C-5/88

OPINION OF MR JACOBS — CASE 5/88

OPINION OF MR ADVOCATE GENERAL JACOBS delivered on 27 April 1989 *

My Lords, 3. As is now well known, Council Regu­ lation (EEC) No 856/84 (Official Journal 1984, L 90, p. 10), with a view to curbing surplus milk production, amended Regulation (EEC) No 804/68 on the common organization of the market in milk and milk products by introducing a levy, 1. In this case, the Court is asked to rule additional to the co-responsibility levy, on on the interpretation of Community legis­ quantities of milk or milk equivalent lation on milk quotas in the context of a delivered beyond a reference quantity (or dispute between a tenant farmer and the quota) to be determined. General rules for German authorities regarding the farmer's the application of the levy system are laid participation in a scheme granting compen­ down in Council Regulation (EEC) sation for the definitive discontinuance of No 857/84 (Official Journal 1984, L 90, milk production ('an outgoers' scheme'). p. 13), as amended, and detailed rules are Although the questions posed by the to be found in Commission Regulation national court — concerning the interpre­ (EEC) No 1371/84 (Official Journal 1984, tation of the definition of 'holding' and L 132, p. 11), as amended. concerning the consequences, as regards the continuing exploitation of the quota, of the expiry of an agricultural tenancy — appear dry and technical, there are, underlying those questions, issues of some importance concerning the respective interests of landlords and tenants in the quota and concerning the legal nature of a quota. 4. Article 4(1) of Regulation No 857/84 empowers Member States, with a view to the re-structuring of milk production, to grant compensation to producers under­ taking to discontinue milk production definitively. Under Article 4(2), reference quantities released in this way are as The relevant legislation necessary to be added to the national reserve for re-allocation to producers in special situations.

'In the case of rural leases due to expire, where the lessee is not entitled to an extension of the lease on similar terms, Member States may provide that all or part 'Where an entire holding is sold, leased or of the reference quantity corresponding to transferred by inheritance, the corre­ the holding which forms the subject of the sponding reference quantity shall be trans­ lease shall be put at the disposal of the ferred in full to the producer who takes departing lessee if he intends to continue over the holding.' milk production.'

6. Article 12 of Regulation No 857/84 Article 5(2) provides for a proportionate establishes certain definitions. Under transfer of the quota in the event of a paragraph (c), 'producer' is defined as: partial transfer of a holding. Article 5(3) provides that:

'a natural or legal person or group of natural or legal persons farming a holding located within the geographical territory of 'The provisions of subparagraphs 1 and 2 the Community: above shall also be applicable in other cases of transfer which, under the various national rules, have comparable legal effects as far as producers are concerned.' selling milk or other milk products directly to the consumer, and/or

Article 5(4), which was inserted by supplying the purchaser'. Commission Regulation (EEC) No 1043/85

OPINION OF MR JACOBS — CASE 5/88

8. In implementing the additional levy system, the Federal Republic of Germany inter alia adopted the Law on Compen­ sation for Discontinuance of the Production of Milk for Sale (Gesetz über die Gewährung einer Vergütung für die Aufgabe der Milcherzeugung für den Markt) of 17 July 1984 {Bundesge- setzblatt I, p. 942) and an implementing 10. Mr Wachauf's tenancy agreement order of 20 July 1984 {Bundesgesetzblatt I, expired on 31 January 1983, and after the p. 1023) (together, 'the German outgoers' lessor and an agricultural court had refused scheme')· Under paragraph 3 of the to extend the lease, he eventually vacated implementing order, a claimant, who must the farm, apparently early in 1985. In the be a producer within the meaning of meantime, Council Regulation (EEC) Article 12(c) of Regulation No 857/84, No 856/84 had introduced the additional must undertake to discontinue milk levy system with effect from 2 April 1984 production definitively within six months of and Mr Wachauf was allocated a reference the date on which compensation is awarded. quantity. Mr Wachauf applied for compen­ Under paragraph 3(2) of the order, a sation for the definitive discontinuance of claimant who is the tenant of a 'holding' milk production under the German law within the meaning of Article 12(d) of referred to above, producing the written Regulation No 857/84 must in addition consent of the lessor. The lessor, however, submit a written authorization from his subsequently withdrew that consent on the landlord. grounds that she had not understood that Mr Wachauf's participation in the scheme would result in the loss to the farm of the quota allocated to him. The German auth­ orities in the form of the Federal Office for Food and Forestry (Bundesamt für Facts and questions Ernährung und Forstwirtschaft) thereupon by decision of 14 September 1984 withdrew their initial acceptance of Mr Wachauf's application. After Mr Wachauf had left the farm, the land was let to six different 9. From the order for reference and from tenants and the corresponding quota was the case file it appears that the plaintiff in divided between them.

11. Mr Wachauf brought legal proceedings '1 . Is an agricultural production unit having in respect of the refusal to admit him to the neither dairy cattle nor facilities (such as compensation scheme. In the order for milking parlours) capable of being used reference, the national court seised of the exclusively for milk production a action, the Administrative Court (Verwal­ "holding" within the meaning of tungsgericht) of Frankfurt, states that it Article 12(d) of Council Regulation doubts whether Mr Wachauf can be said to (EEC) No 857/84 of 31 March 1984? have leased a 'holding' in the meaning of Article 12(d) of Regulation 857/84 since at the time it was leased the farm was not specifically intended or adapted for milk production and all the features which did make it suitable for that purpose were supplied and owned by him rather than the lessor. If such a farm must none the less be 2. Is the surrender of leased property upon regarded as a 'holding', so that the the expiry of the lease a case having landlord's consent is required, then, in the "comparable legal effects" within the national court's view, doubts arise as to the meaning of Article 5(3) of Commission constitutional validity of the requirement of Regulation (EEC) No 1371/84 of consent in the national compensation 16 May 1984, if the leased property is scheme. In principle, the court reasons, an agricultural undertaking without there appears to be no objective ground for dairy cattle and without any facilities treating producers differently on the basis of capable of being used only for milk whether they are landlords or tenants. It production (for example, milking says that if it is correct that Community parlours) and where the lease provided legislation requires that the quota reverts for no obligation on the part of the with the land to the landlord at the end of lessee to engage in milk production?' the tenancy, then the requirement of consent might be seen as objectively justified as serving to protect the landlord's legitimate interest. The national court doubts, however, whether Community legis­ lation can be interpreted as requiring reversion of the quota in a case such as the present, since that would deprive the tenant The wording of the questions of the fruits of his labour and would amount to an unconstitutional expropriation without compensation.

The first question 14. In my view, the questions as put by the national court are phrased in terms that are wider than necessary for the solution of the issues outlined above. I therefore suggest 15. In my view, this question should be that the questions be rephrased in somewhat answered in the affirmative. The definition narrower and more specific terms, as of 'holding'is very broad : 'all the production follows : units operated by the producer and located within the geographical territory of the Community'. The inclusion in that defi­ nition of a reference to 'the producer', which is defined in Article 12(c) as a person '1 . Is an agricultural production unit held farming a holding within the Community under a lease granted prior to the entry and 'selling milk or milk products directly into force of Council Regulation to the consumer, and / or supplying the No 856/84 a "holding" within the purchaser', indicates that in order to fall meaning of Article 12(d) of Council within the definition a farm must be Regulation No 857/84 where the engaged in milk production, and of course production unit, as leased, included without such production there would not be neither dairy cattle nor facilities (such as a quota to be exploited. However, there is milking parlours) capable of being used nothing in the wording of the definition to only for milk production and where the exclude a tenanted farm of the type lease provided for no obligation on the described in the above question. part of the lessee to engage in milk production?

the first question is essentially the same as The second question that of the second, namely to determine whether a tenant who has leased a farm which, at the time of letting, was neither specifically intended nor adapted for milk production, can be said to have leased a farm to which the transfer rules apply. As I will indicate below, there appears to be no 18. The national court considers that the reason why the transfer rules should not surrender, on expiry of the lease, of a farm apply to a farm of this kind, with the result which, as leased, was not a milk-producing that such a farm must constitute a 'holding' holding, cannot be regarded as a case for the purposes of Article 12(d). comparable to the grant of a lease of a milk-producing holding to which a quota already attaches: in the latter case, the lessor, who has attracted the quota by his efforts, continues to receive the benefit of the quota through the rent, while in the former case the tenant, on expiry of the lease, will, in the absence of any provision for compensation, lose all the benefit of the quota 'earned' by his efforts. Although it is 17. I would add a further comment on the not spelled out in the order for reference, it definition of 'holding'. The written and oral is the logical consequence of the national observations presented by the Bundesamt, court's reasoning that in a case such as that the Commission and the United Kingdom under consideration, the quota would not Government all express concern at the revert with the land to the landlord but perceived suggestion on the part of the would, presumably, remain with the tenant. national court that any farm, if it is to be a 'holding' for the purposes of Article 12(d), must be equipped and used directly and exclusively for milk production or be destined, by means, for instance, of a clause in a lease, for such direct and exclusive use. The observations point out that such a defi­ nition of 'holding' would exclude the very 19. I do not think that it is possible to large number of mixed farms, where dairy accept that reasoning. Article 5(3) of Regu­ farming is combined with arable and other lation No 1371/84 requires a comparison to types of agriculture. My view of the be made between two legal trans­ national court's reasoning is that it did not actions— in this instance, the grant and intend to make such a sweeping suggestion, expiry of a lease — in order to determine and that it is essentially concerned with the whether those two transactions as such, and status only of a particular category of independently of other considerations, may tenanted farms. However, I would add, for be said to have comparable legal effects as the record, that, having regard to its far as producers are concerned. The wording and purpose, the definition of character of the holding when leased, and 'holding' in Article 12(d) of Regulation the question of which of several producers No 857/84 will certainly include a mixed may be said to have a better title to the holding, provided, of course, that milk quota, is essentially irrelevant to that production is actually carried out on the comparison. Looked at in this way, the legal holding. effect of the surrender of a lease must be

seen as essentially the same as that of its ruling are answered in the affirmative, then grant, namely, the transfer of the leased an issue arises as to the compatibility with property from one party to the other. constitutional guarantees of equality and of respect for private property of the rule requiring the landlord's consent to a tenant's participation in the German outgoers' scheme and the rule that, on the 20. Acceptance of the national court's view expiry of the tenancy, the quota reverts with would moreover give rise to a substantial the land to the landlord. The national breach in the principle — expressed in court's concern with constitutional guar­ Article 7 of Regulation No 857/84 and antees appears to stem from its conviction Article 5 of Regulation No 1371/84 — that that there may be cases in which it is the the quota follows the land on transfer, tenant, rather than the landlord, who since, as is pointed out in the written obser­ through his efforts has attracted a quota to vations submitted by the Commission, the the holding, and that in such cases it would United Kingdom and the defendant in the be inequitable if the landlord could, without national proceedings, it is common practice more, veto the tenant's participation in an in a number of Member States for tenant outgoers' scheme and if the landlord, on the farmers to lease only land and buildings and expiry of the tenancy, were to obtain all the to provide dairy cattle and equipment them­ benefit of the quota to the exclusion of the selves. The national court's view is also tenant. inconsistent with the specific provisions of the legislation — namely Article 7(4) of Regulation No 857/84 and Article 5(4) of Regulation No 1371/84—which, by way of derogation from the principle that the quota follows the land, permit Member States to provide, in a narrowly defined category of cases, that outgoing tenants may retain all or part of the quota if they wish to continue milk production. Acceptance of the national court's view could result in a much 22. I agree with the national court that larger number of outgoing tenants being there may well be cases in which it is entitled to retain all or part of the quota, necessary to take account of the interest of without any commitment on their part to the tenant in the quota. As the Commission continue milk production. I would therefore points out in its written observations, the answer the second question also in the Community legislation is largely silent on affirmative. the respective interests of the landlord and tenant, leaving it to the Member States to strike the necessary balance. That this should be left to national authorities is logical, given the diversity of national legal The underlying questions systems and implementing legislation and the different circumstances of individual producers. However, this does not, in my view, mean that Community law has nothing to contribute to a solution of the problem. In particular, the Court has 21. The national court takes the view that emphasized in Joined Cases 201 and if the questions referred for a preliminary 202/85 Klensch v Secrétaire d'État [1986]

ECR 3477 that the prohibition of discrimi­ States to determine the conditions of nation laid down in Article 40(3) of the participation in a national outgoers' scheme Treaty covers all measures relating to the established under Article 4(1) of Regulation common organization of agricultural No 857/84. As a general rule, I cannot see markets, irrespective of the authority which any objection to a requirement that the lays them down; consequently, it is also landlord should consent to the participation binding on the Member States when they of the tenant in such a scheme since the are implementing a common organization consequence of participation will be the and precludes national implementing permanent loss of the quota to the holding. measures which result in discrimination At the same time, for the authorities of a between producers. Moreover, I consider Member State to allow the landlord an that when implementing Community law it unqualified power of veto might in certain is also incumbent upon Member States to cases result in a breach of the principle of have regard to the principle of respect for non-discrimination in that the same the right to property which, as the Court requirement would be applied to all tenant has recognized (see for example farmers irrespective of their individual Case 44/79 Hauer v Land Rheinland-Pfalz situation and in particular of their contri­ [1979] ECR 3727), is guaranteed in the bution to the acquisition of the quota. Such Community legal order in accordance with a breach might result, for example, where a the ideas common to the constitutions of the tenant farmer wished to discontinue milk Member States, which are also reflected in production in the course of his lease, but Article 1 of the first Protocol to the was precluded from benefiting from the European Convention on Human Rights. outgoers' scheme by the absence of the Although the Court's case-law has hitherto landlord's consent, even though it was the been concerned with respect for property tenant rather than the landlord who by his rights by the Community legislator itself, efforts had attracted the quota to the the same principles must in my view apply holding. In such a case the requirement in to the implementation of Community law by the national scheme of the landlord's the Member States, since it appears to me consent might be contrary to the principle self-evident that when acting in pursuance of non-discrimination. of powers granted under Community law, Member States must be subject to the same constraints, in any event in relation to the principle of respect for fundamental rights, as the Community legislator.

an obligation to compensate, are twofold: by Council Regulation (EEC) No 2998/87 namely, that the measure results in the (Official Journal 1987, L 285, p. 1). It is deprivation of all appreciable economic also indicated, though more indirectly, by value in the asset and that the deprivation is Article 7(4) of Regulation No 857/84, permanent ([1979] ECR 3727 at pp. which can be seen as designed to protect the 3759-3762). That analysis can be applied, in tenant's interest in the economic value my view, to the intangible asset constituted represented by the quota. by a milk quota, which can properly be regarded as having an independent economic value; and in accordance with that analysis, I would suggest that there may well be cases where the permanent loss to the tenant of the use and value of the quota on expiry of a tenancy can be viewed as a measure of expropriation. 26. Community legislation has not resolved the issue of ownership of quota, possibly because it was not considered desirable to admit — for fear of creating a market in quota — that a quota could be owned at all. The issue is not an easy one. On the one hand, the fact that the transfer rules in principle require the quota to follow the 25. In their written observations in this land suggests that these attach to the land case, both the Commission and the United and should therefore be regarded as the Kingdom Government have sought to argue property of the landowner. On the other that a quota is nothing more than an hand, the existence of Article 7(4) of Regu­ instrument of market management and lation No 857/84 and the recent author­ cannot be considered as a kind of intangible ization of 'quota leasing' indicate that asset in which property rights can arise. In attachment to the land is not absolute. my view, while this might correspond to the Moreover, the quotas are allocated to a intention of the Community legislation, it person, the individual producer, who may of does not reflect economic reality. If one course be a tenant, on the basis of his considers the nature of the quota from the production in a given reference year, rather point of view of the producer, then it is than to a holding. These considerations in plain that what the quota amounts to is a my view suggest that it is possible for either form of licence to produce a given quantity a landlord or a tenant to have a proprietary of a commodity (milk) at a more or less interest in a quota. guaranteed price without incurring a penalty (the additional levy). In a market which has been effectively ossified by the introduction of quotas, such a 'licence' is bound to acquire an economic value. This value will primarily translate into higher rental and capital values for dairy holdings. But that a quota can also have an intrinsic value is 27. If the above analysis is correct, then shown by the practice of 'quota leasing', i.e. there may be cases where failure by a the temporary transfer without land of Member State to provide for compensation unused quota from one producer to would amount to breach of the principle of another, a practice authorized by Article 5c respect for the right to property. Such (la) of Regulation No 804/68, as amended compensation would normally be payable by

30. It is of course for the national court to determine in the concrete case whether and to what extent account should be taken of 29. Nor does it appear that national agri­ the tenant's interest in the quota. It is not in cultural holdings legislation can be relied my view appropriate for this Court to seek upon to redress the balance in favour of the to spell out in the framework of the present tenant. It is of course correct that under the case the kinds of circumstances which the legislation of a number of Member States, national courts will need to take into agricultural tenants enjoy a high degree of account; it must be sufficient for the Court security of tenure. However, such to indicate in general terms the applicability protection is not universal. In fact, at the of the principles of non-discrimination and hearing the Commission agent confirmed of respect for the right to property in this that Article 7(4) of Regulation No 857/84 context.

OPINION OF MR JACOBS — CASE 5/88

Conclusion

31. Accordingly I am of the opinion that the following answers should be given to the questions referred by the national court:

(1) The definition of 'holding' in Article 12(d) of Council Regulation No 857/84 includes an agricultural production unit held under a lease granted prior to the entry into force of Council Regulation No 856/84 where, as leased, the production unit included neither dairy cattle nor facilities (such as milking parlours) capable of being used only for milk production and where the lease provided for no obligation on the part of the lessee to engage in milk production.