C-819/79

JUDGMENT OF 14. 1. 1981 — CASE 819/79

denaturing operations and to prevent down specific measures of supervision the same product from benefiting but leaves to Member States the task more than once from the aid, Regu- of ensuring their observance by lation No 990/72 on detailed rules appropriate administrative measures. for granting aid for skimmed-milk 4. The extent of the duty to state powder for use as feed provides for reasons, laid down by Article 190 of on-the-spot checks on denaturing the Treaty, depends on the nature of undertakings. Article 3 (2) of the the act in question and on the context regulation requires undertakings in which it is adopted. carrying out denaturing to give certain information to the competent A decision relating to the clearance of national agency before proceeding accounts in respect of expenditure financed by the EAGGF and refusing with the denaturing. Member States to charge to it a proportion of the must comply with the system of expenditure declared does not require supervision thus laid down. a detailed statement of reasons where 3. The provisions of Community regu- the Government concerned was lations must be uniformly applied in closely involved in the process by all the Member States and have, so which the contested decision was far as possible, the same effect made and was therefore aware of the throughout the territory of the reason for which the Commission Community. The position is no considered that the disputed amount different where a regulation lays might not be charged to the EAGGF.

Federal Republic of Germany in respect of the European Agricultural Guidance and Guarantee Fund, Guarantee Section, Expenditure for 1973, (Official Journal 1979, L 278, p. 13) is void in so far as the Commission did not recognize as chargeable to the Fund the sum of D M 8 335 232.61 relating to the payment of aid for the denaturing of skimmed-milk powder,

THE COURT

composed of: J. Mertens de Wilmars, President, P. Pescatore and T. Koopmans (Presidents of Chambers), Lord Mackenzie Stuart, A. O'Keeffe, G. Bosco and A. Touffait, Judges,

Advocate General: F. Capotorti Registrar: A. Van Houtte

gives the following

JUDGMENT

processed into compound feedingstuffs the European Agricultural Guidance and and for skimmed-milk powder for use as Guarantee Fund (Official Journal 1977 feed (Official Journal, English Special L 172, p. 17) provides, as from 1 July Edition 1972 (II), p. 428). Article 1 of 1979, for a system of scrutiny of the that regulation provides that skimmed- commercial documents of undertakings milk powder may only benefit from aid receiving or making payments which is after having been denatured or used conceived in a general manner for the in the manufacture of compound entire Community. According to the feedingstuffs. The supervision of de- second recital in the preamble to that naturing which must be carried out is the directive, "this scrutiny supplements subject of Articles 3 and 10, which are other inspections already carried out by worded as follows: the Member States, particularly the direct inspection of transactions while Article 3 they are being carried out and the scrutiny of book records of stock "(1) Denaturing shall be supervised on provided for in certain cases"; furth- the premises. Each Member State ermore, "national provisions relating to shall appoint an agency to carry out scrutiny which are more extensive than this supervision. those provided for in this directive are not affected by this directive". (2) The concern undertaking de- naturing shall, in good time With effect from 1 March 1980, Regu- beforehand, communicate in lation No 990/72 was replaced by writing to the agency referred to in Commission Regulation No 1725/79 of paragraph (1): 26 July 1979 on the rules for granting aid to skimmed milk processed into (a) its business name and address; compound feedingstuffs and skimmed- milk powder intended for feed for calves (b) the quantity of skimmed-milk (Official Journal L 199, p. 1), as powder to be denatured; amended by Commission Regulation No 3015/79 of 21 December 1979 (c) the place where denaturing will (Official Journal 1979 L 33, p. 74). take place; According to Article 3 (2) of Regulation No 1725/79, "denaturing shall be (d) the expected duration of the supervised on the premises". In regard to denaturing process. the use of skimmed milk and skimmed- milk powder in the manufacture of The agency concerned may request compound feedingstuffs, that regulation additional information." provides for a "thorough and un- announced scrutiny of commercial Article 10 documents and of the accounts relating to the records of the basic products", "Member States shall take all measures which supplements physical supervision necessary to ensure that the provisions on the premises (Article 10 (2)). laid down in this regulation are complied with." 2. Regulation No 729/70 of the It should be observed that Council Council of 21 April 1970 on the Directive 77/435 of 27 June 1977 financing of the common agricultural on scrutiny by Member States of policy (Official Journal, English Special transactions forming part of the system Edition 1970 (I), p. 218) provides for a of financing by the Guarantee Section of system of direct Community financing,

by the Guarantee Section of the stabilize agricultural markets European Agricultural Guidance and undertaken according to Community Guarantee Fund (EAGGF), of refunds rules within the framework of the on exports to non-member countries and common organization of agricultural intervention intended to stabilize the markets may be financed" and that "the agricultural markets. inspections carried out show that a part of the expenditure declared amounting Article 4 of that regulation requires the to DM 9 192 762.41 does not satisfy the Commission to make the necessary requirements of these provisions and credits available to the competent therefore cannot be financed". national authorities and bodies. The disputed part of this amount, Article 5 (2) (b) of that regulation namely DM 8 335 232.61, concerns the requires the Commision to clear the payment of aid for the denaturing of accounts relating to the expenditure skimmed-milk powder in respect of incurred by the national authorities and which the Government of the Federal bodies, on the basis of the annual Republic of Germany claims clearance of accounts presented by the Member the accounts relating to 1973. States. 2. At the source of the dispute lies a Article 8 of Regulation No 1723/72 of difference of opinion on the supervision the Commission of 26 July 1972 on of denaturing to be carried out by the making up accounts for the European competent national authorities and, in Agricultural Guidance and Guarantee particular, on the interpretation of Fund, Guarantee Section, provides that Article 3 of Regulation No 990/72. That the decision to clear the accounts shall provision requires that certain infor- cover inter alia "the determination of the mation be communicated in writing by amount of expenditure incurred in each the undertaking concerned to the Member State during the year in competent national authority in good question, recognized as chargeable to the time before the denaturing process. EAGGF, Guarantee Section". In the Federal Republic of Germany supervision of denaturing of skimmed- B — Facts milk powder is the responsibility of the Bundesamt für Ernährung und Forst- 1. By the decision under challenge, wirtschaft [Federal Bureau for Food and which is dated 12 October 1979 and was Forestry]. Detailed rules governing the notified to the Federal Republic of supervision procedure were laid down in Germany's Permanent Representation to directives issued by the Bundesamt on the European Communities on 22 24 September 1968 and brought up to October 1979, the Commission date on 17 July 1972. determined, as regards the Federal Republic, the amount of expenditure It appears from those directives that the recognized as chargeable to the supervision procedure applied in the Guarantee Section of the EAGGF. Federal Republic consists of a system of verification at several stages. Before As appears from the fourth recital of lodging its first application for aid the the preamble to the decision, the undertaking concerned must register Commission considered that "under with the Bundesamt as a denaturing Articles 2 and 3 of Regulation (EEC) No undertaking, as defined in the directives, 729/70, only . . . intervention intended to entitled to benefit from the aids. The

— To store in an orderly fashion the 3. The application was lodged at the products eligible for aid and the Court Registry on 19 December 1979. means of denaturing; On hearing the report of the Judge- — To allow authorized inspectors access Rapporteur and the views of the to their premises in order to check, Advocate General, the Court decided to on the one hand, the books and open the oral procedure without any commercial documents and, on the preparatory inquiry. However, it invited other hand, the stocks and de- the Commission to submit before naturing processes; and, 15 August 1980 the pre-litigation correspondence and the minutes of the meeting of experts on supervision pro- — To allow the taking of samples. cedures in relation to aid for milk »reduction on 14 and 15 May 1974 and, The practical aspects of the German ailing such a document, a transcript of system of supervision were dealt with in the tape recording of that meeting. reports by German experts at a meeting which was held in Brussels at the invitation of the Commission on 14 and 15 May 1974 and which had as its object 11 — Conclusions of the parties the "exchange of information on experience acquired regarding super- The applicant claims that the Court vision procedures in relation to aid for should: milk production and milk products". "Declare the Commission's Decision of In its report on the accounts for the 12 October 1979 concerning the financial year 1975 the Audit Board of clearance of the accounts presented by the European Communities states that: the Federal Republic of Germany in respect of the European Agricultural "In Germany there is no systematic on- Guidance and Guarantee Fund, the-spot supervision of the actual Guarantee Section, Expenditure for operation and more attention is paid to 1973, to be void in so far as the

Order the applicant to pay the costs." The applicant stresses the effectiveness of the scrutiny of the accounts and the administration of denaturing under- III — Submissions and argu- takings. It is possible on the basis of ments of the parties vouchers relating to the quantities of raw materials and production and marketing reports, supplemented where appropriate The applicant first disputes the by checking with the purchasers, and assumptions of fact made by the with the assistance given by accounting defendant regarding the system of records, to retrace the whole processing supervising denaturing operated by the cycle from receipt of the raw materials to relevant German authorities. Thereafter, the departure of the finished products the applicant's arguments are concerned and objectively to check on the true state with the interpretation of Article 3 (2) of affairs. of Regulation No 990/72 of the Commission and the alleged breach of the principle of the protection of legitimate expectation and of Article 190 The applicant considers that the of the Treaty. Commission proceeded on an incorrect assumption in its observations on the supervision which it formulated in the context of the clearance of EAGGF Facts accounts for 1973 and which were summarized in the letter of 29 September 1977 to the Federal Republic of The applicant refers to a letter from the Germany. The Commission erroneously Commission dated 29 September 1977 stated that supervision was never carried and related documents in which it was out on the premises in the course of the stated that the Federal Republic of denaturing process but only took place Germany had not duly performed its — ex post facto — through scrutiny of obligations under Regulation No 990/72 accounting records. In Addendum No 2 in relation to the supervision of de- to Working Document VI/369/79 naturing and, in particular, that Article 3 ("Draft summary report on the results of (2) thereof, dealing with the advance preliminary studies for the clearance of written communication of certain infor- EAGGF, Guarantee Section, accounts mation by denaturing undertakings, had for 1973"), which was submitted to the not been observed. Fund Committee in June 1979, the

As for the factual information given by The applicant considers that the refusal the applicant, the defendant points out in to charge the disputed aid to the EAGGF particular that the reports of the German is unlawful since the Commission bases experts at the meeting on 14 and 15 May its objection exclusively on the absence 1974 mentioned considerably less of information resulting from the fact favourable figures respecting the number that the German supervising authorities of undertakings to be supervised by each refrained from requesting information inspector. Moreover, the inspectors have from denaturing undertakings and from other duties to perform, particularly in carrying out spot checks on the de- the field of the dehydration of milk. naturing process. That objection lacks any foundation. The defendant does not dispute that on one or another occasion officials of the Commission noted with praise certain Finally, the applicant observes that at the aspects of the German system of meeting on 14 and 15 May 1974 the supervision; nor does it doubt that that Commission's officials expressed no system deserves approval on certain reservations with regard to the German points. However, the defendant formally system but, on the contrary, declared denies having approved of the fact that themselves to be particularly satisfied ther German authorities dispensed with with the intensive nature of the being given information by the under- supervision performed in the Federal takings in the manner required by Article Republic. Further, the applicant refers to 3 (2) of Regulation N o 990/72.

In its reply, the applicant maintains In that context, the duty to communicate its objections to the Commission's certain information which stems from assumptions of fact. It refers in particular Article 3 (2) has only an auxiliary to a report of 20 December 1979 by one function, the importance of which of the German inspectors in order to depends on the peculiarities of the show that the informal notification system of supervision set up by the system operated in Germany was wholly Member State in question.

In lation No 990/72 short, it is the equivalence in the results which counts. In these circumstances a In the alternative, the applicant formality imposed without distinction on challenges the strict construction given the undertakings of all the Member by the Commission to Article 3 (2) of States would necessarily have a discrimi- Regulation No 990/72. natory effect, given that certain Member States, according to the national system of supervision, submit undertakings to The applicant points out firstly the checks which are very much more ambiguity of this provision as regards the intensive. duration of the denaturing which must be indicated. If the German system of supervision is examined in the light of such an in- Where the text of a Community terpretation, it is clear that its centre of provision is ambiguous it is necessary, gravity lies at the stage of ex post facto for the purposes of its interpretation, to scrutiny of the books and administration consider the context in which the of the undertaking. provision occurs and the objective which it pursues. Essentially, the duty to provide information under Article 3 (2) In this regard, the applicant observes that has the function of preparing for and only an ex post facto check on the stocks simplifying supervision measures prop- of raw materials and finished products erly so called.

JUDGMENT OF 14. 1. 1981 — CASE 819/79

The applicant adds, further, that the 3 (2) is a little vague, it is the duty of the Commission has not established any national authorities to ensure that that material irregularities which led to provision is applied as fully as possible unjustified payments. within the meaning of Regulation No 990/72 as a whole.

GERMANY v COMMISSION

JUDGMENT OF 14. 1. 1981 — CASE 819/79

must disclose the reasoning by virtue of some cases would require several pages which the alleged infringement is capable (Case 13/72 Netherlands v Comission of entailing the legal consequences which [1973] ECR 27). the decision attributes to it (Case 73/74 Papier Peints v Commission [1975] ECR 1491, at p. 1514). IV — Oral procedure The defendant refers to the decisions of the Court whence it appears that the The parties submitted oral argument at duty to state the reasons upon which an the sitting on 9 October 1980. On that instrument is based may not be too occasion the Agent for the defendant extensive. Where a Member State has was assisted by an expert, Wolfgang been informed of the Commission's Kummer, an administrator in the Direc- objections in the course of long and torate-General for Agriculture. thorough discussion, it is no longer The Advocate General delivered his necessary to set forth in the final opinion at the sitting on 25 November decision very detailed reasons, which in 1980.

Decision

1 By application lodged at the Court Registry on 19 December 1979 the Federal Republic of Germany sought a declaration, pursuant to Article 173 of the EEC Treaty, that Commission Decision 79/895 of 12 October 1979 concerning the clearance of the accounts presented by the Federal Republic of Germany in respect of the European Agricultural Guidance and Guarantee Fund, Guarantee Section, Expenditure for 1973 (Official Journal 1979 L 278, p. 13) is void in so far as the Commission did not recognize as chargeable to the EAGGF the sum of D M 8 335 232.61 relating to the payment of aid for the denaturing of skimmed-milk powder.

4 It appears from the papers in the case that, during the period under consideration, the system of supervision of denaturing set up by the German authorities was not based principally on physical, on-the-spot checks but, rather, on scrutiny of the business records of the undertakings carrying out denaturing. Those undertakings, which were registered with the competent German agency as denaturing undertakings, were bound to maintain accounting records in accordance with criteria laid down by the competent agency, to store in an orderly fashion the products capable of benefiting from the aid and the agents used in the denaturing and to allow the competent inspectors access to their premises in order to check the accounting records, the stocks and the denaturing operations. The under- takings were also bound to allow the taking of samples.

5 According to the Commission, whatever may be the merits of such a system of supervision, it does not oblige the undertakings concerned to provide the information required by Article 3 (2) of Regulation No 990/72 relating to the duration and place of denaturing and the quantities of skimmed-milk powder subjected to the denaturing process. According to the Commission, that information is necessary in order to facilitate the on-the-spot supervision of that process which is provided for by Article 3 (1) of the regulation.

6 The German Government argues that the combination of scrutiny of the accounting records and of the administration of the undertakings in

JUDGMENT OF 14. 1. 1981 — CASE 819/79

question, on-the-spot checks of raw materials and the taking of samples constitutes a particularly effective system of supervision. That is especially so where, as in the present instance, each inspector supervises a limited number of undertakings, is in permanent contact with them and is familiar with their practices. Since the inspector has available, on the basis of vouchers, all necessary information relating to the quantities and nature of the available raw materials and the quantities and the nature of the products leaving the premises, it is maintained that he has every opportunity to retrace the entire processing cycle from the arrival of the raw materials to the departure of the finished products.

GERMANY v COMMISSION

provides that Member States shall take all measures "necessary to ensure that the provisions laid down in this regulation are complied with", it refers to compliance with all the provisions of the regulation, including Article 3.

10 In these circumstances it is not necessary to consider the soundness of the German Government's argument that the supervision system set up in the Federal Republic is more effective than that provided for in Article 3 of Regulation No 990/72. In fact, the provisions of Community regulations must be uniformly applied in all the Member States and have, so far as possible, the same effect throughout the territory of the Community. The position is no different where a regulation lays down specific measures of supervision but leaves to Member States the task of ensuring their observance by appropriate administrative measures.

11 It follows from the foregoing that the first submission must be rejected.

12 According to the second submission, the Commission approved the system of supervision practised in the Federal Republic of Germany and the Commission is accordingly bound to recognize the aid paid by the German Government as chargeable to the EAGGF.

1 3 In support of this submission the German Government refers to a meeting to exchange information held in May 1974 in the course of which the Commission's representatives are said to have acknowledged that the German system of supervision offered great advantages and was compatible with Community law. The applicant also refers to the Commission's reply to the report of the Audit Board relating to the accounts for the 1975 financial year, in which reply the Commission, it is maintained, indicated that in its opinion the applicable provisions of the regulations had been observed by the German authorities.

19 As the Court has already recognized in its judgment of 11 January 1973 in Case 13/72 Netherlands v Commission [1973] ECR 27, the extent of the duty to state reasons, laid down by Article 190 of the Treaty, depends on the nature of the act in question and on the context in which it is adopted.

20 In the present case, it is not disputed that the German Government was closely involved in the process by which the contested decision was made and was therefore aware of the reason for which the Commission considered that the disputed amount might not be charged to the EAGGF.

21 In these circumstances, and in the particular context of the making of decisions relating to the clearance of accounts, the contested decision must be held to contain a sufficient statement of the reasons upon which it was based.

GERMANY v COMMISSION

22 It follows that the application must be dismissed.

Costs

Mertens de "Wilmars Pescatore Koopmans

Mackenzie Stuart O'Keeffe Bosco Touffait

Delivered in open court in Luxembourg on 14 January 1981.

A. Van Houtte J. Mertens de Wilmars Registrar President