Report for the Hearing in Case C-22/89

I — Facts

1. Regulation (EEC) No 685/69 of the Commission of 14 April 1969 on detailed rules of application for intervention on the markets in butter and cream (Official Journal, English Special Edition 1969 (I), p. 194) establishes a scheme for the purchase by intervention agencies of butter intended for public storage. Article 6(1) of that regulation, as amended by Commission Regulation (EEC) No 1836/86 of 12 June 1986 (Official Journal 1986 L 158, p. 57), provides that: Article 6(2), as amended by Commission Regulation (EEC) No 1829/80 of 11 July 1980 (Official Journal 1980 L 178, p. 22), provides that:

‘the butter shall be put through a storage test period. This period shall be fixed at two months starting from the day on which it enters the refrigerated storage depot designated by the intervention agency ...’.

‘By his offer the seller shall undertake that, where, during the storage test period, the deterioration in the quality of the butter proves greater than that which normally results from storing butter satisfying the requirements referred to in Article 2:

i) he will take back the goods in question,

ii) if payment has been made, he will reimburse the intervention agency in respect of the buying-in price paid for the substandard goods,

iii) he will pay the storage costs of the quantities concerned from the day on which they were taken over until the date of their removal from storage.

...’.

2. In its Decision 88/630/EEC of 29 November 1988 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1986 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (hereinafter referred to as ‘the EAGGF’) (Official Journal 1988 L 353, p. 30), the Commission disallowed expenditure incurred by the Netherlands amounting to HFL 3183100.46. For the dairy sector, the amount includes a total of HFL 2598185.71, of which HFL 1624796 relates to premature testing of the keeping qualities of butter intended for public storage.

3. At point 3.3.4.2 of the Summary Report of 15 July 1988 of the conclusions from the preliminary work for clearance of the EAGGF Guarantee section accounts for the year 1986, the Commission stated that, according to Article 6(1) and (2) of Regulation No 685/69, the control on the longkeeping qualities of butter delivered into intervention must be conducted not earlier than the 60th day following entry into cold store.

4. In that respect the Commission referred to the Minutes of the 726th Milk Management Committee meeting of 16 August 1985 (hereinafter referred to as ‘the 1985 Minutes’) which stated that the object of Article 6(1) of Regulation No 685/69 was to ensure that butter offered for intervention should be able to withstand storage of two months without any unacceptable deterioration in quality. The tests by the intervention agency must therefore be made at the end of the trial period. The need for good administration of the tests would legitimately lead the intervention agency not to carry them out in the same store every day of the same week but to do so periodically. Nevertheless, the intervals between tests had not to be such as to impose on the trader an appreciable prolongation of the trial period.

5. The Summary Report also refers to an interpretive note of 18 March 1986 (IV/2214/86) on Regulation No 685/69 in which it was stated in relation to Article 6(2) that if at the end of the test period it was found that the butter did not meet the requirements of quality the seller had to pay the costs of storage.

6. Since tests carried out in Member States which had correctly applied the rules show that the quantities refused after a second test constituted only a small percentage of the total quantities tendered, the Commission decided not to finance 0.25% of all entries of butter tested before the 60th day.

II — Written procedure and conclusions of the parties

1. The application by the Kingdom of the Netherlands was received at the Court Registry on 30 January 1989.

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

3. The Kingdom of the Netherknds, the applicant, claims that the Court should: (i) declare void the Commission decision of 29 November 1988, C(88) 2250 final (Decision 88/630) in so far as it disallows from Community financing the accounts amounting to HFL 1624796 declared by the Netherlands for the 1986 financial year in respect of the public storage of butter; (ii) order the defendant to pay the costs.

4. The Commission, the defendant, contends that the Court should: (i) dismiss the application brought by the Netherlands Government as unfounded; (ii) order the Kingdom of the Netherlands to pay the costs.

III — Submissions and arguments of the parties

1. The Kingdom of the Netherlands maintains in the first place that the Commission infringed Regulation (EEC) No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy (Official Journal, English Special Edition, 1970 (I), p. 218) in conjunction with Regulation No 685/69. A literal interpretation of Article 6 shows that the test must be carried out before the expiry of the storage test period. Article 6(2) provides that it must appear during that period whether or not the diminution in the quality of the butter is greater than normal. That interpretation is consistent with the general scheme of Regulation No 685/69. The taking over of the butter by the intervention agency is subject to the condition that no abnormal diminution in quality should appear during the test period. The effect of not allowing tests before its expiry is that expiry of the period does not dispel the uncertainty regarding the irreversibility of the transfer of property. The seller has an interest in knowing definitely the outcome of the transaction by the end of the test period, as regards both the quantity of butter in question and the extent of any financial obligation on his part. The regulation is intended to ensure that the quality of the butter is sufficient under cold-store conditions. An inquiry carried out in Denmark in 1977 showed that if there had been no abnormal deterioration in the quality of butter stored in a cold store after 45 days there would be none after 60 days. The 1985 Minutes and the interpretative note of 18 March 1986 do not mention any test after the expiry of the test period but testing at the end of it. In stressing the need that the organization of the tests should not impose any appreciable prolongation of the test period on traders, both the note and the Minutes confirm the correctness of the Netherlands' interpretation. Moreover, the Commission's Legal Department has no power to interpret Community rules in a manner binding on the Member States. The Commission is wrong to refer to the second and third indents of Article 6(2), which expressly provide for the possibility of a negative test result appearing only after the butter has been taken over by the intervention agency. Article 6(2) has existed in the present form only since Regulation No 1829/80. Commission Regulation No 1836/86 of 12 June 1986 (Official Journal 1986 L 158, p. 57) put back the date of taking over of the butter by the intervention agency, which until then had been the date of its entry into cold store, to the 60th day following such entry. Until that amendment, if the butter had to be taken back because of the bad state of preservation, the cost could be charged to the suppliers from the butter's date of entry, namely from the beginning of the test period. Commission Regulation (EEC) No 2814/86 of 11 September 1986 (Official Journal 1986 L 260, p. 14) postponed the period of taking over to 120 days without altering the provisions of Article 6(2). In the second place the Kingdom of the Netherlands alleges that the Commission has infringed the principle of legal certainty or some other general principle forming the basis of the Community legal order. Since Regulation No 685/69 entered into force, the Netherlands has proceeded to carry out tests during the test period; the average period has been 53 days. The Commission has never challenged that interpretation of Article 6, of which it must have been aware, until the EAGGF inspections for the year 1986 were carried out. In not previously formally rejecting it the Commission gave the impression that it approved it. If the Community executive power considered that it had to amend the interpretation which previously applied it ought to have informed the Member States responsible for implementing the regulation in question. Even assuming that the interpretation given by the Commission is correct, the regulation ought to have been amended; the fact that Member States arrive at an interpretation different from that of the Commission shows that Article 6 is not clear. The interpretation given by the Commission means that an additional period is added to the test period for the purposes of inspection, which makes the legal position of the tenderer of the butter uncertain. The Kingdom of the Netherlands further maintains that the Commission has not given sufficient reasons for its decision in the Summary Report. The 1985 Minutes and the interpretative note of 18 March 1986 are not capable of supporting its argument. It also omitted to state reasons for its refusal to finance 0.25% of the butter in store and inspected before the 60th day.

2. The Commission maintains that it is clear from both the wording and spirit of Article 6 of Regulation No 685/69 that the testing of the quality of the butter must be carried out after the expiry of the test period. The seller is released from the obligations which he has undertaken only if the test period has expired without any abnormal deterioration in the quality of the stored butter in store. The aim of the test period is to limit the risk for the Community of any abnormal deterioration in the quality of butter during the period subsequent to intervention storage. The arguments based on the Danish study, whose scientific correctness are moreover subject to reservations, are not relevant. Article 6(2) means that the seller, who has to supply butter capable of normal preservation, is under an obligation to take it back if there is an abnormal deterioration in its quality during the test period and not that the obligation applies only during that period. Since the seller is interested in knowing as soon as possible where he stands, the 1985 Minutes point out that the test must be carried out at a time so as not to appreciably prolong the test period. The seller's interest does not however justify the inspections being carried out before its expiry. The second and third indents of Article 6(2) expressly provide for the possibility that a negative test result may not become known until after the butter has been taken over by the intervention agency or even after payment for the butter. Subsequent alterations in the date of taking over do not invalidate that argument. The Commission denies having infringed general principles of law. It was not aware of the practice pursued in the Netherlands until 1987, a fact which the applicant moreover does not deny. Therefore the applicant cannot claim that the Commission tolerated the practice. Moreover, the information available to the Commission has shown that the inspection took place in many cases after 48 days, 46 days and even 41 days after the butter entered cold store. The Netherlands wrongly claims that the Commission altered its interpretation without informing the Member States. The 1985 Minutes clearly indicate that the testing must take place at the end of the test period; the Netherlands authorities must have known by 1985 the interpretation adopted by the Commission. The regulation and the statement which the Commission made in 1985 are sufficiently clear in that regard and there was no need for an amendment. Even if the interpretative note of 18 March 1986 mainly relates to the interpretation of Commission Regulation (EEC) No 521/86 of 27 February 1986 (Official Journal 1986 L 51, p. 65), it confirms the Commission's interpretation. The Summary Report gives a full account of the correct interpretation of Article 6 and the conclusions which the Commission drew. It also contains an explanation in relation to the percentage of butter excluded from financing. The submission alleging a failure to state reasons is therefore unfounded.

F. A. Schockweiler

Judge-Rapporteur

1 Language of the case: Dutch.