C-187/83

J U D G M E N T O F T H E C O U R T (THIRD CHAMBER) 28 J U N E 1984 l

Nordbutter GmbH & Co. KG and Bayerische Milchversorgimgs GmbH ν Federal Republic of Germany (references for a preliminary ruling from the Verwaltungsgericht Frankfurt-am-Main)

(Recovery of aids u n d u l y paid — S k i m m e d milk intended for use as animal-feed — Superior rules of law)

Joined Cases 187 and 190/83

Agriculture — Common organization of the market — Milk and milk products — Special aid for skimmed milk for use as feed for animals other than calves — Detailed rules — Responsibility of the dairy for actions of the farmer (Commission Regulation (EEC) No 2793/77, Art. 5 (3) (b))

In requiring any dairy applying for the the farmer has not abided by an under­ special aid in respect of skimmed milk to taking given by him, Article 5 (3) (b) of be used as feed for animals other than Regulation N o 2793/77 is not contrary calves to accompany its application with to the general principles of the law of a declaration that the dairy will repay or liability recognized by Community law. forgo the special aid if it is found that

and

FEDERAL REPUBLIC OF GERMANY, represented by the Bundesamt für Ernährung und Forstwirtschaft [Federal Office for Food and Forestry], Frankfurt-am- Main,

on the validity of Article 5 (3) (b) of Commission Regulation (EEC) N o 2793/77 of 15 December 1977 on detailed rules of application for granting special aid for skimmed milk for use as feed for animals other than young calves,

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

composed of: Y. Galmot, President of Chamber, U. Everling and C. Kakouris, Judges,

Advocate General : P. VerLoren van Themaat Registrar: P. Heim

Council Regulation (EEC) No 876/77 feed on his farm; to take delivery of (Official Journal 1977, L 106, p. 24). a minimum quantity of skimmed Skimmed milk used for feeding calves milk not qualifying for special aid, continued to qualify for the aid available in the case of mixed farms; in since 1968, whilst a higher aid, known as principle not to keep young calves, "special aid", was established for in the case of specialized farms; and skimmed milk used for feeding animals to declare before the beginning of other than calves and, in particular, pigs. each quarter the size of his herd. The granting of that additional benefit was justified by the fact that fresh (ii) The skimmed milk concerned must skimmed milk is, in any event, be denatured in accordance with traditionally used for feeding calves, certain specified processes or sub- whereas it was necessary to provide a jected to an administrative control special incentive to ensure that skimmed providing equivalent guarantees. milk was also used in larger quantities for feeding pigs. (iii) The dairies must observe, in respect of that skimmed milk a maximum 3. The existence, since 1977, of two selling price which is extremely levels of aid inevitably laid the system favourable for the farmer. open to the risk of abuse. In particular, on farms known as mixed farms, that is to say those in which calves as well as 5. In accordance with Articles 3 (1) and pigs or other animals for slaughter are 5 (3) of the regulation, the application bred, there was a tendency to obtain for payment of the special aid must be skimmed milk under the particularly submitted by the dairy and the special favourable conditions governing the aid is granted to the dairy. special aid and to use that milk for rearing calves. Furthermore, Article 5 (3) (b) requires any dairy applying for special aid to It therefore became necessary to counter submit together with its application a that risk by means of a series of declaration that the dairy will forego or provisions which are set out in Com- repay the special aid wholly or in part to mission Regulation (EEC) No 2793/77 the competent authority if it is found of 15 December 1977 (Official Journal that the farmer has not abided by one of 1977, L 321, p. 30). the undertakings referred to in Article 4.

In the light of inspections carried out in C — The references for a preliminary January 1980 at those farms, it became ruling and the accompanying obser- apparent that none of the farmers in vations question had honoured his undertaking. 1. The references for a preliminary Subsequently, the Bundesamt für Er- ruling nährung und Forstwirtschaft [Federal Office for Food and Forestry, hereinafter In both cases the Verwaltungsgericht referred to as "the Federal Office"], Frankfurt-am-Main expressed reser- Frankfurt-am-Main, claimed from the vations as to the validity of the rules on Nordbutter dairy, by a decision dated liability contained in Regulation N o 1 October 1980, repayment of the aids, 2793/77. totalling D M 1 704.54, which had been granted in respect of the supply of Consequently, by two orders dated 11 skimmed milk to the three farmers. August 1983', the Verwaltungsgericht requested the Court of Justice under The Nordbutter dairy brought an action Article 177 of the EEC Treaty to give a against that decision before the Verwal- preliminary ruling on the following tungsgericht Frankfurt-am-Main. question :

the recipient of a subsidy for the conduct gives the undertaking set out in Article 4 of a third party (judgment of 11 May of Regulation No 2793/77 and it would 1977 in Joined Cases 99 and 100/76, be contrary to that principle if the Beste Boter and Hoche ν Bundesanstalt für granting of the aid were at the discretion landwirtschaftliche Marktordnung, [1977] of the dairy. ECR 861; judgment of 18 February 1982 in Case 77/81, Zuckerfabrik Franken GmbH, [1982] ECR 681), those cases (iii) The dairy may not impose on the can readily be distinguished from the farmer special terms which are not present cases since they were both con- provided for in the regulation as a cerned with subsidies which were condition for submitting the application payable to an undertaking in return for or passing on the special aid. Thus it the specified processing or use of pro- may not arrogate inspection rights to ducts covered by the common organ- itself or insist that securities be lodged. ization of the market, such processing or use being principally the responsibility of It follows that the dairy is in no way able the recipient. to protect itself against the farmer's breach of duty or against the financial It was therefore for the recipient to consequences of that breach. decide whether or not to introduce a third party and to select the contractual In any event, that is the case for those of partner of his choice, and to ensure by the farmer's duties set out in Article 4 of making the appropriate stipulations that Regulation No 2793/77 which cannot be the third party fulfilled the delegated performed under the direct supervision duties or laid himself open to legal of the dairy. action.

for risks which he has not himself of the Commission's Legal Department, created. The general principles of the law Jean Monnet Building, Kirchberg. of liability must, like the principle of proportionality, belong to the general principles of law which are in force in all By order of 14 March 1984 the Court, the Member States of the Community on hearing the report of the Judge- and which are therefore to be regarded Rapporteur and the views of the as an integral part of Community law. In Advocate General, decided to assign the the Court's opinion, the fact that Article cases to the Third Chamber in ac- 5 (3) (b) of Regulation N o 2793/77 is cordance with Article 95 of the Rules of contrary to that superior rules of law Procedure and to open the oral pro- must lead to its invalidity." cedure without any preparatory inquiry.

D — The procedure before the Court of II — W r i t t e n o b s e r v a t i o n s sub- Justice m i t t e d to t h e C o u r t

The orders for reference were lodged at A — Observations of Bayerische Milch-. the Court Registry on 7 September 1983 versorgungs GmbH (in Case 187/83) and on 9 September 1983 (in Case 190/83). The gist of these observations is that the Court should declare void the contested By order of 19 October 1983 the Court provision of Regulation No 2793/77 on decided to join the two cases for the the grounds set out in the order of the purposes of the procedure and the Verwaltungsgericht Frankfurt-am-Main, judgment. to which reference is made.

from an economic point of view, the (b) Determination for economic pur- special aid is beneficial mainly to the poses of the recipient of the special farmers, none the less, from a legal point aid of view, only the dairies are entitled to it. As far as this point in concerned, the Thus the observation contained in the Federal Office and the Commission order for reference to the effect that the consider that, in contrast to the view dairies submit applications for special aid expressed by the Verwaltungsgcricht, on behalf of the farmers is incorrect. dairies can derive, for their own benefit, a considerable profit from the system established by Regulations No 986/68 The Federal Office lays emphasis on the and No 2793/77. fact that only the dairy applies for the aid and not the farmer. On the basis of statistical evidence the Commission concludes that, in the fou rth quarter of 1979, which constitutes the Nor is the aid transmitted to the farmer reference period in the cases at issue, the by the dairy; rather the granting of aid dairies made a profit of 6.05 ECU per to the dairy depends on the latter's 1 100 kg on sales of skimmed milk to adherence to maximum prices. farmers.

It is precisely that difference in the net The Federal Office also submits that the income which dairies can earn, de- argument set out in the order for pending on their decision as to how the reference to the effect that there is a "triangular legal relationship" between milk is to be used, which constitutes the the competent authority, the dairy and incentive for using in preference liquid the farmer is incorrect. skimmed milk as animal feed.

(ii) The special aid granted in accord- for by those regulations to be enjoyed by ance with Regulation N o 2793/77 as many persons as possible, it does not cannot be regarded as constituting a follow that the dairies are subject to a measure intended to benefit milk general duty to apply for those benefits suppliers alone. On the contrary, the either in their own interests or in the grant of the special aid enables interests of the farmers associated with dairies to sell at a loss skimmed milk them. which whould otherwise be most unlikely to be sold and it encourages the sale óf skimmed milk to a new In the absence of an express rule to that group of purchasers, namely effect, each dairy must therefore be free specialized animal-rearing farms. to decide, in the light of its commercial policy, whether or not to market the milk purchased by it and whether it is in its interests to denature skimmed milk (c) The theory that the dairies are under and sell it back to the farmers. an obligation to contract with farmers In view of the risks involved in recourse to the special aid, it is for the dairy alone to decide whether or not to apply for it. As far as this point is concerned, the In those circumstances, its freedom of Federal Office, the United Kingdom and decision is not restricted to the ac- the Commission all challenge the view ceptance or rejection of the aid system as expressed by the national court in its s u ch but also extends, to the selection of order for the reference. farmers.

Thus the possibility of purchasing skim- As regards this point, the Federal Office, med milk at a reduced price is merely the the United Kingdom and the Com- means used by the Community legis- mission challenge the reasoning of the lature to achieve the real objective, national court. which is to prevent the production of surpluses of skimmed milk. According to their observations, the legal relationship between the dairy and the Even if farmers exert psychological or farmers supplied by it is of a contractual economic pressure on a dairy, an indirect nature and is governed by private law. constraint of that kind cannot impose any legal obligation on the dairy to apply systematically for special aid. According to the Federal Office, it follows that a dairy is free to take precautions against the risk of the misuse The Federal Office and the United of skimmed milk qualifying for special Kingdom lay emphasis on the further aid and by amending the supply contract argument that the existence of such an accordingly. obligation to contract with farmers would place a dairy in an impossible position if it were called upon by an indeterminate number of farmers to Since the relationship between the dairy provide more skimmed milk than it could and the farmer is not one of subsidy- supply. payer and subsidy-recipient, such con- tractual protection could not constitute an unlawful extension of the conditions In that regard, it is pointed out that laid down by Regulation No 2793/77. practice has shown that livestock farms wishing to purchase skimmed milk on the conditions laid down by Regulation Furthermore, the undertakings which N o 2793/77 cannot purchase it in un- were customary at the material time limited quantities since the capacity of contained, in addition to the information dairies situated within a reasonable specified by Article 4 of Regulation No radius cannot satisfy that kind of 2793/77, stipulations whereby the farmer demand. undertook to allow a representative of the dairy to enter the farm premises, to submit for inspection the documents The inability of dairies to satisfy demand needed as evidence that the milk had is partly due to the fact that it is been properly used, to supply any sometimes more profitable for them to necessaiy information and to provide dry the skimmed milk and to offer it to compensation equal to the amount of the the intervention agencies. repayment claimed, should a claim for

Most of the observations on this point In the Commission's view, the dairy's were submitted by the Commission, possibilities of ensuring compliance with which contends that the view expressed the conditions in force are not restricted by the national court is legally and to the inspection of herds on the farm factually incorrect. but may also take different forms, such as the provision of a guarantee, the insertion in the contract of appropriate clauses against the risks involved in the (a) Legally incorrect application of Article 5 (3) (b) and, where the farmers are also the dairy's suppliers, deductions from the monthly Whereas the national court seems to payments for milk supplies. imply that the Community legislature is obliged to choose systematically the rule which is least onerous on the parties In the Commission's opinion, therefore, concerned, it is clear, in the Com- the dairy's liability is only provisional mission's view, from previous judgments since it can always protect itself, on a that the Court in fact focuses exclusively contractual basis, against any loss on the question whether the means occasioned by the conduct of the farmer, selected by the Community legislature who is ultimately liable. are necessary and appropriate, regard

NORDBUTTER / GERMANY

being had to the objectives pursued in a the question submitted for a pre- particular set of circumstances. liminary ruling as follows:

(b) Factually incorrect "Article 5 (3) (b) of Commission The Commission maintains that reliance Regulation No 2793/77 is valid even on the dairies was inevitable since they in circumstances where the dairy is are one of the cornerstones of the responsible for undertakings given by organization of the market in milk, are a farmer when it is unable to supervise in constant contact with the farmers and the farmer's compliance therewith." are therefore better placed than govern- ment officials to form an impression of the specific situation of each of their customers, particularly as regards the The Federal Office and the Com- nature and the size of their herds, the mission suggest that the Court should use to which the skimmed milk is put answer the question as follows: and the reliability of each farmer.

Finally, the Commission observes that, in view of the general benefits derived by dairies from the unrestricted obligation of the competent authorities to intervene III — Oral p r o c e d u r e on the market for butter and skim- med-milk powder and from the At the sitting on 5 April 1984 oral guarantee of sale which that provides, argument was presented for the Federal the transfer to that category of under- Republic of Germany, by Rainer Wilker, takings, on the ground that they are acting as Agent, and for the Commission closer to the potential perpetrator of the of the European Communities, by Peter damage, of a risk which is limited and Karpenstein, acting as Agent. which they can further reduce does not constitute an unacceptable and dispro- portionate burden, since they accept it voluntarily, themselves derive con- On that occasion the representative of siderable benefit from the system and the Government of the Federal Republic can take precautions against the con- of Germany submitted a copy of a sequences resulting from the conduct of contract between Bayerische Milchver- farmers by means of appropriate contr- sorgungs GmbH and a farmer. actual stipulations.

3. In conclusion, the United Kingdom The Advocate General delivered his suggests that the Court should answer opinion at the sitting on 30 May 1984.

JUDGMENT OF 28, 6, 1984 — JOINED CASES 187 AND 190/83

Decision

1 By two orders of 11 August 1983, which were received at the Court on 7 and 9 September 1983 respectively, the Verwaltungsgericht (Administrative Court] Frankfurt-am-Main referred to the Court for ą preliminary ruling under Article 177 of the EEC Treaty a question on the validity of Article 5 (3) (b) of Commission Regulation N o 2793/77 of 15 December 1977 on detailed rules of application for granting special aid for skimmed milk for use as feed for animals other than young calves (Official Journal 1977, L 321, p. 30),

6 The existence since 1977 of two levels of aid laid the system open to the risk of abuse. In particular, on farms known as mixed farms, that is to say those on which calves as well as pigs or other animals for slaughter are reared, there might be a tendency to obtain skimmed milk under the particularly favourable conditions governing the special aid and to use that milk for rearing calves. Commission Regulation No 2793/77 of 15 December 1977 on detailed rules of application for granting special aid for skimmed milk for use as feed for animals other than young calves (Official Journal 1977, L 321, p. 30) was intended in particular to counter that risk.

7 Article 3 of that regulation provides that the special aid is to be granted to a dairy only if the following conditions are satisfied :

(i) The skimmed milk must be covered by an undertaking on the part of the farmer. In that regard, the dairy concerned must produce a document in which the farmer undertakes to comply with the conditions laid down in Article 4 of the regulation, namely: to use the skimmed milk exclusively as animal feed and only on the farm in question; to take delivery of a minimum quantity of skimmed milk not qualifying for special aid, in the case of mixed farms; in principle not to keep young calves, in the case of specialized farms; and to declare before the beginning of each quarter the size of his herd.

(ii) The skimmed milk concerned must be denatured in accordance with certain specified processes or subjected to an administrative control providing equivalent guarantees.

Is Article 5 (3) (b) of Commission Regulation (EEC) N o 2793/77 of 15 December 1977 on detailed rules of application for granting special aid for skimmed milk for use as feed for animals other than young calves (Official Journal 1977, L 321, p. 30) valid in so far as it provides that a dairy is responsible for undertakings given by a farmer when it is unable to supervise the farmer's compliance therewith?"

NORDBUTTER / GERMANY

12 The orders requesting a preliminary ruling were accompanied by obser- vations from which it appears that the national court considers that the relevant provision of Regulation No 2793/77 is contrary to the general principles of the law of liability recognized by Community law, in so far as it may be construed as holding dairies liable for the actions of third parties which they cannot supervise and against the consequences of which they cannot protect themselves.

13 It must be pointed out, first, that according to Article 3 of Regulation No 2793/77 it is the dairies who are the sole recipients of the special aid established by the Community regulations, even if from the economic point of view farmers derive considerable advantage from that aid in the form of particularly advantageous prices for the skimmed milk which they buy.

1 4 It should be noted, secondly, that the relevant provision of Regulation No 2793/77 neither imposes, nor seeks to impose, a unilateral obligation on dairies to apply for the special aid which it establishes.

15 In fact, the dairies take part in the Community scheme for special aid on the basis of a commitment freely entered into and for the sake of the advantage which they can derive from it. Once a dairy has decided to participate in the scheme established by the aforesaid regulation no provision or general principle of Community law obliges it to enter into contracts with all farmers who request supplies of skimmed milk benefiting from the special aid, or prevents it from choosing, according to objective and non-discriminatory criteria, the farmers with whom it wishes to do business.

19 It must therefore be concluded that none of the arguments raised by the national court is of such a nature as to entail the invalidity of that provision of Regulation N o 2793/77.

Costs

20 The costs, incurred by the Government of the United Kingdom and the Commission of the European Communities, which have submitted obser- vations to the Court, are not recoverable. Since these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the actions pending before the national court, the decision on costs is a matter for that court.

NORDBUTTER / GERMANY

On those grounds,

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

Mr President, Regulation No 804/68 of the Council Members of the Court, (Official Journal, English Special Edition 1968 (I), p. 176), provides for the 1. The applicable Community granting of aid for skimmed milk legislation produced in the Community and used as animal feed. The general rules governing that aid were laid down in Regulation The common organization of the market No 986/68 of the Council (Official in milk and milk products, established by- Journal, English Special Edition 1968 (I), 1 — Translated from the Dutch.