Report for the Hearing in Case C-22/90

I — Facts

1. Relevant legislation

a) Council Regulation (EEC) No 856/84 of 31 March 1984 amending Regulation (EEC) No 804/68 on the common organization of the market in milk and milk products (Official Journal 1984 L 90, p. 10) introduced for a period of five years an ‘additional levy’ on quantities of milk deliveries which exceed a reference quantity to be determined.

b) General rules for the application of the additional levy are set out in Council Regulation (EEC) No 857/84 of 31 March 1984 adopting general rules for the application of the levy referred to in Article 5c of Regulation (EEC) No 804/68 in the milk and milk products sector (Official Journal 1984 L 90, p. 13). Article 2(1) of Regulation No 857/84 establishes the reference quantity referred to in the basic Regulation No 856/84, namely the quantity exempted from the additional levy. In principle, that quantity is equal to the quantity of milk or milk equivalent delivered by the producer during the 1981 calendar year (formula A) or purchased by a purchaser during the 1981 calendar year (formula B), plus 1%. Under Article 2(2), Member States may, however, provide that on their territory the reference quantity is to be equal to the quantity of milk or milk equivalent delivered or purchased during the 1982 calendar year or the 1983 calendar year, weighted by a percentage established so as not to exceed the guaranteed quantity. Furthermore, under Articles 3, 3a, 4 and 4a of that regulation, as amended, Member States may take account of certain special situations when determining the reference quantities or allocating special or additional reference quantities. Article 6 of Regulation No 857/84 also provides for the allocation of a reference quantity to producers who have made direct sales. The reference quantities allocated on that basis correspond to the direct sales made by the producer in question during the 1981 calendar year, increased by 1%. Article 6a of Regulation No 857/84, as amended by Council Regulation (EEC) No 590/85 of 26 February 1985 (Official Journal 1985 L 68, p. 1), provides: Articles 9 and 10 of Regulation No 857/84 lay down rules concerning the collection and also, where formula B is applied, the recovery of the levy on producers. Under Article 11(c) of that regulation, the Commission is to determine, for the purposes of the application of Articles 9 and 10, according to the procedure provided for in Article 50 of Regulation (EEC) No 804/68, ‘the characteristics of the milk and, in particular, the fat content thereof, considered to be representative in order to establish the quantities of milk delivered or purchased’.

‘Producers who have two reference quantities, one for deliveries and one for direct sales, may, on request, obtain an increase in one of the reference quantities within a twelvemonth period to enable them to adapt to changes in their marketing requirements. Any such increase shall be subject to a reduction of the same amount in the other reference quantity during the same twelvemonth period. This reduction and the related increase shall be entered in the corresponding reserves referred to in Articles 5 and 6.

To be admissible, the producer's request referred to in the first paragraph must contain all the necessary items of information to assess:

the size of the applicant's dairy farm,

the total volume of his milk production, deliveries and direct sales of milk and/or milk products,

the nature and the scope of the change to his marketing requirements.’

c) The detailed rules for the application of the system were adopted by the Commission in Regulation (EEC) No 1546/88 of 3 June 1988 laying down detailed rules for the application of the additional levy referred to in Article 5c of Regulation (EEC) No 804/68 (Official Journal 1988 L 139, p. 12). Article 5(5) of that regulation provides: Article 12(2) and (3) of the same regulation provides :

‘Producers who have obtained a reference quantity by application of paragraph 4 (that is to say, a reference quantity for their direct sales) and who cease direct sales totally or in part may deliver their milk and milk products to a purchaser, with formula A or B applying, provided that the Member State can grant them a reference quantity from the guaranteed quantity specified in Article 5c of Regulation (EEC) No 804/68.’

‘If, when the final account for each producer or purchaser is calculated in accordance with Article 9(1) of Regulation (EEC) No 857/84, it is found that the average fat content of the milk delivered or purchased during the period concerned is in excess of the average content recorded during the period referred to in paragraph 1, the quantity of milk used as the basis of calculating the levy shall be increased by 0.18% per 0.1 gram of additional fat per kilogram of milk.

...

For the purposes of applying paragraph 2 to milk delivered or purchased during the third period of the additional levy scheme, the said period shall be divided into two six-month periods:

the average fat content of the milk delivered or purchased during the first six-month period shall be compared with the average content recorded during the first six months of the second period of application of the additional levy scheme,

the average fat content of the milk delivered or purchased during the second six-month period shall be compared with the average content recorded during the second six months of the second period of application of the additional levy scheme or, where the second subparagraph of Article 1 is applied, of the calendar year 1983.

However, if the sum of the quantities of milk delivered or purchased by a producer or purchaser during these two six-month periods, increased by applying the provisions of the first subparagraph, is greater than the quantity that would be given by applying paragraph 2 to the whole of the third period the Member State may decide that in this case the provisions of paragraph 2 shall apply with effect from 1 April 1986.’

2. The contested decision

By Decision 89/627/EEC of 15 November 1989 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1987 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (Official Journal 1989 L 359, p. 23), the Commission among other things charged expenditure of FF 10569874 to the French Republic. That amount corresponds to the applicable additional levies on the quantities of milk (5192 tonnes) exceeding, during the third period of application of the levy (1986/1987), the guaranteed total quantity fixed for deliveries by Regulation No 856/84.

II — Written procedure and forms of order sought

The application of the French Republic was lodged at the Court Registry on 24 January 1990.

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 enquiry.

The French Republic claims that the Court should:

declare null and void Commission Decision 89/627/EEC of 15 November 1989 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1987 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund;

order the defendant to pay the costs.

The Commission contends that the Court should:

dismiss the action as unfounded;

order the applicant to pay the costs.

III — Pleas in law and arguments of the parties

1. The French Government maintains, as its principal argument, that the contested decision that the guaranteed total quantity for milk deliveries to dairies was exceeeded is based on a misinterpretation of Article 6a of Regulation No 857/84, as amended. It claims, in the alternative, that the decision in question is unlawful in that the Commission, in its calculations to assess the incorrect understatement of the difference between the milk collected and France's guaranteed total quantity resulting from that country's misinterpretation of Article 6a of Regulation No 857/84, did not take into account all the possibilities afforded at the relevant time to dairies considered in excess for calculating the increase in the average fat content of their milk, in particular by Article 12 of Regulation No 1546/88. The French Government points out that, at the time when the quota system was set up, France was allocated a guaranteed total quantity for ‘direct sales’ of 1183000 tonnes. Since, however, producers' requests for registration during the first marketing years were insufficient to use the whole of that total quantity, France obtained three successive reductions in its guaranteed total quantity for ‘deliveries’: 169000 tonnes for the 1985/1986 marketing year 140000 tonnes for the 1986/1987 marketing year 100000 tonnes for the 1987/1988 marketing year. Those transfers, combined with the reductions in guaranteed total quantity granted on several occasions, reduced the guaranteed national quantity for direct sales to 747780 tonnes on 1 April 1988, compared with 24964980 tonnes for the quantity ‘delivered’. The reference quantities for ‘direct sales’ allocated to date amount to 726500 tonnes, which is very close to the guaranteed national reference quantity set at 747780 tonnes. On the question of individual transfers between the reference quantities for ‘direct sales’ and the reference quantities for ‘deliveries to dairies’ of producers who have two separate reference quantities, the French Government considers that the system for definitive transfers should be distinguished from that for provisional transfers, since the two systems lead to very different consequences. Provisional transfers are governed by Article 6a of Regulation No 857/84, which enables a producer who has reference quantities for both direct sales and deliveries to dairies to move, for a given marketing year, part of his reference quantity for one activity to that for the other; such authorization expires at the end of each marketing year. In total, the quantities transferred are then added to — or subtracted from, as appropriate — the total national quantities by reference to which excess deliveries to dairies are calculated nationally. Definitive transfers, on the other hand, are governed by Article 5(5) of Regulation No 1546/88, which provides that if a producer who sells direct requests a definitive transfer to delivering to dairies, his reference quantity for ‘direct sales’ reverts to the national reserve for ‘direct sales’ and he must obtain an appropriation, which is not automatic, from the national reserve for ‘deliveries’. The French Government states that the definitive transfer and provisional transfer systems, as well as being different in their effects, also apply to different situations. The former concerns producers who have definitively abandoned marketing their milk by direct sales or deliveries to dairies. The latter, on the other hand, concerns producers who, although affected by economic fluctuations which constrain them for a while to prefer one marketing method to the other, nonetheless wish to maintain an overall level of dairy production which corresponds to the total of their reference quantities for ‘direct sales’ and ‘deliveries’. As to the interpretation of Article 6a of Regulation No 857/84, the French Government disputes the Commission's approach, according to which that provision covers only provisional transfers in favour of producers who, during the marketing year in question, simultaneously carry out both direct sales and deliveries to dairies. Article 6a provides that a provisional increase of one of the two reference quantities is to be granted on request to producers who, first, have two reference quantities, one for deliveries and the other for direct sales, and, secondly, are having to adapt to changes in their marketing requirements. Those producers are automatically entitled to the transfer without the administration having any lawful means of opposing it. The French Government further observes that under Article 6a, the producers concerned are those who have two reference quantities, without its being specified that they must use them simultaneously for their production and without any reference being made to the minimum amount of each quantity which must be produced during the marketing year. Nor do the rules set any threshold below which production, in terms of the quantity for which the transfer is requested, must be maintained. The point is to prevent such part of the quantity for ‘direct sales’ as is being transferred from being used, and not to oblige the producer actually to produce the part not transferred. That interpretation is borne out, according to the French Government, by the general scheme of the legislation in question and by the fact that the machinery established reflects economic fluctuations. That machinery aims to take into account the uncertainties of the producers' business which - may result in their temporarily suspending direct sales or deliveries, but without being required definitively to abandon the possibility of using their reference quantity for the suspended activity. For example, a direct seller whose sole outlet is a supply contract for a public body may lose that contract for a time while retaining the very real hope of being able to tender again in a subsequent tendering procedure. In view of the foregoing, the French Government considers that the Commission is wrong to interpret Article 6a of Regulation No 857/84 as not covering requests for transfer from their reference quantity for ‘direct sales’ to their reference quantity for ‘deliveries’ in the case of producers who hold both reference quantities but who have not simultaneously carried out direct sales and deliveries to dairies for the marketing year in question. As to the interpretation of Article 12 of Regulation No 1546/88, the French Government considers that the refusal by the European Agricultural Guidance and Guarantee Fund (hereafter ‘EAGGF’) to allow all ‘direct sales’ transfers made in France indicates that a number of dairies have exceeded their reference quantities. Where such a reference quantity has been exceeded, Article 12 of Regulation No 1546/88 provides that the amount of the excess is to be multiplied by a coefficient taking into account the increases in the average fat content of the milk collected by each dairy. The French Government observes in that regard that, in calculating the increase in the fat content of the milk collected by each dairy, the EAGGF is applying only the rule concerning the division of the third period (1986/1987) into two six-month periods, and refusing to apply the exemption provided for in the last subparagraph of Article 12(3). The effect of that refusal, linked to the Commission's interpretation of Article 6a of Regulation No 857/84, is that France has exceeded its guaranteed total quantity for ‘deliveries’ by 5192 tonnes. In the view of the French Government, however, the Commission fails to point out that, if the French authorities did not rely on the exemption provided for by the last subparagraph of Article 12(3), that is because their interpretation in good faith of Article 6a of Regulation No 857/84 meant that they did not consider that the dairies had exceeded their reference quantities for the 1986/1987 marketing year. If the EAGGF's interpretation of Article 6a had been known to the French authorities before that marketing year, they would have used all the means afforded by Community legislation to enable the dairies to reduce the levy to which they were liable. Furthermore, according to the French Government, a dairy's request to use the exemption formula for calculating the increase in the fat content of its milk did not require any particular formal evidence to be produced. In those circumstances, if the Commission had taken into account the possibilities for calculating the fat content afforded by Article 12 of Regulation No 1546/88 to dairies considered to have exceeded their total, that would not have amounted to accepting the production of formal evidence after the event. Accordingly, the French Government considers that, if the Court confirms the Commission's interpretation of Article 6a, the Commission, in its calculations to assess the incorrect understatement of the difference between the milk collected and France's guaranteed total quantity resulting from that country's misinterpretation of Article 6a, was wrong to refuse to take into account the possibilities afforded by the last subparagraph of Article 12(3) for calculating the increase in the average fat content of the milk collected by dairies.

2. The Commission maintains, as to the interpretation of Article 6a of Regulation No 857/84, that the machinery for provisional transfers set up by that provision can be applied only if the request for transfer demonstrates the actual existence, with respect to a producer with two reference quantities, of direct sales or deliveries qualifying for such a transfer. Such a transfer assumes that the producer is obliged to undertake it in order to enable him to adapt to changes in his marketing requirements (first paragraph of Article 6a). For that purpose, the second paragraph of Article 6a specifies the information which must be included in the request for transfer in order for it to be admissible, and which is essential for it to be assessed. According to the Commission, those assessment criteria are all intended to enable the national authorities, responsible for managing the additional levy system, to ascertain the producer's actual circumstances, over and above his simply having two reference quantities. The need to assess the total volume both of the producer's overall production and of his deliveries and direct sales demonstrates in particular that the producer's two reference quantities must reflect a genuine possibility of dual production, for deliveries and direct sales, and not pave the way for transfers between reference quantities which no longer exist except in theory. Such verification is, according to the Commission, indispensable in order to ensure that the Article 6a machinery is not deflected from its purpose, which is to enable a producer marketing his milk production in part by deliveries and in part by direct sales to redirect the intended use of that production when his marketing requirements no longer correspond, over a given period of twelve months, to the usual distribution pattern. For that to happen, the producer must still have marketing requirements corresponding to the two ways in which he uses his production. Article 6a accordingly confers entitlement to a subsequent adjustment of the two reference quantities only on the basis of a change in existing marketing requirements for direct sales and deliveries. It follows, according to the Commission, that transfers presuppose that the producers are still in fact carrying on both direct sales and deliveries during the period of application of the levy in respect of which the request is made. The Commission adds that a transfer under Article 6a of Regulation No 857/84 is a contingent and provisional adjustment measure which lapses at the end of each twelvemonth period in which the additional levy is applicable. That provision accordingly enables a producer to suspend one of his two commercial activities without definitively abandoning the two corresponding reference quantities, since the commercial activity which is in fact carried on until suspended on account of short-term factors is intended to be taken up again during the following twelvemonth period. Accordingly, in authorizing transfers to deliveries under Article 6a when those making the requests have definitively ceased their direct sales, the French authorities are distorting the distinction laid down in the legislation between provisional and definitive transfers. That practice amounts to exempting from the additional levy quantities corresponding to an activity which will not be taken up again, and depriving other producers of the effect of redistributing those quantities. As to the interpretation of Article 12 of Regulation No 1546/88, the Commission disputes the French Government's argument that the EAGGF should for the purpose of its calculations have put the Member State in the situation in which it would have been had Article 6a of Regulation No 857/84 not been misinterpreted. That argument, according to the Commission, is unfounded on two counts: it concerns an irregularity on which the French authorities did not provide any additional information within the prescribed period during the procedure for clearing the accounts and, furthermore, it is based on a misinterpretation of the principles underlying the clearance of accounts. By its decision of 9 June 1989 fixing a deadline for the forwarding of additional information in connection with the clearance of EAGGF Guarantee Section accounts for 1987 (which is based on Article 1(3) of Commission Regulation (EEC) No 1723/72 of 26 July 1972 on making up accounts for the European Agricultural Guidance and Guarantee Fund, Guarantee Section (Official Journal, English Special Edition, Second Series III, p. 109], the Commission informed the Member States that ‘all additional information from the Member States required for the formulation of the decision on the clearance of accounts for 1987 must be received by the Commission on 15 June 1989 at the latest’. The French authorities submitted no observation on the point in issue within the prescribed period. It was not until their letter of 22 September 1989 that the French authorities disputed for the first time the adjustment to the total for deliveries made on the basis of the coefficients for ‘fat content’. In those circumstances, the Commission considers that it was entitled, in accordance with the third paragraph of Article 1 of Regulation No 1723/72, to adopt the disputed decision on the basis of the information in its possession by the prescribed deadline. The Commission disputes in that context the French Government's argument to the effect that, had it been aware of the EAGGF's interpretation of Article 6a of Regulation No 857/84, it would not have failed to use the abovementioned exemption in order to reduce the levy payable by the dairies. That argument is based, according to the Commission, on false premises: the scope of Article 6a derives not from the EAGGF's interpretation, but from the wording and the purpose of that provision itself. Furthermore, the provisions concerning the corrective factor for ‘fat content’ have no direct causal link with those of Article 6a; in particular, they are not intended to compensate for a specific application of Article 6a, but are based on their own objective criteria different from those of Article 6a. Generally, the Commission stresses that a Member State cannot escape the financial consequences of a breach of Community law by relying on the beneficial effects of the alleged irregularities. Still less can it escape those consequences on the ground that, had it correctly interpreted the Community rules, such consequences would not have ensued.

IV — Reply to a question from the Court

The Court requested the Commission to reply in writing to the following question:

‘It seems to follow from the Commission's pleadings that milk producers retain their reference quantities even if they are temporarily not marketing their production by a particular method. Accordingly those producers can again take up milk marketing by that method at any time, without being liable to the levy, within the limit of their respective reference quantities. On the other hand, the Commission considers that although they have two reference quantities, for direct sales and for deliveries to dairies, those producers cannot obtain an increase in one of those quantities and a corresponding reduction in the other (which would enable them to choose new marketing methods) unless they in fact carry on both direct sales and deliveries to dairies. The Commission is asked to indicate the factors arising from the requirements of the additional levy machinery which lead it to that conclusion, in the light in particular of the fact that such a transfer of reference quantities does not affect the total quantities available to the producer in question and accordingly does not result in additional quantities of milk being put on the market.’

The Commission replied to that question as follows :

The wording, scheme and purpose of Article 6a of Regulation No 857/84, read in the light of the preamble to Regulation No 590/85 which inserted that provision in Regulation No 857/84, led the Commission to conclude that the right conferred by Article 6a presupposed that two commercial activities would be carried out and led temporarily — within a given period covered by the milk quota system — to the redistribution of the two reference quantities of the producers concerned so as precisely to reflect the provisional readjustment as between their two activities.

It follows from that interpretation, in the view of the Commission, that transferring the reference quantities of the producers concerned is only permitted during the twelvemonth period in which that readjustment occurs, so that, during the following period, in order to benefit from the right conferred by Article 6a of Regulation No 857/84, those producers must in fact have taken up again and actually carried on both activities — direct sales and deliveries — in order to requalify for the provisional transfer system established by that provision.

For a structural change in the relationship between the commercial activities of direct sales and deliveries to be reflected in the redistribution of reference quantities, the Member State may, on the basis of objective and duly justified statistical data, obtain an adjustment of the guaranteed total quantities. However, in order for that machinery for structural transfers to be consistent with the system established by Article 6a of Regulation No 857/84, the former must still reflect a definitive change of commercial activity and the latter a provisional change.

The Commission points out that the need to distinguish between, on the one hand, provisional transfers within a single period of twelve months with both commercial activities being taken up again during the following period, and, on the other, structural transfers valid until the end of the dairy quota system with one of the two activities being definitively abandoned, is fully justified by the perverse consequences which would ensue if a Member State made transfers under Article 6a, decided during a given period on the basis of short-term factors, permanent by repeating them automatically from one period to the next.

Such a practice would mean that only those producers who had a dual reference quantity and who sought the benefit of Article 6a would definitively obtain an increase, by way of exemption from the additional levy, in the reference quantity in relation to which they redirected one of their activities. If the Member State had strictly applied the rules laid down by the Council by making a transfer between guaranteed total quantities for ‘deliveries’ and those for ‘direct sales’, all producers, whether or not they had a dual reference quantity, who had chosen to redirect their commercial activity once and for all would have been able to benefit from that adjustment.

The Commission adds that it is precisely in order to avoid structural transfers being used for purposes other than redistribution to all dairy producers who have redirected their activity from direct sales to deliveries that Article 6a, which was designed to deal with the short-term uncertainties of production, must be applied so as to exclude any producer who, at the time when he submits his request, is no longer in fact carrying on both activities. Any other solution would open the door to an increase in the quantities produced which are exempt from the levy, thereby distorting the requirements inherent in the machinery for the management of dairy production.

M. Zuleeg

Judge-Rapporteur

1 Language of the case: French.