
‘(1) The exclusive right referred to in Article 25(1) of Regulation No 804/68 applies to all pasteurized milk, since pasteurization does not constitute “processing” for the purposes of that provision.
2) Where the Board's exclusive right referred to in Article 25(1) is applicable, it may levy contributions only in so far as is necessary for the performance of its statutory functions, as provided for by Article 5(3) of Regulation No 1422/78.
3) Where milk is subject to the Board's exclusive right and the producer withholds it from the Board other than by agreement, then the Board may impose a penalty on him.’
M. Diez de Velasco
Judge-Rapporteur
1 Language of the case: English.