C-77/81

J U D G M E N T OF T H E C O U R T ( T H I R D CHAMBER) 18 FEBRUARY 1982 1

Zuckerfabrik Franken G m b H v Federal Republic of Germany (reference for a preliminary ruling from the Verwaltungsgericht, Frankfurt am Main)

(Denaturing premium for sugar)

Case 77/81

Agriculture — Common organization of the markets — Sugar — Denaturing premium — Conditions for grant — Use of the denatured sugar for animal feed — Use otherwise than for that purpose by third parties — Liability of the recipient of the premium certi- ficate (Regulation (EEC) No 2049/69 of the Council; Regulation (EEC) No 100/72 of the Commission)

Recipients of denaturing premium certi- National rules which provide that such ficates under Regulation No 100/72 are persons are liable for any use otherwise required, in accordance with the than for the intended purpose by third provisions of that regulation and those of parties do not conflict with Community Regulation No 2049/69, to use the law. denatured sugar exclusively for animal feed.

Advocate G e n e r a l : G. Reischl Registrar: A. V a n H o u t t e

gives the following

JUDGMENT

Facts and Issues

I — Facts and written p r o c e d u r e denaturing premium amounting to D M 35 618.70.

The plaintiff in the main action, a German company, runs a sugar factory. The plaintiff sold the bee sugar to an In 1972 the Einfuhr- und Vorratsstelle agricultural dealer, pointing out that the für Zucker [Sugar Import and Storage sugar might only be used for feeding Authority], the predecessor in law of the bees. defendant in the main action, issued on the plaintiff's application denaturing premium certificates of 114 550 tonnes of sugar. Pursuant to Regulation (EEC) The dealer re-sold the denatured sugar No 100/72 of the Commission of 14 to Friedrich Wilhelm Dücker G m b H & January 1972 laying down detailed rules Co. Eisenwerk. A check carried out by on the denaturing of sugar for animal the Hauptzollamt [Principal Customs feed (Official Journal, English Special Office] Würzburg at the premises of Edition 1972 (I), p. 21) the plaintiff in Dücker in 1974 led to the discovery that the main action turned the sugar into the bee sugar had been used not for denatured sugar for the feeding of bees. feeding bees but as core-binder for The intervention agency then paid it the foundries.

At most, the provision entails a The national court states that under prohibition, not a positive duty. German law denaturing premiums which Moreover, in the view of the court of have been unduly paid must be returned reference the provision does not but it is in doubt whether the plaintiff constitute a "rule of conduct valid was wrongly in receipt of the premium. against all persons", but a "rule Although the Hessischer Verwaltungs- containing instructions addressed to the gerichtshof [Administrative Court, Commission, which is comprehensible Hesse] held on appeal on 18 February only in the context of both sentences of 1980 that the Federal Office was correct Article 1 (2)". However, "instead of in its view that one of the conditions for guaranteeing the intended use by means entitlement to the denaturing premium of penalites" the Commission "evidently was that the denatured sugar must be proceeded on the basis that the used for animal feed, the national court possibility of denatured sugar's being has "strong doubts as to whether that used for purposes other than for feeding view is correct". animals could be ruled out merely by the adoption of the proper denaturing It points out that that interpretation is methods . . . " . inconsistent first with the fact that Articles 14 and 21 of Regulation N o Legal methodology, moreover, does not 100/72 do not state that the product bear out the construction placed upon must be used for the purpose intended the provision by the Hessischer Verwal- and, secondly, with the fact that the tungsgerichtshof and the Federal Office: denaturing premium is paid after dena- it appears that in general "provisions on turing has been carried out, for if at that the use of goods subject to a common time all the conditions for entitlement to market organization are basically the premium were not fulfilled the regarded as fulfilled if the required payment would represent an advance, processing has been carried out" and whereas advances are not permissible that no provision has been made for a according to Article 24 (2) of Regulation further check on the use to which the N o 100/72. goods have been put. There is one exception to this, according to the national court: the disposal at reduced The court therefore takes the view that prices of butter for direct consumption in Article 1 (2) of Regulation (EEC) N o the form of concentrated butter. In that 2049/69 of the Council of 17 October case Commission Regulation (EEC) N o 1969 laying down general rules on the 649/78 of 31 March 1978 (Official denaturing of sugar for animal feed Journal L 86, p. 33) lays down penalties (Official Journal, English Special Edition for each subsequent purchaser who puts 1969 (II), p. 441), which provides that: the butter to other purposes; therefore if it had been the intention of the draftsmen of Regulation No 100/72 to "Sugar in respect of which a denaturing ensure that the denatured sugar was put premium has been granted shall be used to the use intended, they could have only for animal feed. The denaturing

On all the above grounds the national A — Observations of the plaintiff in the court decided to stay the proceedings main action and referred the following question to the Court of Justice : The plaintiff in the main action observes first that the question which has been "Is the recipient of a denaturing referred to the Court for a preliminary premium certificate under Regulation ruling "ought to be clearer and more (EEC) N o 100/72 of the Commission of specific". It appears from the grounds in 14 January 1972' laying down detailed the order making the reference that the rules on the denaturing of sugar for Verwaltungsgericht wishes to know animal feed (Official Journal, English whether, first, payment of a denaturing Special Edition 1972 (I), p. 21) obliged premium is subject to the substantive by the wording of Article 14 (1) (b) condition that once the sugar has been thereof to use the denatured sugar only properly denatured it must also be in fact for animal feed and is he liable for any used for animal feed, and secondly, use otherwise than for that purpose by should the Court reply to that question third parties?" in the affirmative, whether the recipient of a denaturing premium is also The order making the reference was responsible for the manner in which lodged at the Court Registry on 7 April denatured sugar is used, which may be 1981. for a purpose other than the intended one, by third parties with whom he has Pursuant to Article 20 of the Protocol on no commercial relationship. the Statute of the Court of Justice of the European Economic Community written 1. First question: Conditions for obtain- observations were submitted by Zucker- ing the denaturing premium for sugar fabrik Franken, the plaintiff in the main action, represented by Volker Schiller, The plaintiff shares the Verwaltungs¬ Rechtsanwalt, of Cologne; by the Bun- gericht's view on this question and desanstalt für landwirtschaftliche Markt- therefore submits that entitlement to the ordnung, the defendant in the main denaturing premium is subject only to action, represented by Dr Schultz; and the condition that the sugar must have by the Commission of the European been denatured in the proper way. Communities, represented by Hans Peter Hartvig and Meinhard Hilf, members of It is in fact apparent from the wording, the Legal Department, acting as Agents. meaning and scope of Article 21 (2),

In consequence it suggests that the reply The plaintiff then takes up the argument to the first question should be as follows : already pursued by the Verwaltungs- gericht, which is that a comparative " 1 . Article 14 (1) (b) and Article 21 (2) analysis of the regulations in question of Regulation (EEC) No 100/72 do with other Community regulations on not require denatured sugar to be, in similar rules reveals that "provisions on addition, used in fact for animal the use of goods subject to the common feed; on the contrary, the only organization of the market are generally requirement for entitlement to and regarded as fulfilled if the required payment of the denaturing premium processing has been carried out, and the under Community law is that the question whether or not the goods have 'sugar should have been denatured in also been put to their intended use is the correct manner for use as animal basically unimportant". There is only feed." one exception to that rule, namely the disposal at reduced prices of butter from intervention stocks which is provided for 2. Second question: Liability of the in Regulation N o 649/78. If, therefore, recipient of the denaturing premium the Commission and the Council had for use by third parties for a purpose intended to make payment of the de- other than that intended, to which naturing premium for sugar dependent attention has been drawn by the on the use to which it was actually put, recipient

JUDGMENT OF 18. 2. 1982 — CASE 77/81

If, finally, the provisions in question are Pursuant to those provisions the Council construed in the light of the principles of laid down general rules in Regulation legal clarity and certainty that, too, will No 2049/69. It is apparent from the show that the holder of a denaturing wording of that regulation, in particular premium certificate cannot be held liable Article 1 (1) thereof, and from the sense if the denatured sugar is used by third and purpose of the rules as a whole that parties for purposes other than that the denaturing premium "is paid subject intended. to the condition that the sugar is to be

ZUCKERFABRIK FRANKEN v GERMANY

The defendant in the main action Furthermore, the Federal Office is not therefore claims that this means that "use compelled to pay the premium on pre- for the purpose intended is an essential sentation of proof that denaturing has requirement for payment of a premium". been completed, for Aticle 24 of Regu- Pace the opinion of the Verwaltungs- lation N o 100/72 expressly provides for gerichtshof, the fact that the premium is the possibility of delaying payment of the paid as soon as denaturing has been premium until the end of the month carried out does not affect this, for such following that in which proof is premiums do not represent payment in submitted. Checks and penalties are consideration of the denaturing but are therefore allowed for if the premium is intended to enable denatured sugar to paid only when the denatured sugar has compete as animal feed with other been used for the purposes envisaged by feedingstuffs, for example, maize, which the regulation in question. are available on the market at prices considerably lower than the prices for sugar. Thus, as required by Regulation N o 1009/67, the Commission attempted If it is found that denatured sugar is to dispose of some of the excess sugar in being diverted from its proper use a mere a denatured form on the animal feed check with no consequences, that is to market. Since that aim could only be say, no penalty, would not be sufficient achieved if the denatured sugar was to ensure that the sugar is used as competitive its price had to be reduced intended; there is no use in having and that was accomplished by means of checks unless the negative result of an the premiums. investigation has consequences (see the judgment in De Beste Boter cited above).

The Federal Office points out that there Next, the Federal Office refers to the is another case outside the sugar sector ruling by the Hessischer Verwaltungs- where goods must be put to the intended gerichtshof sitting in Kassel that it is not use: that is the disposal at reduced prices possible to invoke, against the obligation of butter for direct consumption in the to repay the premium, the argument form of concentrated butter. The only "that the above-mentioned Community difference is that in the case of concen- provisions do not make provision for trated butter it was the Commission itself repayment of the premium if the which laid down in Regulation N o denatured sugar is not used for animal 649/78 the detailed rules for checking feed". It also follows from the findings whilst in the case of denatured sugar it of that court that the argument that it is left that task to the Member States. possible to carry out checks without any However, that difference in no way sequel is unrealistic for "there is no sense affects the intention expressly stated that in having checks unless they produce denatured sugar must be used for the consequences". purpose intended, for there is nothing to prevent "the Commission from relying on the Member States to adopt detailed rules for ensuring compliance with the The defendant in the main action relevant rules" as was held in the concludes from that that "an essential judgment of the Court of 14 March 1973 requirement for payment of a denaturing Case 57/72, (Westzucker [1973] E C R premium is that the denatured sugar be 321). used for animal feed", which is wholly in keeping with the objective pursued, namely to relieve congestion on the market in sugar destined for human It should also be observed that the regu- consumption by diverting some of it lation concerning concentrated butter towards animal feed. was made much later than the regulation on denatured sugar and that "the Commission may in the meantime have reached the conclusion that continuous The requirement concerning the use to checks on the goods are necessary in which such goods must be put is, more- order to avoid abuses". over, laid down in other Community provisions concerning sugar subsidies, in particular in Regulation (EEC) No The inference to be drawn from that 1574/72 of the Commission of 24 July comparison and from the explanations 1972 fixing the denaturing premium for given in the De Beste Boter judgment is sugar intended for animal feed (Official that the recipient of the premium is also Journal, English Special Edition 1972 liable for the conduct of a third party if (III), p. 739) and in Regulation (EEC) the latter does not use the denatured No 2351/72 of the Commission of 8 sugar for the purpose intended, even if November 1972 supplementing Regu- the recipient of the premium is in no way lations (EEC) No 100/72 and No at fault, as is shown likewise in the 1574/72 as regards the denaturing judgment in Milch-, Fett- und Eier- process for sugar (Official Journal, Kontor to which reference is made English Special Edition 1972 (November), above.

"Regulation (EEC) N o 100/72 of the On reasoning similar to that followed by Commission of 14 January 1972 laying the Federal Office, the Commission also down detailed rules on the denaturing of takes the view that the intention and sugar for animal feed is to be interpreted purpose of the relevant Community as meaning that the holder of a de- provisions, that is to say, to relieve naturing premium certificate is required congestion on the sugar market and to use denatured sugar for animal feed, to use the denatured sugar solely for makes it clear that "the grant of the animal feed and is responsible for any denaturing premium is closely linked to use thereof by third parties other than the ultimate use to which the denatured that intended". sugar is put" and that the recipient of the premium who is aware of that intended use must ensure that that aim is achieved. C — Observations of the Commission Next, the Commission considers the arguments raised by the national court The Commission commences its obser- and the plaintiff in the main action. vations with a preliminary review of the principal features of the sugar market, in As to the first objection which was particular the problem of surpluses which raised, namely the absence of the Council has decided must be reduced Community legal provisions on the by means of denaturing premiums. possibility of forfeiting the premium, the However, there has been a decline in Commission's reasoning, which is similar denaturing since 1971 and 1972 and only to that of the Federal Office, relies on small quantities are now involved. In the twofold purpose of the provisions in addition, the Council stopped the grant question to refute the arguments put of denaturing premiums when in 1981 it forward by the Verwaltungsgericht. set up direct subsidies for farmers (Council Regulation N o 1196/81 of 28 April 1981, Official Journal L 122, p. 1). As to the second objection which was It has always been difficult to supervise raised, that concerning breach of general the grant of these premiums and the principles of law, the Commission Community legislature decided to observes first that "a provision whereby provide a precise description of the if denatured sugar is put to unauthorized procedure for denaturing, leaving to the uses by third parties the undertaking

Decision

1 By an o r d e r d a t e d 26 February 1981 which w a s received at the C o u r t o n 7 April 1981 the V e r w a l t u n g s g e r i c h t [Administrative C o u r t ] F r a n k f u r t am M a i n referred t o the C o u r t for a preliminary ruling u n d e r Article 177 of the E E C T r e a t y a question c o n c e r n i n g the interpretation of R e g u l a t i o n ( E E C ) N o 1 0 0 / 7 2 of the C o m m i s s i o n of 14 J a n u a r y 1972 laying d o w n detailed rules o n the d e n a t u r i n g of sugar for animal feed (Official J o u r n a l , English Special E d i t i o n 1972 (I), p . 21), in particular Article 14 (1) (b) thereof.

ZUCKERFABRIK FRANKEN v GERMANY

2 The question arose in the course of a dispute between a German sugar manufacturer, which after obtaining denaturing premium certificates in respect of 114 550 tonnes of sugar in 1972 denatured that quantity and obtained the denaturing premium provided for by Regulation N o 2049/69 of the Council of 17 October 1969 laying down general rules on the denaturing of sugar for animal feed (Official Journal, English Special Edition 1969 (II), p. 441), and the Federal Republic of Germany, represented by the Bun- desanstalt für landwirtschaftliche Marktordnung [Federal Office for the Organization of Agricultural Markets], which claims the refund of the premiums as required by German law, principally on the ground that the denatured sugar was used not for feeding bees but as core-binder for foundries.

3 The plaintiff in the main action sold the denatured sugar to an agricultural dealer, stipulating that the sugar "must be used only for the feeding of bees" and that proof that it had been so used might be required. The dealer resold it to an undertaking which used it for a purpose other than that agreed. On discovering that fact the defendant demanded repayment of the premium from the plaintiff in the main action.

7 Articles 14, 21 and 24 of Regulation N o 100/72 lay down the conditions for payment of the denaturing premium. The premium may be paid only if the sugar has been denatured under supervision in an approved establishment and by one of the processes listed in the annex to the regulation. It is also provided that the premium may not be paid until proof is furnished that the sugar was denatured under the conditions laid down in the denaturing premium certificate.

8 Whilst those provisions do not state that payment of the premium depends on the denatured sugar's being used for animal feed, and although in addition the wording of Regulation N o 100/72 does not lay down any Community provisions concerning a possible refund of the denaturing premium, Article 19 (1) provides that:

"The Member States shall appoint competent agencies to supervise de- naturing and to ensure that the denatured sugar is only used for animal feed".

9 It follows from that provision that although the Community legislature does not refer expressly to an obligation to use the product for its intended purpose it has imposed on the Member States a duty to exercise the supervision necessary to ensure that that purpose is met since they are required to ensure that after the denaturing the sugar is put to that use.

10 The fact that there is an obligation to use the denatured sugar for animal feed is also indicated not only in the title of Regulation N o 100/72 of the Commission but also in the imperative and unambiguous terms of the sixth

ZUCKERFABRIK FRANKEN v GERMANY

1 4 It is therefore clear that traders to whom these Community rules applied — that is, according to Article 19 (2) of Regulation N o 100/72, traders operating "factories manufacturing sugar" or "factories making compound feedingstuffs" or "warehouses in which denaturing can be effectively supervised" — could not interpret the provisions of Community law otherwise than as meaning that issue of the certificate entailed an obligation to denature the sugar under the appropriate conditions, and that they also required that the denatured sugar be used exclusively for animal feed.

JUDGMENT OF 18. 2. 1982 — CASE 77/81

15 That is exactly how the plaintiff in the main action understood them, moreover, because it informed its purchaser that the denatured sugar "must be used only for the feeding of bees".

16 The reply to the first part of the question raised by the national court must therefore be that recipients of denaturing premium certificates under Regu- lation N o 100/72 are required, in accordance with the provisions of that regulation and those of Regulation N o 2049/69, to use the denatured sugar exclusively for animal feed.

T h e s e c o n d p a r t of t h e q u e s t i o n

17 The second part of the question asks in essence whether national provisions which require the recipient of a denaturing premium to refund it if the denatured sugar has not been used for animal feed even if it is a third party who is responsible for the misuse giving rise to refund, are applicable in the light of Community law.

22 It must now be considered whether such rules are compatible with superior rules of Community law, in particular with the principles of legal certainty and proportionality invoked by the plaintiff in the main action.

23 As regards the principle of legal certainty it is quite plain from all the considerations set out above that traders to whom the provisions in question apply were fully aware of the requirement that the denatured sugar must be used exclusively for animal feed. They ought therefore reasonably to have expected that penalties would be provided for failure to observe that requirement and that such penalties would be incurred by the only person who was in a legal relationship with the competent authorities of the Member States.

24 In those circumstances national rules providing for the refund of premiums unduly paid, even when third parties were responsible for the use contrary to the intended purpose do not amount to a breach of the principle of legal certainty.

25 As to the question of proportionality the test to be applied is whether such rules exceed the limits of what is necessary and appropriate to achieve the aim in view.

JUDGMENT OF 18. 2. 1982 — CASE 77/81

26 The characteristics of the premium granted for the denaturing of sugar must be considered in that context.

ZUCKERFABRIK FRANKEN v GERMANY

On those grounds,

T H E C O U R T (Third Chamber),

in answer to the question referred to it by the Verwaltungsgericht Frankfurt am Main by order dated 26 February 1981, hereby rules:

Recipients of denaturing premium certificates under Regulation N o 100/72 of the Commission (Official Journal, English Special Edition 1972 (I), p. 21) are required to use the denatured sugar exclusively for animal feed. They are liable for any use otherwise than for that purpose by third parties.

Touffait Mackenzie Stuart Everling