C-347/85

OPINION OF MR MISCHO —CASE 347/85

OPINION OF MR ADVOCATE GENERAL MISCHO delivered on 1 October 1987 *

claims that the sums in question correspond to increases in costs to the EAGGF which were strictly due to the unlawful practices Mr President, of the British Milk Marketing Boards Members of the Court, consisting in:

(a) the fixing of different prices for whole 1. This action is for the annulment in part milk depending on the manner of of Commission Decisions Nos 85/465/EEC marketing of the butter obtained from and 85/466/EEC of 28 August 1985 on the that milk and on the use of the skimmed clearance of accounts presented by the milk remaining after the butter or cream United Kingdom in respect of the European had been made; and Agricultural Guidance and Guarantee Fund, Guarantee Section, for 1980 and 1981 (Official Journal L 267 of 9 October 1985, (b) the fixing of different prices for whole p. 49). milk depending on whether certain finished products obtained from that milk are sold within or outside the 2. The United Kingdom asks the Court t o Community. declare those two decisions void insofar as they do not charge to the EAGGF sums totalling UKL 2 859 606.92 and 4. The United Kingdom advances a number UKL 2 276 421.59 respectively, relating to of submissions and arguments which, expenditure on consumer butter subsidy, the according to the order in which they are set public storage of skimmed-milk powder, aid out in the application (see the clear for skimmed-milk powder to be used for summary on page 23), may be grouped into animal feed and to export refunds. four points each of which constitutes an alternative to the previous point.

5. Finally, the United Kingdom makes two further submissions based on the breach of the principles of legitimate expectation and 8. In my Opinion of 15 April 1986 in that legal certainty (5) and on insufficient case I expressed the view that the United reasoning of the contested decisions (6). Kingdom had also committed an infringement by applying different prices for whole milk used for the manufacture of 1. The incompatibility of the Milk butter and cream depending on whether the Marketing Boards' pricing practices with skimmed milk obtained in such manufacture Community law was to be used to manufacture milk powder or caseins and caseinates. The Court considered that head of claim inadmissible 6. The Milk Marketing Boards' practices and did not rule on the merits. mentioned above in point (a) of paragraph 3 were the subject of the judgment of the Court of 2 December 1986 in Case 23/84 (Commission v United Kingdom [1986] ECR 9. I maintain that submission for the 3581), whilst those mentioned in point 3 (b) purposes of the present case, especially since are the subject of Case 428/85 (judgment of the Court's reasoning as regards the 27 April 1988, not published), pending different price applied for whole milk where between the same parties. the skimmed milk is used as animal feed is wholly transposable to the case of caseins and caseinates (paragraph 57 of the 7. In its judgment of 2 December 1986 the judgment of 2 December 1986 in Case Court declared that: 23/84, cited above).

11. The aforegoing observations also apply 16. In my view, the answer to that question to the fixing of different prices for whole may be found in the actual system of milk depending on the geographical desti- financing the common agricultural policy as nation of certain products obtained from established by Regulation No 729/70 of the that milk. Council, in particular as regards expenditure covered by the Guarantee Section of the EAGGF. 12. The differentiation of the price of whole milk depending on whether the butter or another product made from that milk is 17. According to Article 4 (2) of that regu- sold on the Community or world market no lation, the Commission must make available longer depends exclusively on the use made to Member States the necessary credits for of the milk by the buyer but on the use financing expenditure qualifying for finance which traders or exporters make of products under Articles 2 and 3 mentioned above. In obtained from the whole milk. accordance with Article 5 (2) (a) it does so by means of advances the details of which are regulated by Commission Regulation 13. At the hearing on 9 July 1987 the Court N o 3184/83 of 31 October 1983 on the was in fact told that the United Kingdom operation of the system of advances in had finally come round to the view held by respect of expenditure financed by the the Commission in Case 428/85 and that in EAGGF Guarantee Section (Official Journal future it would accept that such a milk price L 320 of 17 November 1983, p. 1). differentiation was contrary to Community law. 18. It is therefore for the authorities and agencies designated by the Member States 14. We may therefore consider it estab- to pay that expenditure. lished that the practices on account of which the Commission refused to clear some of the accounts submitted by the 19. Pursuant to Article 5 (1) (b) of Regu- United Kingdom for 1980 and 1981 did in lation No 729/70 the Member States fact constitute infringements of the Treaty. transmit at regular intervals to the Commission annual accounts and other reports and accounts relating to the 2. The existence of a causal link between payments thus made. Detailed rules on the those infringements and the disallowed presentation and submission of those expenditure documents are laid down in Regulation No 1723/72 of the Commission of 26 July 1972 on making up accounts for the European 15. The United Kingdom submits that it is Agricultural Guidance and Guarantee Fund, for the Commission to prove that the Guarantee Section (Official Journal, English contested practices had the direct and Special Edition, Second Series, Part III, p. inevitable consequence of increasing 109). It is on the basis of that information Community expenditure and to justify the that the Commission takes the decisions to amounts disallowed. The applicant therefore clear accounts provided for in Article 5 (2) considers that the burden of proof rests (b) of Regulation No 729/70.

21. Article 8 (1) of Regulation No 729/70 'the function of a Commission decision requires the Member States to satisfy them- relating to the clearance of accounts in selves that transactions to be financed by the respect of expenditure financed by the EAGGF are actually carried out and EAGGF is to establish whether the expen- executed correctly. As the Court has diture was incurred by the national auth- pointed out, in particular in its judgment of orities in accordance with Community 21 September 1983 in Joined Cases 205 to provisions'. 215/82 (Deutsche Milchkontor GmbH and Others v Germany [1983] ECR 2633), that article merely expressly confirms a duty 24. It is therefore for the Member States, already incumbent on Member States by which alone have all the information virtue of the principle of cooperation laid relating to the transactions carried out and down in Article 5 of the Treaty (paragraph the relevant payments, to show that expen- 42) and which is to ensure that Community diture has been duly and properly incurred. regulations, particularly those concerning They are also obliged to keep the the common agricultural policy, are supporting documents relating to expen- implemented within their territory diture financed by the EAGGF at least until (paragraph 17). the Community authorities have finished their investigations (see the third recital of the preamble to and Article 4 (2) of Regu- lation N o 1723/72). 22. Next, it is clear from Articles 2 and 3 of Regulation No 729/70 that only export 25. This is what the Court clearly meant in refunds granted and intervention its judgment of 12 July 1984 in Case 49/83 undertaken 'in accordance with the (Luxembourg v Commission [1984] ECR Community rules within the framework of 2931) when it stated that, in order to obtain the common organization of the agricultural financing by the EAGGF for certain expen- markets' qualify for finance by the EAGGF. diture relating to private storage aid for From this the Court has deduced, in table wine, the Member State in question particular in its judgment of 7 February had to demonstrate that the conditions for 1979 in Case 11/76 (Netherlands v the granting of that aid had actually been Commission [1979] ECR 245) that those fulfilled (see paragraphs 28, 29 and 30). provisions Similarly, in its judgments of 27 February 1985 in Cases 55/83 and 56/83 (Italy v Commission [1985] ECR 683 and 703), it 'permit the Commission to charge to the stated that only the expenditure which the EAGGF only sums paid in accordance with national intervention agency could prove the rules laid down in the various sectors of was properly incurred under the relevant agricultural production, while leaving the provisions of Community law should be Member States to bear the burden of any other sum paid, and in particular any 2 — Sec for example its judgment of 7 Februaiy 1979 in Joined Cases 15 and 16/76 France·) Commission [1979] ECR 321, amounts which the national authorities paragraph 9 at p. 337, and its judgment of 14 January 1981 in Case 819/79 Germany v Commission [1981] ECR 21, wrongly believed themselves authorized to pay paragraph 8 at p. 34.

'As Community law now stands, the procedure for the discharge of the 30. The Commission, on the other hand, by accounts . . . serves to determine not initiating two proceedings for breach of only . . . but also that the financial burden of Community law and applying to the Court, the common agricultural policy is correctly took the initiative to obtain a declaration apportioned between the Member States that the regulations on the Milk Marketing and the Community and in this respect the Boards had not in fact been complied with. Commission has no discretionary power to The correctness of the Commission's view derogate from the rules regulating the allo- was confirmed by the Court as regards the cation of expenses' (paragraph 28). fixing of different prices on the internal market and accepted by the United Kingdom as regards the fixing of different prices for exports to non-member countries. 27. The United Kingdom argues, however, that the problem is different in cases in which, as in this case, the Commission's disallowance of expenditure is not based on the breach of the regulations directly governing the expenditure in question but 31. The Commission has, moreover, tried on a failure to comply with more funda- to show with the help of statistics that the mental provisions of Community law. In infringements in question caused distortions such cases, which the United Kingdom of competition and gave rise to economic describes as 'secondary' cases since the consequences different from those which 'primary' conditions for financing by the would have occurred if the infringements EAGGF are met, it is for the Commission to had not taken place and that they therefore prove that a causal link exists between the also caused the EAGGF to incur costs breach of the rules in question and the different from those which it would expenditure which it disallows. normally have incurred. The Commission has therefore actually assumed the burden of proof. The question whether the evidence it has adduced is sufficiently convincing is a 28. My view, however, is that in the present further question which will be for the Court case the question as to the person upon to resolve, in particular in the light of the whom the burden of proof rests is really the opposing arguments put forward by the wrong question. United Kingdom.

37. The parties themselves are agreed on (1) the level at which the price of milk this, but only where this seems to suit their would have been fixed if there had been interests. In their answers to the question no price differentiation; put to them by the Court on the extent to which the statistics for the years 1984, 1985 and 1986, in which the price differentiation in question was discontinued, confirm or (2) the extent to which the milk user would invalidate the Commission's assumptions, have passed on the resultant increase or the parties are obliged to recognize that decrease in the price of milk to the 'these indications cannot objectively be various economic agents 'downstream' taken as a guide to the situation which as far as the final consumer; would have been obtained if a single price system had been applied in 1980 and 1981' (Commission, page 3) or that 'it is unsafe to draw any firm conclusion about what might (3) the effects which that increase or have happened . . . in 1980 and 1981 if the decrease would have had on milk price in those years had been set at consumption, use, and the export of the the . . . level' suggested by the Commission processed products concerned, taking (United Kingdom, paragraph 3.2).

OPINION OF MR MISCHO — CASE347/85

40. We are therefore faced with a situation 'In those circumstances the Commission had which is virtually the same as that which no choice but to refuse to charge to the arose in Case 16/76 France v Commission EAGGF the expenditure incurred by the (which was joined with Case 15/76 and was French authorities' (paragraph 35). the subject of a judgment delivered in both cases on 7 February 1979, [1979] ECR 321) in which the Court also found itself faced with the impossibility of establishing beyond 42. After initially describing that case as a doubt what would have happened if certain 'secondary' case comparable to the present national measures had not been adopted. case (application, paragraphs 5.6 and 5.7), The contested measures consisted of the United Kingdom argues in its reply national aid which the French Government (paragraphs 3.5 and 5.22) that, since there had introduced in addition to Community was 'an obvious link between the direct aid for the distillation of wine. The French national aid paid by the French Republic Government took the view that, as regards and increased EAGGF expenditure, all the quantities of wine that had been . . . there was no need for the Commission

U N I T E D K I N G D O M v COMMISSION

47. In my view, the conclusion which emerges from those judgments does not 44. It follows logically from that judgment seem to be invalidated by the judgments of that the Commission would have been 27 February 1985 in Cases 55/83 and 56/83 entitled to refuse to accept the totality of (Italy v Commission [1985] ECR 683 and the items of the EAGGF accounts affected 703) relied upon by the applicant. by the application of different milk prices once it had established that the normal functioning of the financial mechanisms of 48. Those cases concerned an Italian fiscal the common organization of the markets in measure which the Commission considered milk had been disturbed by the price to be contrary to the common organization differences. The Commission has not gone that far, however, but has carried out the 3 — See, for example, the judgments of 17 February 1985 in complex economic assessments described in Case 55/83 and Case 56/83 Italy v Commission [1985] ECR 683 and 703, paragraph 21 at pp. 697 and 711. I also the Report for the Hearing, arriving at a refer to the judgments of 15 March 1983 in Case 61/82 disallowance figure of UKL 5 million and Case 62/82 Italy v Commission [1983] ECR 655 and 687, in which the Court did not uphold the Italian instead of UKL 300 million (rejoinder, part Government's argument that 'in substance, regardless of I). any procedural omissions, the aid was paid for actual and genuine storage in respect of which all the required verifi- cations had been earned out beforehand' ([1983] ECR at pp. 667 and 697). 4 — See the judgment of 7 February 1979 in Joined Cases 15 and 16/76 France v Commission [1979] ECR 321, 45. I should also point out that on other paragraph 11. occasions the Court has accepted that, 5 — See the judgment of 7 February 1979 in Case 18/76 Germany v Commission [1979] ECR 343, paragraphs 20 certain payments could be disallowed and 22 at pp. 387 and 388. generally, so to speak, simply on the basis of 6 — See the judgment of 14 January 1981 in Case 819/79 Germany/ Commission [1981] ECR 21, paragraphs 10 and a finding that they were irregular.

53. In part III.4 of the Report for the Hearing some examples of the kind of 50. However, precisely because neither the savings to which the United Kingdom is documents in the case nor the arguments referring are given and I must admit that I presented before the Court showed that the was quite impressed by the case of skimmed Italian measure in question had affected the milk. market price for wine-based alcohol and was capable of jeopardizing the aims and functioning of the common organization of the market in wine the Court finally 54. The Commission tells us that, if the annulled the Commission's decision refusing United Kingdom had applied a lower price to charge to the EAGGF the expenditure for skimmed milk intended for use as animal incurred by the Italian intervention agency feed, the aid granted for that purpose would (paragraph 16). have been more effective and additional large quantities of skimmed milk would have been consumed by animals. Instead of that, the milk had to be processed into powder which would then be stored and 51. In the present case, however, the attract other kinds of aid. practices of the Milk Marketing Boards both contravened Community law and disturbed the normal functioning of the common organization of the markets. O n 55. The United Kingdom argues in reply the basis of the case-law of the Court, the that if the animals had consumed more Commission could have disallowed all the liquid skimmed milk, the additional expenditure on the relevant items. By amounts which would have had to have endeavouring to evaluate as best as possible been allocated to animal-feed aid would the expenditure resulting from the practices have far exceeded the amounts disallowed of the Milk Marketing Boards and only by the Commission. The practices of the disallowing those amounts the Commission Milk Marketing Boards therefore allowed has, in my view, adopted a reasonable the EAGGF to make savings.

56. In all probability, that argument is that the expenditure which must in principle correct: even so, is it necessary to draw the arise from them is planned expenditure conclusion that the Commission was wrong fulfilling aims of the common agricultural to refuse to charge the amounts in question policy. to the EAGGF? The answer to that question must be in the affirmative if the purpose of a refusal to clear accounts is solely to make the Member States bear net increases in costs 60. (c) In Case 45/82 Netherlands v to the EAGGF resulting from practices Commission, the Netherlands Government contrary to Community law. sought the annulment of a decision to refuse clearance which was based on non-compliance with certain conditions of quality and composition upon which the 57. On the other hand, the answer must be grant of Community aid for the processing in the negative if the aim of disallowance is of skimmed-milk powder into animal feed to make the Member States bear the financial depended. In its judgment of 15 March consequences of any irregular conduct. In my 1983 ([1983] ECR 631), the Court expressly view, there is a whole series of reasons rejected the argument of the Netherlands which supports the latter view. Government to the effect that, notwith- standing the fact that the animal feed lacked the required quality, the aim of the Community regulations had been attained 58. (a) The procedure for the clearance of because 'the purpose of those rules is not EAGGF accounts relates to expenditure solely the marketing of a product and the incurred by the Member States in adminis- relief of the market in milk but also the tering the common agricultural policy. Only employment of the product for useful 'expenditure incurred by the national auth- economic ends . . . ' (paragraph 17). orities in accordance with the Community rules' or 'sums paid in accordance with the rules laid down in the various sectors of agricultural production' (see the judgment 61. The Court did not therefore take in Case 11/76 Netherlands v Commission account of the 'beneficial' effects of those [1979] ECR 245, paragraph 22) may be operations for the EAGGF but solely of the financed by the EAGGF. By definition, no fact that the expenditure corresponding to expenditure is incurred in the case of the aid in question was precisely 'savings' and it cannot therefore be taken 'programmed' with a quite specific object in into account. mind which had not been respected.

'it is not merely a question of insuring that 63. (d) Moreover, as the Court has the budget of the EAGGF does not bear repeatedly pointed out, the very objective of expenditure greater than that which would Regulation No 729/70 requires a strict probably have been incurred in the absence interpretation of the conditions under which of the unilateral [national] measures; it is expenditure is to be borne by the EAGGF primarily a question of ensuring that the because Community does not ratify a measure which is contrary to the balance of the system and the principles which govern the working of the common market' ([1979] ECR 319, at 'the management of the common agri- the end of part 19). cultural policy in conditions of equality between traders in the Member States requires that the national authorities of a 67. In the present case, the United Member State should not, by the expedient Kingdom's failure to observe the relevant of a wide interpretation of a given provisions of Council Regulation No provision, favour traders in that State to the 1422/78 and Commission Regulation No detriment of those in other States where a 1565/79 has in fact caused disturbances in stricter interpretation is applied'. the normal working of the common organ- ization of the markets in milk and milk products.

64. The same principle which applies as regards a wide as opposed to a strict inter- pretation applies a fortiori to an incorrect 68. Such disturbances are by their nature application of Community law. liable to have caused expenditure which would not have arisen, or at any rate not in the same way, if they had not occurred.

70. To sum up, it may therefore be judgment of 2 December 1986 the Court concluded that a Member State must not be rejected it. It stated that 'from the beginning able to escape the financial consequences of the Commission has expressed its doubts a breach of Community law on the ground with regard to the conformity of that it is thus helping to reduce Community Community law of a system of differential expenditure in other ways. If the EAGGF prices' (paragraph 16) and that, although did not restrict itself to financing only the views expressed by the Commission's expenditure incurred in accordance with staff were sometimes ambiguous, 'the British Community law but also, to the extent to authorities were not given any assurance which it does not exceed the latter, expen- which would have allowed them to consider diture arising from unilateral national that the authorization granted them by action, the principle that Community law Regulation No 1422/78 had the wide scope must be applied uniformly in all Member now attributed to it by the United States and the very foundations of the Kingdom' (paragraph 39). common agricultural policy would be undermined.

8 — Commission Regulation (EEC) N o 1565/79 of 25 July 9 — See the judgment of 25 November 1980 in Case 820/79 1979 laying down rules for implementing Regulation Belgium v Commission [1980] ECR 3537, paragraph 15, (EEC) No 1422/78 concerning the granting of certain and the judgment of 27 January 1981 in Case 1251/79 Italy special rights to milk producer organizations in the United v Commission [1981] ECR 205, paragraph 17. The Kingdom (Official Journal L 188 of 26 July 1979, page quotation is taken from paragraph 2 of the summary of those two judgments.

O P I N I O N OF M R M I S C H O — CASE 347/85

Conclusion

8 1 . H a v i n g thus arrived at the conclusion that n o n e of the submissions relied on b y t h e U n i t e d K i n g d o m is well founded, even t h o u g h some d o u b t exists — a n d will always exist — a b o u t w h a t precisely w o u l d have happened if the system of differential prices h a d n o t been applied as it was, I can only propose that the C o u r t should dismiss the application and o r d e r the U n i t e d K i n g d o m to pay the costs.

10 — See the judgment of 14 January 1981 in Case 819/79 Germany v Commission [1981] ECR 21, paragraphs 20 and 21 at p. 36, and the judgment of 27 January 1981 in Case 1251/79 Italy v Commission [1981] ECR 205, paragraphs 20 and 21 at pp. 221 and 222. The quotation is taken from paragraph (4) of the summary of the judgment in Case 819/79.