C-327/85

Mr President, processed into compound feedingstuffs and Members of the Court, skimmed-milk powder intended as feed for calves. In order to ensure compliance with 1. Subject-matter of the applications those rules, that regulation established a system of physical inspections and scrutiny of the documents, involving inspections on 1. The applications which I am about to the premises of the conditions of manu­ consider have been lodged by the Kingdom facture in an undertaking, supplemented by of the Netherlands and seek the annulment scrutiny of its accounts and of the of three Commission decisions concerning commercial documents. Those inspections the clearance of the accounts of the must be unannounced and are to be carried European Agricultural Guidance and out periodically as required by the regu­ Guarantee Fund (EAGGF). Specificially, the lation. decisions in question are 85 / 463 / EEC and 85 / 464 / EEC both of 28 August 1985 relating to the 1980 and 1981 financial years 5. Article 10 (2) (c) provides that physical respectively 1 (Case 327/85) and Decision inspections must be carried out frequently, 86 / 443 / EEC of 1 July 1986 relating to the at least once in every 14 days of manu­ 2 1982 financial year (Case 238/86). facture. According to Article 10 (2) (d), thorough scrutiny of the accounts and of 2. The issue involved is the Commission's the commercial documents must be carried refusal to finance certain expenditure on aid out, in principle, at least once every 12 for skimmed milk processed into compound months, but if it is carried out at least once feed and skimmed-milk powder intended as every three months, the frequency of the feed for calves. inspections may be reduced from at least once in every 14 days to at least once in every 28 days of manufacture (Article 10 (2) 3. Since the contested decisions are similar, (e))- the applicant is the same in both cases and the submissions and arguments of the parties are identical, I propose to deal with the two applications together. 6. The Commission's departments estab­ lished that those time-limits had been exceeded in a number of cases. 2. Summary of the facts and of the applicable law 7. In the Summary Report of 22 October 4. Commission Regulation (EEC) No 1984 it was pointed out that an inspection which should have been carried out by 11 1725/79 of 26 July 1979 3 laid down the October 1981 at the latest did not take rules for granting aid for skimmed milk place until 3 November 1981. Accordingly, financing was disallowed for the corre­ * Translated from the Portuguese. 1 — Official Journal 1985, L 267, pp. 43 and 46. sponding period (12 October to 2 2 — Official Journal 1986, L 256, p. 29. November) and expenditure was adjusted by 3 — Official Journal 1979, L 199, p. 1. HFL 3 060 405.36.

8. In Addendum No 1 of 15 April 1985 to of HFL 27 214 850.08 to the EAGGF for the Summary Report, the Commission's 1982. departments further adjusted expenditure by 3. Consideration of the applicant's sub- HFL 66 167 616.62 for 1980 and by missions HFL 19 324 624.21 for 1981, after estab­ lishing that, as confirmed by the A — Infringement of essential procedural Netherlands authorities, the 14-day requirements inasmuch as the decisions contain time-limit had been exceeded on 45 an inadequate statement of the reasons on occasions in 1980, the 28-day time-limit had which they are based been exceeded on five occasions in 1980 and the 28-day time-limit had been 13. The Netherlands claims that the exceeded on eight occasions in 1981. decisions in question do not contain an adequate statement of the reasons on which 9. In Addendum No 3 of 24 May 1985 to they are based, contrary to Article 190 of the Summary Report, the Commission's the EEC Treaty. departments, having regard to the results of the quarterly inspections carried out ex post 14. The applicant acknowledges that it facto by the Netherlands in 1985 which did cooperated with the Commission's not reveal any serious anomalies, suggested departments with regard to the clearance of the possibility of assimilating the the accounts for the three years under Netherlands practice with the system estab­ consideration. lished by Article 10 (2) (e) of the regulation 15. However, the Netherlands considers (inspections to be carried out at least once that, in view of the existence of addenda in every 28 days). That possibility would postdating the Summary Report for have led to smaller adjustments: a reduction 1980 / 81 — and , in particular, of the of HFL 6 482 249.09 for 1980 and a proposal set out in Addendum No 3 — the reduction of HFL 19 324 624.21 for 1981. Commission should have explained why it opted for one of the alternatives set out 10. However, that suggestion was not therein, since there is no doubt that there adopted by the Commission and the final were significant differences between them. decisions, now contested by the applicant, Moreover, with regard to the 1982 financial were based on the amounts set out in year, the Netherlands criticizes the Addendum No 1 of 15 April 1985 to the reference made in the Summary Report for Summary Report. that year to the Summary Report for 1980/81. In connection with its criticism of 11. In the Summary Report of 15 January the latter report, it contends that the 1986 relating to the accounts for 1982, the decision does not contain a separate Commission pointed out that the statement of reasons. Netherlands system of supervision described in the Summary Report for 1980/81 16. With regard to that allegation, let me (28-day periods with quarterly scrutiny of begin by stating that, according to the the documents) had been applied to all consistent case-law of the Court, 'the extent undertakings in the Netherlands from of the duty to state reasons, laid down by February/March 1981 until 30 April 1984 Article 190 of the Treaty, depends on the and that, in relation to that system, it main­ nature of the act in question and on the tained the position it had already taken in context in which it is adopted'. 4

20. In particular, Addendum No 1 contains B — Infringement of Regulation No 729/70 a clear and detailed statement of the reasons in conjunction with Regulation No 1725/79 for the figures arrived at therein, and there is no doubt that it was on the basis of the data set out in that addendum that the decisions relating to the accounts for 1980 27. (a) The Kingdom of the Netherlands and 1981 were adopted. claims that the Commission's decisions are based on a misinterpretation of Article 10 (2) (c) of Regulation No 1725/79, and that financing of the aid in question should not 21. Similarly, the reference made in the therefore be refused on the basis of Article 3 Summary Report for 1982 to the Summary of Regulation (EEC) No 729/70 of the Report for 1980/81 was sufficient to enable Council of 21 April 1970 on the financing 5 the Netherlands to ascertain all the reasons of the common agricultural policy. for which the Commission considered that According to the Netherlands, the phrase the amount in question for that year should 'once in every 14 days of manufacture' does not be charged to the EAGGF. not mean, as the Commission maintains, that not more than 14 days may elapse between two inspections, but simply that an inspection must be carried out at least once 22. However, the Netherlands criticizes the in the course of each period of 14 days of Commission for not stating the reasons manufacture. Mutatis mutandis, that also which induced it to reject the suggestion holds true for the phrase 'at least once in made by its departments in Addendum No 3 every 28 days of manufacture' in Article 10 to the Summary Report for 1980/81 in (2) (c). favour of the solution set out in Addendum No 1. 5 — Official Journal, English Special Edition 1970 (I), p. 218.

28. According to the applicant's interpre­ the provision in question. The second tation, therefore, more than 14 days may subparagraph of Article 10 (2) (c) refers to elapse between two successive inspections. undertakings not permanently using That would be the case, for instance, skimmed milk. According to the first provided that, in a given undertaking, the subparagraph of that provision, therefore, first inspection was carried out at the the inspections are to be applied to under­ beginning of an initial 14-day period and takings using such milk continuously, the next inspection at the end of the new without any interruptions or intervals 14-day period. between production cycles; that would not appear to be compatible with the notion of separate 14-day periods and the mere 29. In support of its position, the requirement of one inspection for each Netherlands puts forward a number of period. arguments which are summarized in the Report for the Hearing. 34. Both the frequency of inspections advocated by the applicant and that 30. I do not believe that those arguments advocated by the Commission are indeed are well founded. compatible with the carrying out of inspections unannounced. However, even from the point of view of the deterrent 31. (b) In purely literal terms, the effect of the two methods of calculation Commission's interpretation strikes me as with regard to the prevention of fraud, the plausible when it states that the wording of second method is preferable to the first. Article 10 (2) (c) of Regulation No 1725/79 does not mean 'at least once in every period of 14 days of manufacture' but, as is quite 35. From the Netherlands' point of view, clearly stated in that provision, 'at least once the longer the period which elapses after an in every 14 days of manufacture'. There is inspection, the greater is not just the nothing in the wording of that regulation to likelihood of a fresh inspection but also the suggest that it intended to create separate risk, in the event of an irregularity, that an periods of 14 days and permit inspections to undertaking may forfeit the whole of the be carried out at any time during such a aid relating to the period up to the last period. Instead, it is clear from the wording positive inspection that was carried out. of that provision that it fixes the maximum period which may elapse between two inspections. 36. However, the Commission emphasizes that the risk that fraud may escape detection is also greater. In that case, the deterrent 32. Moreover, it was made clear at the effect varies in inverse proportion to the hearing that, during the manufacturing time which has elapsed since the last process in question, there are no technical inspection, and it is therefore preferable to production cycles capable of justifying a rely on the possibility of detecting fraud reference to a 14-day production period as than to foster the ill will or bad faith of if it were a separate temporal unit with its traders based on the anticipation of longer own rationale within the framework of intervals between inspections. production.

39. Similarly, the concern for supervision which pervades the regulation is expressed 43. The use of a term corresponding to in practically all the other recitals in the 'regular' does not mean that the notion of preamble. unforeseeability — which is a precondition for the effectiveness of thos inspections — cannot be inferred from the word that seems to be associated with it ('inspections 40. For all those reasons, I fail to see any shall be frequent and unannounced'). In need to ascribe a special significance to the those circumstances, the use of such wording used in the Dutch version of wording cannot mean anything other than the regulation. The expression 'fréquent' 'unannounced inspections carried out at inspections has been translated as least once every 14 days'. 'regelmatig', which the Commission itself acknowledges is not the most accurate rendering since it corresponds more closely to 'regular'. 44. Nor, therefore, can any weight be attached to the argument derived by the applicant (in Case 238/86) from the 41. It must be said, however, even at this wording used in Article 14 (2) of stage, that — as the Court has consistently Commission Regulation (EEC) No 2409/86 6 held — the different language versions of a of 30 July 1986 on the sale of intervention provision of Community law must be given butter intended for incorporation in a uniform interpretation based on the compound feedingstuffs. 7 objectives and the general scheme of the provision in question.

6 — Judgment of 27 October 1977 in Case 30/77 R. v 45. (c) The applicant's second observation Bouchereau [1977] ECR 1999, at p. 2010, paragraph 14 of the decision. See also the judgment of 3 March 1977 in concerning the infringement of Regulations Case 80/76 Kerry Milk [1977] ECR 425, at p. 435; the Nos 1725/79 and 729/70 relates to the judgments of 7 February 1979 in Case 11 / 76 Nelberlands v Commission [1979] ECR 245, at p. 278, and in Case 18/76 Commission's attitude during the procedure Federal Republic of Germany v Commission [1979] ECR 343, at p. 383, and the judgment of 12 July 1979 in for the clearance of the accounts. Case 9/79 Koschniske v Raad an Arbeid [1971] ECR2717 at p. 2724. 7 — Official Journal 1986, L 208, p. 29.

46. The Kingdom of the Netherlands in November 1982 was not communicated alleges that, as a result of the inspection to the applicant, the report states that at the carried out on 15 November 1982 and the time of the inspection EAGGF officials at reports drawn up by the Netherlands once challenged the interpretation of the general inspection agency, the Commission Netherlands authorities, and it is impossible was aware of the method of supervision to conclude from its response whether the applied in the Netherlands. However it Netherlands Government expressly denies remained silent and did not make its views that specific fact. On the other hand, it is known in due time. It did not express its clear that the references in points A 3 and views either in its letter of 4 July 1983 A 4 of the annex to the letter of 4 July 1983 (concerning the inspection carried out on 15 were likely to cast doubt on the compati November 1982) or in its letter of 2 April bility of the parties' interpretations, which 1985 (concerning the inspection carried out would have justified a request by the on 30 January 1984), but did so only in Netherlands for clarification. 1985 when Addendum No 1 was drawn up. That attitude ran counter to the proposals made by the Court of Auditors and the

That argument raises two problems: Commission's attitude in that regard. Even first, the question of proof, and secondly, if the Commission's inaction were estab the question whether it serves any purpose. lished, such conduct would not in principle be capable of expunging any irregularities previously committed by the applicant under 48. The Commission contends that there is Community law. no truth in the allegation that its departments failed to react to the Netherlands practice. In support of its 51. That conclusion follows from the contention, it relies on the oral statements case-law of the Court, which has held that made in the course of the inspection carried the Member States may not justify a failure out in November 1982, the official internal to fulfil their obligations by relying on a report relating to that inspection, the letter failure on the part of the Community of 4 July 1983 and a later telex message, in institutions to carry out their obligations. 8 which it never failed to call in question the number of days elapsing between inspections.

OPINION OF MR DA CRUZ VILAÇA — CASE 327/85

53. (d) Thirdly, the applicant maintains 57. In that regard, the applicant attempts to that the Commission was wrong in refusing dispel the notion that scrutiny of the admin­ to adopt the solution advocated in istrative documents is ineffective in the Addendum No 3 to the Summary Report absence of physical inspections. It relies in for 1980/81 inasmuch as scrutiny of the particular on a letter of 3 March 1981 from administrative documents carried out by the the Commission's Directorate-General for national authorities in 1985 — which the Agriculture in which the latter applicant claims is as effective as if it had acknowledged the decisive role played by been carried out at the time of the oper­ scrutiny of the administrative documents in ations in question — did not reveal the the event of any divergence from the results existence of any irregularities. Moreover, of the physical inspections. the applicant maintains, the Commission has acknowledged the effectiveness of a posteriori inspections in the case of Ireland. 58. I am not swayed by that argument either.

NETHERLANDS v COMMISSION

OPINION OF MR DA CRUZ VILAÇA — CASE 327/85

amongst a range of penalties, that which is most appropriate to the gravity of the infringement. 78. Equally eloquent in that regard is the judgment of 7 February 1979 in Joined 10 12 76. As the Court has already held, Cases 15 and 16/76 France v Commission Articles 2 and 3 of Regulation No 729/70 in which the Court stated that 'as 'permit the Commission to charge to the Community law now stands the procedure EAGGF only sums paid in accordance with for the discharge of the accounts .. . serves the rules laid down in the various sectors of to determine not only that the expenditure

10 — Judgments of 7 February 1979 in Case 11/76 Netherlands·! 11 — See also the judgment of 27 February 1985 in Case 55/83 Commission [1979] ECR 245, paragraph 8 of the decision, Italy v Commission, supra, paragraph 21 of the decision, and in Case 18/76 Germany v Commission [1979] and the judgment of 7 February 1979 in Joined Cases 15 ECR 343, paragraph 7 of the decision; judgment of 27 and 16/76 France v Commission, supra, paragraphs 9 and 10 February 1985 in Case 55/83 Italy v Commission [1985] of the decision. ECR 683, at p. 699, paragraph 31 of the decision. 12 — [1979] ECR 321, at p. 339, paragraph 28 of the decision.

NETHERLANDS v COMMISSION

was actually and properly incurred but also 81. It may indeed be possible to distinguish that the financial burden of the common between substantive irregularities and mere agricultural policy is correctly apportioned procedural defects, given that it may be between the Member States and the excessive to refuse financing as a result of a Community and in this respect the minor infringement of purely ancillary Commission has no discretionary power to secondary rules. derogate from the rules regulating the allo­ cation of expenses'.