C-272/81

JUDGMENT OF 2. 12. 1982 — CASE 272/81

In Case 272/81

REFERENCE to the Court under Article 177 of the EEC Treaty by the Tribunal Administratif [Administrative Court], Paris, for a preliminary ruling in the action pending before that court between

SOCIÉTÉ RU-MI, Rungis,

and

FONDS D'ORIENTATION ET DE RÉGULARISATION DES MARCHÉS AGRICOLES [Agricultural Markets Guidance and Stabilization Fund] (FORMA), Paris,

Facts and Issues

The facts of the case, the course of I — Facts and written procedure the procedure and the observations submitted under Anicie 20 of the Protocol on the Statute of the Court of Article 1 of Commission Regulation No Justice of the EEC may be summarized 1844/77 of 10 August 1977 on the as follows: granting by tender of special aid for

RU-MI v FORMA

On 30 May, RU-MI referred to in Anide 9 (2) of the regu- applied to the Interlait company for lation, excluding skimmed-milk powder permission to process the skimmed-milk sold pursuant to Regulations (EEC) No into powder; Interlait was entrusted by 368/77 (Official Journal 1977, L 52, the Fonds d'Orientation et de Régulari- p. 19) and (EEC) No 443/77 (Official sation des Marchés Agricoles [Agri- Journal 1977, L 58, p. 16), in other cultural Markets Guidance and Stabil- words milk for use in feed for pigs and ization Fund hereinafter referred to as

The condition that the processing would take agency responsible for the supervision of place in the presence of an approved denaturing is required, after checking supervisor in the week from 11 to 16 that denaturing has been effected in June 1979 on premises belonging to the accordance with the regulation, to issue Biard company. to the person concerned a denaturing certificate specifying the quantities of skimmed-milk powder which have been The denaturing operations were carried denatured and the date of such de- out as planned and samples of the naturing (Article 13 (7)). Article 14 processed product were taken by the provides that payment of the special aid representatives of Interlait. is to be made on presentation of the By letter of 21 August 1979, Interlait certificate referred to in Article 13 (7) at informed RU-MI that in the light of most one month from the date of receipt checks carried out by the laboratories of of the certificate by the agency auth- the Bureau des Produits Laitiers [Dairy orized to grant aid. Products Board] (BPL) on representative RU-MI Sari [hereinafter referred to as samples taken during the operation "RU-MI"], which specializes in the involving the denaturing of skimmed- importation and exportation of dairy milk powder, it was unable to issue the products and products derived therefrom denaturing certificate in view of the size and in the ingredients of cattle feeds, of the copper sulphate granules which was declared successful tenderer on 14 resulted in the formation of a composite May 1979 for 250 tonnes of skimmed- mixture thus precluding a thorough test. milk powder (buttermilk) pursuant to By the same letter, Interlait informed Regulation No 1844/77. RU-MI that, unless the Fund expressed a The proposed aid amounted to FF different opinion, the security lodged for 507.40 per 100 kg whereas the tendering those quantities of skimmed-milk powder and denaturing security amounted to when the contract was awarded would FF 328 per tonne. not be refunded in respect of the quantity in question. By contraa dated 22 and 28 May 1979 RU-MI sold to the Biard company By letter of 17 September 1979, RU-MI 50 000 kg of buttermilk in its natural requested the Fund and Interlait to issue

the denaturing certificates, pay over the 2. Similary, the specifications relating to denaturing premium and release the the characteristics which the de- security. RU-MI reiterated its views in its naturing agents used must possess letter of 17 January 1980 addressed to have been complied with and, in the Fund. By telex message of 7 February particular, at least 30 % of the copper 1980, the Fund sought the Commission's sulphate granules are less than 200 opinion concerning the application of the microns in size. relèvent Regulations Nos 1844/77 and 368/77. In the course of discussions with the Fund, the Commission stated that it However our laboratories have observed was unable to express such an opinion during the first set of analyses an un- unless additional information was even distribution of copper sulphate provided. pentahydrae in the sample of the finished product particularly as a result of the presence of large crystals." In a letter of 19 May 1980; BPL's Director of Quality Control wrote: Subsequently, by telex message of 7 August 1980, the Commission replied to the Fund in the following terms: "However, a substantial variation was found in the size of copper sulphate "Further to your request sent by the granules with large uncrushed crystals of telex messages under reference, I wish to up to several millimetres in size. As a inform you that pursuant to the two result this component was not distributed regulations in question, Nos 1844/77 uniformly in the unpreserved sample of and 368/77, the special aid is paid and the finished product which was examined the tendering and denaturing security is and in consequence the results of the two released only on presentation of the test samples were considerably outside denaturing certificate provided for by the normally permitted limits (variation Article 13 (7) of Regulation No 1844/77. of 1 to 5). It is possible to conclude from this that the incorporation of the copper In your telex of 17 June 1980 you stated sulphate in the mixture was not properly that the agency responsible for carried out." supervision of denaturing had established that the minimum quantities of tracers required and the granular size of the denaturing agent were correct but that By telex of 17 June 1980, the Fund the agent had not been evenly distributed informed the Commission that: in the milk powder in accordance with the provisions of point 3 of the Annex to Regulation No 368/77. "Our laboratories have notified us of the results yielded by the two sets of analyses On the basis of that information alone carried out and can certify that: and the certificate validating it, the EAGGF [European Agricultural Guid- ance and Guarantee Fund] will not be 1. The minimum quantities of tracers able to finance the aid in question. incorporated in accordance with However, the Commission emphasizes Formula I B defined in the Annex to that no decision is given regarding the Regulation No 368/77 have been trader's entitlement to the aid, which complied with; may depend on factors other than those

By judgment of 16 June 1981, the On hearing the report of the Judge- Tribunal Administratif, Paris, decided: Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any To dismiss the action in so far as it was preparatory inquiry and, in accordance directed against the Interlait company; with Anicie 95 (1) and (2) of the Rules of Procedure, to assign the case to the First Chamber. As regards the argument based on a breach of the principle of proportion- ality, to seek a preliminary ruling from the Court of Justice on the following questions: II — Written observations sub- mitted to the Court "1. Is the fact that the denaturing of the product in question departs only very slightly from the generally RU-MI points out that the purpose of recognized standard sufficient to Regulation No 1844/77 is to ensure that operate as a toul bar against the skimmed-milk powder is denatured in trader's receiving the benefit of the return for payment of an aid to whoever special aid introduced by Regulation assumes responsibility for the denaturing. No 1844/77? The regulation makes no provision for any margin of error or modified sanction which takes account of the degree of the 2. If so, does not that regulation con- product's lack of conformity. travene the principle of proportion- ality and is it valid inasmuch as the wording of Articles 13 (7) and 14 In subsequent regulations concerning the enables the same sanction to be denaturing of skimmed-milk powder, the applied both where no denaturing at Commission complied with the principle all has taken place and where de- of proportionality. In Commission Regu- naturing has been carried out but lation No 1725/79 of 26 July. 1979 on not wholly in the prescribed the rules for granting aid to skimmed manner?" milk processed into compound feed- ingstuffs and skimmed-milk powder The judgment making the reference was intended for feed for calves (Official received at the Court Registry on 12 Journal 1979, L 199, p. 1), as last October 1981. amended by Commission Regulation N o

The principle of proportionality was Following supervision of the denaturing clearly defined by the Court in its (or direct incorporation) by the judgment in Case 122/78, Buitoni [1979] competent authority of the Member ECR 677. It was given general State concerned, the latter issues to the application by the Council as well as by person concerned a denaturing certificate the Commission. It was applied in "after checking that denaturing has been relation to directives determining mar- effected in accordance with this regu- gins within which material errors are lation" (Article 13 (7)); permitted and in relation to granu of aid for the denaturing of skimmed-milk powder. Payment of the special aid is made on presentation of the certificate referred to in Article 13 (7) . . . (Article 14). RU-MI therefore contends that Regu- lation No 1844/77: Article 9 of the same regulation defines denaturing by specifying that it is carried out either: Must be applied in a flexible manner in compliance with the principle of pro- portionality by taking into account the In accordance with one of the formulae fact that the denaturing of the product set out in Section 1 of the annex to concerned departs only very sligthly Regultion No 368/77, with the rules set from the generally recognized standard out in Section 3 thereof in an approved and must permit payment of the aid denaturing centre ..., or cases such as that outlined ;

By direct incorporation in a feedingstuff Must be declared void on the ground under the conditions laid down in Article that it infringes the principle of pro- 11 of this regulation and in accordance

with Section 2 of the annex to Regu- crystals are several millimetres in size lation No 369/77, with the rules set out instead of the required size, which in Section 3 thereof . . . (Anicie 9 (2)). should be less than-200 microns, that could lead to a situation where it might be possible to sift and thus Thus a failure to comply with the rules separate the crystals from the on the denaturing of skimmed-milk skimmed-milk powder. powder precludes the finding by the agency responsible for supervision that the denaturing is in conformity with the Similarly, the need to provide for rules and consequently precludes the a uniform distribution of the issue of the denaturing certificate. denaturing agent which should be Moreover, unless a denaturing certificate finely ground has as its purpose to is issued, no payment is made by the prevent the denaturing agents from intervention agency. being separated by any chemical or physical processes. With regard to the second question, the Fund leaves it to the Court to determine the validity of the regulation in the light (b) It should also be pointed out that the of the principle of proportionality. discrepancy established by the analysis carried out in this case is such that it cannot be explained by In its observations, the Commission reference to the margins of error makes two preliminary remarks on the allowed for by the method of facts: analysis used. According to the Commission, a distribution which is (a) There is a difference between the considerably outside the normally facts as described by the agency permitted limits may not be responsible for supervision and the described as a minimum margin of facts as outlined in the first question error allowed for by certain methods submitted for a preliminary ruling by of analysis. the national court. The agency responsible for supervision takes the In considering the legal aspects, the view that "a substantial variation was Commission points out that the found in the size of the . . . granules" principle of proportionality is one of . . . and . . . that "the results of the the general principles of law of two test samples were considerably which the Court ensures observ- outside the normally permitted limits ance. The Commission considers that . . . " whereas the national court an examination of any breach of the considers that the denaturing of the principle of proportionality should be product concerned departs only very extremely detailed. To begin with, slightly from the generally recog- the objective pursued in the public nized standard. interest as well as the actual method used to attain it must be correctly The Commission observes that determined. Next, it is necessary to variations which might ostensibly consider the lack of proportion seem slight sometimes have between the method used and the appreciable consequences as far as objective pursued and to establish the the supervision of the denaturing manifest nature or the seriousness, or operations is concerned. For both, of the imbalance which may example, if the copper sulphate adversely affect those concerned.

They are necessary since, in the absence 2. Determination of the actual methods of a denaturing process of that kind, the used use to which the processed product is put cannot be guaranteed. They are adequate since there is no reason to doubt that the The objective of the regulation may be product is certain to be used for its achieved in several ways. It is possible to intended purpose once the denaturing envisage a system whereby direct control operation has been correctly carried out. would be exercised over the use to which They are not excessive since it is the skimmed-milk powder is put by the impossible to envisage any other final consumer and which would provide measures enabling the same objectives to for payment of the aid after proof has be achieved more easily. To allow the been adduced that the skimmed-milk use of copper sulphate crystals of larger powder has been consumed by animals dimensions or crystals which have not other than young calves. Such a system been finely ground and uniformly would entail a very high degree of distributed would lead to a situation in supervision at all undertakings which use which it might subsequently be possible feedingstuffs containing skimmed-milk to separate the denaturing product from powder. the skimmed-milk powder either by sifting or by other chemical or physical processes. In view of the very large number of undertakings and breeders over which control would have to be exercised in In such circumstances, the denaturing those circumstances, the Commission operation's lack of conformity with the took the view that it would be difficult to rules is quite sufficient to justify a refusal

to issue the denaturing certificate portionate to the objectives pursued by provided for in Article 13 (7) of Regu- the Community rules. However, even if lation No 1844/77 which would result in there were considered to be a lack of the aid's not being allocated. proportion, it would still be necessary to establish that it was manifest or serious, or both. That requirement has already The Commission rejects RU-MI's been laid down in the case-law of the reasoning which seeks to establish that a Court. system involving payment of part of the aid on the basis of the degree of conformity of the denaturing operation with the rules is more appropriate for the Thus, for example, in Case 240/78 achievement of the objective pursued. Atalanta [1979] ECR 2137 the Court did Even in the case of payment of part of not hesitate to point to the manifest lack the aid where there has been a slight of proportion between the Council regu- departure from the general rules in the lation, which provided for the retention denaturing operation there is'a risk that of the security in whole or in pan, and the product might be used for a purpose the Commission regulation which other than that for which it is intended provided only for the retention of the and it is necessary to recall that the security in its entirety. objective is not to ensure any sort of denaturing at a uniform rate of aid but to ensure denaturing for a specific purpose excluding use as feed for young calves and a fortiori as food for human Similarly, in its judgment in the aforesaid consumption. Furthermore, the methods Buitoni case, the Court expressed the adopted by the Community rules are not following view in connection with the excessive, having regard to the fact that lack of proportion between the penalties it is very easy to remedy the denaturing concerned: operation's lack of conformity. If the copper sulphate crystals are too large or unevenly distributed, it is sufficient to crush them and produce a new mixture "That fixed penalty, which is applied to of the processed product. That remedy is an infringement which is considerably less excluded in the present case solely in serious than that of failure to fulfil the consequence of RU-MI's sale of the obligation which the security itself is goods to Biard and the latter's release of intended to guarantee, which is the goods for consumption without sanctioned by an essentially pro- awaiting the results of the analysis portionate penalty, must therefore be carried out by BPL, and as a result of its held to be excessively severe in relation own failure to carry out an analysis of to the objectives of administrative the product which would have enabled it efficiency in the context of the system of to detect the lack of conformity without import and export licences." delay.

Decision

1 By judgment of 16 June 1981, which was received at the Court on 12 October 1981, the Tribunal Administratif [Administrative Court], Paris, referred to the Court of Justice for a preliminary ruling under Article 177 of the EEC Treaty two questions on the interpretation and validity of Commission Regulation (EEC) N o 1844/77 of 10 August 1977 on the granting by tender of special aid for skimmed-milk powder intended as feed for animals other than young calves (Official Journal 1977, L 205, p. 11).

: The questions were raised in a dispute between RU-MI Sari, [hereinafter referred to as "RU-MI"], the plaintiff in the main proceedings, and the Fonds d'Orientation et de Régularisation des Marchés Agricoles [Agri- cultural Markets Guidance and Stabilization Fund, hereinafter referred to as "the Fund"] concerning the defendant's refusal to pay to the plaintiff the special aid provided for in Regulation N o 1844/77 on the ground that the denaturing which the goods in question had undergone had failed to satisfy the conditions laid down in that regulation.

RU-MI v FORMA

3 Anicie 1 of Regulation No 1844/77 provides for special aid for skimmed- milk powder if it is denatured in accordance with one of the formulae given in Section 1 of the Annex to Commission Regulation (EEC) No 368/77 of 23 February 1977 on the sale by tender of skimmed-milk powder for use in feed for pigs and poultry (Official Journal 1977, L 52, p. 19), including Formula I B, which was applied in the present case and according to which the denaturing is carried out by the addition to 100 kilograms of skimmed- milk powder of at least:

4 The file on the case shows that the analysis of the product in question by the competent national body yielded the following results: "The minimum quantities of tracers incorporated in accordance with Formula IB defined in the Annex to Regulation No 368/77 have been complied with; Similarly, the specifications relating to the characteristics which the de- naturing agents used must possess have been complied with and, in particular, at least 30% of the copper sulphate granules are less than 200 microns in size; However a substantial variation was found in the size of copper sulphate granules with large uncrushed crystals of up to several millimetres in size. As a result this component was not distributed uniformly in the unpreserved sample of the finished product which was examined and in consequence the results of the two test samples were considerably outside the normally permitted limits (variation of 1 to 5). It is possible to conclude from this that

JUDGMENT OF 2. 12. 1982 — CASE 272/81

the incorporation of the copper sulphate in the mixture was not properly carried out."

ä After those results and the finding that "the denaturing agent had not been evenly distributed in the milk powder" had been communicated to it by the Fund, the Commission stated that, in the circumstances, the EAGGF [European Agricultural Guidance and Guarantee Fund] was unable to finance the aid in question.

s In the meantime, RU-MI had brought an action before the Tribunal Administratif, Paris, for the annulment of the Fund's implied decision rejecting its application for the issue of a denaturing certificate qualifying it to receive payment of the special aid provided for, amounting to FF 270 100, on the ground that that decision was ultra vires. In support of its claims, RU-MI maintained in particular that the application by the Fund of Regu- lation N o 1844/77 in the present case, in spite of the fact that the product's lack of conformity was only very slight, was contrary to the objective of the regulation and contravened the principle of proportionality.

"Where it is found that the product as manufactured does not contain the minimum quantity of 60 kilograms of skimmed-milk powder referred to in the first subparagraph at (a), the Member States shall be authorized to grant the aid reduced by 10% for the skimmed-milk powder actually incorporated, subject to the following conditions:

The applicant for aid must have supplied proof that failure to comply with the minimum level of 60 kilograms is the result neither of deliberate breach of the rules nor of serious negligence."

9 The Commission observes that the aid granted for the denaturing of skimmed-milk powder intended for feed for animals other than young calves is considerably higher than the amount granted in the case of feed for calves. It infers that the purpose of the legislation complained of is not merely to ensure that denaturing takes place but that it prevents any deviation from the intended use of the product.

io In order to achieve that objective, various systems of supervision are possible, in particular a system involving the exercise of control over the final user and providing for payment of the aid upon proof being given that the skimmed- milk powder has been consumed by animals other than young calves. However, such a system would entail a very high degree of supervision at the premises of all undertakings which use feedingstuffs containing skimmed- milk powder and, in view of the very large number of traders and breeders who would have to be supervised, the Commission takes the view that it would be difficult to operate such a system in practice.

is The answer to the questions raised must therefore be that the fact that the denaturing departs even to a slight extent from the method referred to in Regulation No 1844/77 is capable of depriving the trader of the entire benefit of the special aid provided for in that regulation. Consideration of the provisions of the regulation has disclosed no factor of such a nature as to affect its validity.

RU-MI v FORMA

Costs

io The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court.

On those grounds,

T H E C O U R T (First Chamber)

H. A. Rühi A. O'Keeffe Principal Administrator President of the First Chamber