C-8/88

Mr President, D M 1 681 908.64 to sheepmeat producers Members of the Court, in the area covered by the Rhineland Chamber of Agriculture in the Land of North Rhine-Westphalia, and, on the other hand, of premiums amounting to D M 222 376.22 for the maintenance of the suckler cow herd paid by the applicant or its 1. In this case the Government of the agencies in the areas covered by the Federal Republic of Germany (hereinafter Rhineland Chamber of Commerce referred to as 'the applicant') seeks the (DM 100 434.60), Bavaria (DM 79 355.74) partial annulment of Commission Decision and the Stuttgart government of Baden- 8 7 / 5 4 1 / E E C of 21 October 1987 amending Württemberg (DM 42 585.88). The amount Decisions 8 7 / 4 6 8 / E E C and 87/469/EEC of D M 1 779 570.95 disallowed in respect on the clearance of the accounts presented of 1985 consisted as to D M 1 596 934.47 of by the Member States in respect of the premiums to sheepmeat producers in the European Agricultural Guidance and area covered by the Rhineland Chamber of Guarantee Fund, Guarantee Section, expen- Agriculture, and of premiums amounting to diture for 1984 and 1985.' The contested D M 99 882.52 for the maintenance of the section of the decision withholds suckler cow herd in that area and Community financing from expenditure amounting to D M 82 753.96 in Bavaria. incurred by the applicant under Commission Regulation N o 124/82 of 19 May 1982 laying down detailed rules implementing the system of premiums for maintaining stickler cows 2 and Commission Regulation N o 3007/84 of 26 October 1984 laying down Scope of the dispute detailed rules for the application of the premium for producers of sheepmeat; 3 the expenditure disallowed by the Commission amounted to D M 1 904 356.86 in relation to 1984 and D M 1 779 570.95 in relation to 1985. 3. This is not the first time that the Court has been confronted with an application for the partial annulment of a Commission decision on the clearance of EAGGF accounts. However, the present case displays a number of features which distinguish it from many previous cases. 2. In respect of the financial year 1984 the Central to the dispute are not only specific amount of D M 1 904 356.86 disallowed provisions of the agricultural regulations by the Commission consisted on the one relevant to the sectors in question hand of premiums in the amount of (governing the substantive and formal conditions for the grant of the premiums * Original language: Dutch. and supervision thereof) but also, in a more 1 — OJ 1987, L 324, p. 32. 2 — OJ 1982, L 143, p. 20. explicit manner than in other cases, Articles 3 — OJ 1984, L 283, p. 28. 8 and 9 concerning supervisory and control

measures, contained in Council Regulation 4. The first ground of refusal is that the (EEC) N o 729/70 of 21 April 1970, which Federal Government should have given is the basic regulation on the common agri- instructions to the Bundesamt für cultural policy. 4 The novelty of this case is Ernährung und Forstwirtschaft (Federal to be found in the fact that the dispute does Office for Food and Forestry) and/or not concern so much the Commission's should have established a system of super- conclusions from its analysis of individual vision for the two premiums in question.

The third ground expenditure in question are mentioned in of refusal is the inadequacy of the actual the summary report of 21 July 1987 and supervision by the competent Länder or in addendum 1 to that report dated 25 regions of the lower administrative levels September 1987, reproduced at paragraph responsible for implementation. The fourth 16 of the Report for the Hearing. ground of refusal is stated to be the absence of administrative controls and on-the-spot checks in the areas where financing was refused with the consequence that even a superficial investigation by Commission Briefly, the Commission refused to provide officials revealed irregularities in an financing on the basis of a number of abnormally large number of cases.

I-2335

OPINION OF MR VAN GERVEN — C A S E 8/88

Lack of interest on the part of the federal authorities In the rejoinder the defendant argues that, pursuant to Article 42(1) of the Rules of Procedure, the Minutes submitted are produced too late, and could have been disclosed in the application, and even long before that in the discussions between the 5. Since a reason for refusal framed too Commission and the Member State which broadly would elicit the reply from the preceded the decision on the clearance of applicant that it has to observe its federal the EAGGF accounts. Moreover, the constitutional structure, the defendant formulated the first ground of refusal in the 5 — The term 'directives' is placed between quotation marks following manner. Under the German because the instruments in question current in the German Constitution the federal authorities in one legal order have no connection with the Community law concept contained in Anide 189(3) of the EEC Treaty. of their manifestations could have 6 — Minutes of meetings in the Bundesministerium für formulated the recommendations or general Ernährung, Landwirtschaft und Forsten (Federal Ministry for Food, Agriculture and Forestry) of stock and meat guidelines for discussion with the subor- representatives of the Länder.

I - 2336

GERMANY v COMMISSION

defendant states that the Minutes put in other grounds mentioned above, in evidence do not show that at the meetings particular inadequate supervisory rules in question attention was paid to the need adopted by, and in concertation with, the to supervise the premium schemes in competent Länder in the Federal Republic question. and inadequate supervision of the officials responsible for carrying out checks at local level.

7. It follows from the arguments exchanged by the parties in the written procedure and Sheepmeat premium at the oral hearing that even in the Commission's view a lack of interest mani- fested at federal level or between the Länder cannot constitute a separate ground for refusal of financing. In so far as this ground 8. The point of departure for the of refusal is maintained it merges into the Commission is constituted by the substantive and formal conditions for the grant of the 7 — Judgment of 7 February 1979 in Joined Cases 15/76 and 16/76 Franct v Commiilion [1979] ECR 321, paragraphs 7 premium in favour of sheepmeat producers. and 8. During the material period of time the

I - 2337

OPINION OF MR VAN GERVEN —CASE 8/88

between 1 December and 30 April of (ii) with regard to the 1985 sales year the the following year. The latter date may producer must have kept the ewes however be brought forward by the during at least 100 days with effect Member States; 16 from 30 April in each year on his farm. H In respect of the 1984 sales year there was no such requirement of a minimum period. 1 5 (ii) as regards the 1985 marketing year, the producer must have undertaken to observe the period of 100 days, O n the formal level the following conditions mentioned above as the last substantive were provided for as regards the premium condition, with regard to the number of ewes mentioned in his application. 17 8 — Council Regulation (EEC) No 1837/80 of 27 June 1980 on the common organization of the market in sheepmeat and goat meat (OJ 1980, L 183, p. 1). 9 — Council Regulation (EEC) No 872/84 of 31 March 1984 laying down general rules for the granting of premiums to sheepmeat producers and repealing Regulation (EEC) No 9. In addition to the formal and substantive

In the earlier Regulation (EEC) No 2660/80 of 17 October 1980 (OJ 1980, L 276, p. 16), there was no condition as 16 — Article 3(2) of Regulation (EEC) No 3007/84. to the period of time for which the sheep had to be kept. 17 — Article 2(1) of Regulation (EEC) No 3007/84.

satisfy themselves that transactions financed 18 — For 1984 the only substantive condition which applied was the condition with regard to the number of animals, in by the fund are actually carried out and are addition to Article 8 of the basic regulation. The fact that executed correctly', as from 1985 (following the entry into force of Regulation (EEC) No 3007/84) there was a more explicit obligation on Member States to carry out on-the-spot checks (inier alia in connection with the requirement introduced at the same time to keep ewes during a given period) does not of course mean that the Member States did not previously and on Article 9(1) of that regulation, which have to carry out controls on whether the condition as to the number of ewes was satisfied; see on this point Article states that 4 of Regulation (EEC) N o 2660/80, mentioned above in footnote 15, in which the words 'if necessary' precede the mention of on-the-spot inspections but on the other hand the general rule is repeated in Article 5 that the Member States must adopt the necessary provisions in order to recover premiums which have been paid in error. As 'Member States shall make available to the regards trie condition as to the number of ewes, the only condition in 1984, it is moreover difficult to draw a sharp Commission all information required for the distinction between the organization of administrative proper working of the fund and shall take supervision and the organization of on-the-spot checks and it is difficult to see how such controls can be arranged all suitable measures to facilitate the super- otherwise than with the assistance of at least sampling checks on the spot. See two footnotes further on. vision which the Commission may consider it necessary to undertake within the 19 — At the beginning of the written procedure it seemed that the defendant also required a reliable system for the identi- framework of the management of fication of ewes. In the rejoinder it however acknowledged that the identification of sheep by earmarks is practically Community financing, including inspections impossible. That factor increases the importance of on the spot'. on-the-spot inspections.

minimum number of control provisions obtain any information from senior officials which may reasonably be regarded as as to the methods of dealing with the necessary. applications, or the number of any on-the-spot inspections, or whether any written reports on those inspections were drawn up, nor could information be obtained on any exchange of information between senior officials and inspectors. Even This may be illustrated in connection with later, no such information was obtained the aforementioned first requirement as either on the existence of a system of regards the calculation of the number of administrative control or as to on-the-spot ewes. On that point the Commission finds inspections. According to the Commission, that the authorities should have issued it was therefore impossible to ascertain to instructions to the officials concerned as to what extent the grants paid out in that area the percentage of farms making applications were lawfully made and whether to refuse in which on-the-spot checks should be Community financing could be justified on carried out (by sampling in the Federal those grounds. Republic of Germany), and how frequently checks have to be carried out (whereby in certain cases provision should be made for a second inspection); and furthermore, as regards administrative checks, they should have been instructed on the factors indi- cative of unreliability to be taken into 12. The applicant does not dispute the account, for example, major changes in the factual allegations. It merely submits that number of animals as opposed to the notice of the Commission's visit was preceding year. 2 0 The most important point received too late by the relevant department, is therefore that there must be rules in these that is to say there was a failure in the matters which should be applied, and that internal organization which, according with those rules should provide for a reasonable the Court's settled case-law, it cannot rely degree of control, regard being had to the on as an excuse and which does not explain Community nature of the financing. In why the information requested by the other words no maximum level of control, Commission could not be provided such as more than one on-the-spot subsequently. N o r does the applicant inspection on all farms, is required. dispute that the Member States have a general obligation to provide, through the medium of their competent organs, super- visory rules and practices which are laid down by express Community provisions and cause them to be applied by the relevant officials. In relation to the ewe premium 11. With regard to the fulfilment of those relevant to this case, however, no such minimum requirements in the area covered express provisions were disregarded by the by the Rhineland Chamber of Agriculture competent authorities in the area concerned. the defendant is categorical. On the occasion of a visit to Bonn by Commission inspectors, of which three weeks notice was given, it appeared that it was not possible to

(ii) the applicant must show evidence that for 12 months from the day on which the application is lodged he sells no milk or milk products; 2 6 In the treatment of the suckler cow premium, where the factual situation is not so clear, I shall have the opportunity of broaching the question raised in the preceding paragraph as to whether super- (iii) the suckler cows in respect of which a visory obligations are expressly provided for premium is applied for must belong to in Community regulations, non-compliance a meat-producing breed or come from with which by the Member States may lead crossing with such a breed, whereby an annex to the Community regulation 21 — Sec the Opinion of Mr Advocate General Capotorti of 5 lists the excluded breeds; 27 December 1978 in Joined Cases 11/76, 15/76, 16/76 and 18/76 Netherlands v Commission [1979] ECR 286, it p. 319. 24 — Council Regulation (EEC) N o 1417/81 of 19 May 1981 amending Regulation (EEC) N o 1357/80 introducing a 22 — Judgment of 7 February 1979 in Joined Cases 15/76 and system of premiums for maintaining suckler cows (OJ 16/76 France v Commission o/ the European Communities 1981, L 142, p. 4). [1979] ECR 321, paragraphs 28, 32 and 35. 25 — Articles 1 and 5(1 )(a) of aforementioned Regulation No 23 — The fact that the administrative provisions of North 1357/80 and Article 3 of Directive 72/159/EEC (OJ 1972, Rhine-Westphalia laid down a requirement for 10 or seven L 96, p. 1). ewes only in August 1985 and not April 1984, as was required by the amendment to the Council Regulation 26 — Article 2(1) and (2) of aforementioned Regulation (EEC) dealt with in footnotes 11 and 12, another ground for the N o 1357/80. Commission's decision to disallow the expenditure, does 27 — Article 5(4) of aforementioned Regulation (EEC) No not therefore need to be dealt with separately. 1357/80 as amended by Regulation (EEC) N o 1417/81.

(b) on compliance with the undertaking (ii) the application had to be accompanied provided for in Article 2(2) of Regu­ by the undertaking referred to in lation N o 1357/80; Article 2(2) of Regulation N o 1357/80 (not to sell milk and to keep the animals for six months) together with an undertaking by the producer to observe the terms of the abovemen- (c) on the accuracy of the declaration tioned regulation together with Regu­ provided for in Article 1(2).' lation N o 1224/82 as well as the implementing provisions adopted by the Member State; 3 1 16. O n the basis of these conditions for the (iii) in addition, the application for a grant of premiums (see paragraph 14 above) premium had to be accompanied by the and the supervisory provision (see paragraph declarations mentioned in the second 15 above), in conjunction with Articles 8 subparagraph of Article 1(2) of Regu­ and 9 of Regulation N o 729/70, the lation N o 1244/82 which essentially defendant states that the system of super­ correspond žo the substantive con­ vision in the Member States must satisfy the ditions set out above. following minimum requirements:

28 — Anicie 2(2) of aforementioned Regulation (EEC) N o 1357/80. 29 — Commission Regulation (EEC) N o 2795/83 of 6 October 1983 waiving the date in Regulation (EEC) No 1244/82 1. In the first place there must, in its view, for submitting applications for premiums for maintaining suckler cows for 1983/84 (OJ 1983, L 274, p. 20). be specific guidelines for the competent 30 — Commission Regulation (EEC) N o 3442/84 of 6 officials as to the breeds which, as defined December 1984 waiving the date in Regulation (EEC) N o 1244/82 for submitting applications for premiums for in the annex to Regulation N o 1357/80, maintaining suckler cows tor 1984/85 (OJ 1984, L 318, as amended by Regulation N o 1417/81, p. 30). 31 — First subparagraph of Article 1(2) of Regulation (EEC) qualify for the suckler cow premium in the N o 1244/82. same way as there should be guidelines for

officials responsible for carrying out The applicant states that, inasmuch as such on-the-spot checks as to the manner in a system of identification does exist, by which the breed of a suckler cow may be numbers affixed to the ears of suckler cows determined in case of doubt. That and also mentioned on the application, that requirement is alleged in the present case is an obligation imposed by German legis- not to have been satisfied in the three lation which goes further than what is relevant regions in question. 32 required by Community rules. At the hearing, the applicant, nevertheless, acknowledged that individual identification is a sup- plementary element (in addition to the herd register) enabling the number of animals to be In that connection the applicant replies that counted and thus ensuring compliance with it is not necessary to transpose the annex of the relevant Community financing an EEC regulation into instructions to conditions. officials on the spot who are specialists in the matter. The defendant's response to that contention is that it is apparent from the circulars of the Rhineland Chamber of Agri- culture annexed to the applicant's reply that there is a manifest lack of clarity and even contradictions as to the correct demarcation The defendant states that no certain method between breeds which are, and those which of identification was guaranteed in every are not, entitled to the relevant premium. case by the actual application of the rules which in themselves were on the right lines in the various regions, and in particular in the area of the Rhineland Chamber of Commerce in Bonn. Thus the administrative At the hearing, the defendant's represen- provisions of North Rhine-Westphalia re- tative however stated that it no longer main- quire there to be an 'unmistakable form of tained that point concerning inadequate identification', yet there are no rules to deal breed specifications, thus apparently with cases in which two animals belonging accepting the annexes to the reply as to the same farmer bear the same number. adequate. In such cases it is wrong, in the defendant's view, that there is no provision laying down by what other means of identification the animals may be distinguished and that the other distinguishing features must be 17. 2. The second minimum requirement mentioned in the application. laid down by the defendant for the system operated by the Lander is a reliable system for identifying suckler cows, in particular by ear marks or other unmistakable means. Such a system should exist, at any rate for suckler cows in Baden-Württemberg within Of the individual files which the defendant which the government presidency of annexes to its defence there are a number Stuttgart falls. 33 from the region of the Rhineland Chamber of Agriculture in which the same earmark 32 — For Baden-Württemberg the assessment is less negative. Some indications were given in the administrative number appears two or three times without provisions. the competent authorities raising any 33 — It appears from this last-mentioned factor that the objection. The applicant replies in Commission was too hasty in invoking this requirement with regard to the government presidency in Stuttgart. connection with these individual cases that

Nevertheless, it does not seem to me that the defendant's evidence on this point is very conclusive. First, there is no watertight identification requirement in the conditions The applicant refutes the defendant's for the grant of the application, which do conclusions on the ground that no specific not stipulate that the same animals are to be obligations with regard to the frequency or kept for the period of six months, provided the intensity of on-the-spot checks may be that the same number is kept. Secondly, and derived from the regulatory text. As a more importantly, the individual cases secondary argument, the applicant states, in referred to appear to warrant the conclusion connection with the obligation to carry out that there were only a few cases in •which fresh checks on holdings where an the same number was used twice and that on-the-spot check has already been made by indicating the breed or the cross-breed of that such a lack of flexibility in the rules the animal in question identification in the would undermine the efficiency of a check file was possible. which in fact relies on its unexpected nature.

18. 3. Thirdly, the defendant infers from The defendant states generally that it does the regulatory provisions relating to the not seek to impose detailed or strict conditions for the grant of the premium that instructions or orders on the Member State, the guidelines operated by the Lander ought but that it is merely indicating a number of to have included rules concerning the points on which the Member State or the manner in which the number of stickler competent body within the Member State cows kept on a farm should be calculated must itself lay down rules so that the on the spot. In particular, not only the competent officials know what to go by, the intensity of the on-the-spot checks t o be leading officials know what investigations to carried out should be provided for make and, from their own experience, may (percentage of on-the-farm checks, criteria be able to suggest adjustments, and so that

the Commission acquire information about concerned was inadequate as regards the the supervisory system and can ascertain its requirement to keep the same number of adequacy and gain experience from it of use animals for a period of six months. to other systems. But in particular the However, two more fundamental questions defendant stresses that, in areas such as remain open. First, whether the defendant Baden-Württemberg, where on-the-spot may rely on the absence of a control system checks are only carried out in the first six in a given region as a reason, in general, months, provision should be made for a for withholding EAGGF financing in second inspection in the case of certain connection with the expenditure incurred in holdings in order to ensure actual that region and, secondly, whether in this compliance with the six-month rule. case there is an adequate causal link between the absence of a control system, on the assumption that that may be relied on as a reason for withholding financing, and the expenditure excluded from Community financing. The second question which is more concrete will be examined region by What matters is that there should be a region, but having regard all the time to the coherent and logical system of supervision six control requirements I have mentioned in which a minimum number of rules are (see paragraph 30 below). I shall deal with laid down as yardsticks for the competent the more general first question straight officials. According to the defendant's alle- away: it comes down to this: is the gation, which has not been contradicted, no Commission in its stated requirement going such system existed either in Bavaria or in too far — in inferring supervisory re- North Rhine-Westphalia. quirements inherent in the regulations and their context — in the direction of the 'unilateral imposition on the Member States (or harmonization) of detailed rules of supervision'. In this connection, particular attention must be paid to the question of In relation to the area covered by the mimimum percentages for on-the-spot government of Stuttgart the defendant's checks. negative assessment is based on the following factors. Numbers of animals were counted on the occasion of inspection visits which — where the application form was not completed by an official — were carried out shortly after the application, but there 20. In its rejoinder, the defendant stated was no means of checking whether the that the principle of equality, not merely number of animals stated were kept during between Member States but also between the rest of the requisite six-month period. different parts of a federal Member State such as the Federal Republic, required a certain mimimum percentage of cases to be covered by on-the-spot checks; the defendant mentioned the figure of 100% for Ireland, 2 5 % for the United Kingdom and 5 % for Italy and the Netherlands, and, 19. It seems to me that on the basis of the on the basis of the equality argument foregoing the defendant was in fact entitled mentioned above together with the to take the view that the system of super- requirement that the checks must have a vision in control in the three regions minimum degree of efficiency, put forward

21. The applicant's point of departure is the protection afforded to the Member States in In view of the Community responsibility their relationship with the Commission by imposed on Commission and Member States the principle of legal certainty which, it is for an effective system of supervision, it is argued, in this case prohibits the retroactive not the case that only those supervisory imposition of control requirements. rules expressly laid down in Community Although it is not my purpose to deny that provisions are applicable. Thus, it cannot be legal certainty also plays a role as between 35 — See my Opinion of 4 July 1989 in Case 14/88 Italy v Commission [1989] ECR 3677, paragraph 15, and the 34 — The defendant also refers to other Community regulations judgment of 14 November 1989 in the same case, in which a minimum percentage of 5% for checks is paragraph 19. expressly laid down. This is Article 5 of Commission Regulation (EEC) N o 2835/77 of 19 December 1977 36 — Same Opinion, paragraphs 11 to 13, and judgment, laying down detailed rules for aid for durum wheat (OJ paragraph 20. 1977, L 327, p. 9) and Article 4(2) of Commission Regu- 37 — See the Opinion of Mr Advocate General Capotorti of 5 lation (EEC) N o 3061/84 of 31 October 1984 on the December 1978 in Cases 11/76, 15/76 and 16/76 and detailed rules for the application of a system of production 18/76 Netherlands v Commission [1979) ECR 286, 294 aid for olive oil (OJ 1984, L 288, p. 52). According to a and 295. press report (Agence 'Europe' of Friday 15 December 38 — See inter alia my Opinion in Case 262/87 Netherlands v 1989, No 5154) the Council of Agriculture Ministers accepted a proposal for a minimum percentage of checks Commission [1989] ECR 225, paragraph 12. For these by customs officers of 5% in connection with the finan- reasons the comparison made at the hearing with the cially very significant export refunds. relationship between a prosecuting authority and a private person committing a parking offence is not to the point.

deduced from the decision of 7 July 1989 Commission's questions in the context of that prior thereto the Commission, in the Article 9(1) of the basic regulation, which in absence of express Community rules, 39 was my opinion was the case when the sheep not entitled to apply minimum requirements premiums were disallowed — dealt with at for the number of on-the-spot inspections. paragraph 13 above — , the Member State On the one hand, there may have been cannot rely on the 'retroactive' or unex- reasons for not adopting an express pected nature of the decision as a defence.

interest. It is not immediately clear which of the two situations in the present case in relation to suckler cow premiums is applicable. O n the one hand it may be regarded as a case in which, in relation to an important condition for the grant of premiums, there was no organized provision for on-the-spot inspections in two of the three regions 22. When the Commission applies an affected, whilst in a third region (the implied provision in the field of controls on Stuttgart Regierungspräsidium) compliance the clearance of accounts, legal certainty with the condition was only incidental and comes into operation in order to protect the not carried out in a satisfactory manner (by Member States to a degree which is variable means of the collection of applications or by according to whether the provision is more an inspection at the beginning of the or less self-explanatory. When the period). This was in spite of the fact that an Commission bases a decision to withhold on-the-spot inspection is required in order financing on the total absence of a system to satisfy administrative requirements laid of supervision, or the absence of a system enabling answers to be given to the 40 — In Case C-10/88 ¡uty v Commission [1990] ECR 1-1229, concerning birth premiums for cows, in which I delivered my Opinion on 16 January 1990, I said 'that the 39 — Set the judgment of 19 October 1989 in Joined Cases Commission was not entitled to withhold the financing of 258/87, 337/87 and 338/87, Italy v Commission [1989] expenses by reliance on a reasonable period for payment ECR 3359, paragraph 18, in which the Court departed laid down by it because it only notified that period to the from paragraph 46 of Advocate General Lenz's Opinion of Member States after the year to which the relevant sums 7 July 1989. related. For Case 14/88 I refer to footnote 35 above.

It seems to me that the Commission's alle­ This control requirement seems to me to gation in two of the three regions have been correctly applied by the concerned, namely Bavaria and the defendant. It is hard to imagine that a Rhineland, goes to a lack of any form of Member State, in regard the supervision of organization for on-the-spot inspections and the expenditure of its own financial that the reasons on which the Commission's resources, would impose a duty to report on decision is based in regard to these regions supervisory officials only if they discovered remain valid, subject to the causality irregularities. Even if that were the case, question which will be dealt with below (at then such administrative arrangements paragraph 28); (this particularly concerns would not be adequate for controlling the the Stuttgart Regierungspräsidium because expenditure of Community resources. As the absence of controls and thus also the regards the sanctioning of individuals question of causality arising in connection infringing Community law, which is closely therewith are less firmly established). connected with this problem, the Court has stated that a sanction equivalent to that provided for in the case of infringements of national law is a minimum requirement to be complied with if the effective implemen­ tation of Community law does not call for a stricter sanction. 4 1 Regard being had to the need to provide the Commission with all information necessary for it to supervise the proper functioning of Community financing, the control requirement in 23. 4. The fourth control requirement laid question appears to me in this case to have down by the defendant is that a written been properly and correctly applied. report should be drawn up following on-the-spot inspections. That would enable Commission officials, on visiting the Lander, 41 — This interpretation follows from the judgment of 21 September 1989 in Case 68/88 Commission v Grem [1989] to establish what percentage of farms have EĆR 2965, and in this respect, from the words 'in any event' in paragraph 24. See also Mr Advocate General been subjected to on-the-spot inspections, Darmon's Opinion of 29 November 1988, paragraph 10 the frequency of inspections on the same (Case 94/87 Commission v Germany [1989] ECR 175), and paragraph 12 of the judgment of 2 February 1989 in the farm, etc. same case.

The Commission was therefore entitled to The applicant's first reaction is indeed conclude that this control requirement, strongly to the effect that fiscal secrecy which is closely linked with the preceding makes it impossible to carry out controls on one, was not satisfied in the three regions in income in that way, and that general prin- question. ciples of administrative law for the protection of the citizen also preclude recourse being had to information from 'third parties'. The defendant replies that the German provisions relied on are not applicable, regard being had to the fact that the protection of fiscal information only 24. y According to the defendant, rules applies in relation to information passed to should also be laid down at Länder level in 'unauthorized persons' and not to certain order to verify that the undertaking not to other activities of the State which are sell milk or milk products to a dairy during dependent for their proper functioning on a period of 12 months has been complied information as to income; thus, in relation with. The applicant replies that no such to the supervision of Community expen- express control requirement can be inferred diture, those provisions cannot be relied from the rules, in view of the fact that it is upon. On this limited point as regards fiscal an easy matter for officials in the course of secrecy the defendant is, I think, right. In on-the-spot inspections to verify, for the judgment of 10 January 1980 in Case example, from the absence of milk 267/78 Commission v Italy, 42 a national rule equipment or refrigeration plant, that a conferring powers was invoked against the holding in receipt of a suckler cow premium requirements imposed by the Community in is selling no milk during the relevant period. the field of controls. But that case involved The defendant insists that, for example, the separation of powers in the Member provision must be made for delivery lists of State and the secrecy of criminal investi- neighbouring dairies to be inspected in gations flowing therefrom which were order to catch possible infringers. Before generally applicable to national officials. To giving my assessment on this fifth the extent to which, in the internal legal requirement (see paragraph 26 below) I order of the applicant, officials responsible shall now discuss the sixth and final for the supervision or making of national requirement, closely related from the point payments have access to fiscal information, of view of supervision. such information can and must be also used in order to supervise the expenditure of Community resources.

26. It seems to me that the defendant, as regards the Rhineland Chamber of Commerce in Bonn and the Free State of Bavaria, was entitled to regard the last two 27. The discussion of the control control requirements (see paragraphs 24 and requirements in relation to the suckler cow 25 above) as not having been complied with. premiums (paragraphs 16 to 26) may now In the first area, there was, however, no be summarized. The Commission itself has indication at all as to how the income abandoned the first control requirement, as condition and the undertaking not to sell regards the assessment whether the suckler were verified, or as to any on-the-spot cows belong to a given breed (see paragraph inspections, which could have ensured 16 above). As regards the second control detection and acted as a deterrent. Nor are requirement with regard to the means of any such indications to be found in the identifying the suckler cows, I have come to dossiers opened by the Commission the conclusion that the Commission has officials. 43 T h e same situation prevailed in been unable to prove the existence of this Bavaria. requirement. The third requirement that there should be on-the-spot inspections to ensure that the same number of animals are kept during six months, has in my opinion been correctly applied by the Commission, but there are doubts as to whether in the case of the Stuttgart Regierungspräsidium this requirement was breached to the extent In the area of the Stuttgart Regie- of entailing financial consequences rungspräsidium it seems to me that the (paragraph 17 to 22). The failure to comply assessment must be different. For there it with the fourth requirement that a written was provided that applications had to be report should be kept of on-the-spot collected by officials at the applicants' inspections was correctly invoked against holdings, which would at least involve an all of the three regions concerned initial superficial on-the-spot inspection. (paragraph 23). With regard to the fifth Improbably high income, absences on and sixth requirements — verification of account of significant secondary occu- compliance with the obligation not to pations, or plant needed for the delivery of sell milk products and the income milk products would then have been conditions — the Commission was entitled evident. As regards these two requirements to regard these as not having been complied with in the case of Rhineland and Bavaria, 43 — More serious still, in one of these cases it was stated on the whilst as regards the Stuttgart Regie- application form that the applicant was a 'farmer and employee', but he had nevertheless been in receipt of the rungspräsidium non-compliance, with the benefits for years. Only by chance, (a telephone conver- sation) did it come to light that he earned more than half third requirement too, was less clear cut of his income as an employee. Even then conclusions were (paragraphs 24 to 26). slow to be drawn.

45 — Judgment of 7 February 1979 in Case 11/76 Netherlands v Commission [1979] ECR 245, paragraph 25. For an example of a decision refusing financing for failure to comply with evidence requirements I would refer to the judgments of 27 February 1985 in Cases 55/83 and 56/83 In its early judgments on this point the Italy v Commission [1985] ECR 683 and 705, paragraph 21. The Court has rejected the subsequent regularizaron of Court pointed to the unresolved questions evidential formalities, as also the replacement of prescribed with regard to the correct functioning of evidential formalities by others: judgments of 7 February 1979 in Joined Cases 15/76 and 16/76 Frana v EAGGF accounts clearance 44 and adopted Commission [1979] ECR 321, paragraph 11, and in Case 18/76 Germany v Commission [1979] ECR 343, paragraphs the following strict approach derived from 20 and 22. See also in this connection the Opinion of Mr the institutional structure — national im- Advocate General Mischo of 1 October 1987 in Case 347/85 United Kingdom v Commission [1988] ECR 1749, plementation and application of Community paragraph 46. That expenditure may be disallowed even when it is clear that no substantive irregularity has taken financed schemes: expenditure incurred in place was confirmed in the judgment of 25 February 1988 breach of Community law can only be in Case 327/85 Netherlands v Commission [1988] ECR 1065. 46 — Opinion of 5 December 1978 Netherlands v Commission 44 — Judgments of 7 February 1979 in Case 11/76 Netherlands v [1979] ECR 286, at p. 292. Emphasis added. Commission [1979] ECR 245, paragraph 12, and in Case 18/76 Gtrmanyv Commission [1979] ECR 343, paragraph 47 — See for example the judgment of 25 November 1980 in 12: 'it is moreover established that up to the present no Case 820/79 Belgium v Commission [1980] ECR 3537, specific procedure for attributing liability has been laid down by Community law for the purposes of settling p aragraph 15: 'consequently the applicant has not estab- ished that the incorrect application of the provisions differences between the Community and the Member of . . . by the Belgian authorities should be attributed to the States. The discharge of the accounts by the Commission Commission'. Sec also paragraph 19 of the judgment of 21 thus necessarily entails the attribution of expenditure either February 1989 in Case 214/86 Greece v Commission [1989] to the Commission or the Member Sute concerned'. ECR 367.

The principle itself of extrapolation has By way of comparison it is interesting to already been recognized by the Court in a look at the alternative, less flexible weapon number of concrete situations. The most constituted by an application under Article far-reaching variant, which was applied in 169 of the EEC Treaty which results in a an extreme case comparable with that of the sanction. Whilst in such a case the sheep premiums in the area of the Commission, as applicant, in principle bears Rhineland Chamber of Agriculture, the burden of proof of the breach of the consisted of disallowing all financing in a law, 4 9 the Court in its judgment of 22 case where the Commission was totally September 1988 in Case 272/86 held that unable to ascertain whether the rules were the applicant had adduced sufficient correctly applied. 51 A less far-reaching evidence of irregularities and that therefore extrapolation was recognized by the Court it was for the defendant Member State to in its recent judgment of 21 February 1989 contest that evidence and the consequences in Case 214/86 Greece v Commission [1989] thereof in a substantiated and detailed ECR 367. In that case the Court saw no manner. 5 0 A certain flexibility is therefore objection to the Commission's method of also available as far as shifting the burden of working whereby it applied the (lower) proof is concerned even in proceedings percentage of quality acceptable for inter- based on Article 169. vention, appearing from an analysis of samples, to that portion of the consignment of products offered for intervention from which samples were supplied by the Member State and refused the financing of all other expenditure including all expen- diture relating to consignments of which no 29. A somewhat special feature in this case samples were supplied to the Commission. 52 is the largely 'implied' nature of the rules of Community law which the Commission says have been infringed (see paragraphs 21 and 22 above). In such a case, is the Commission entitled to extrapolate from the defective It is clear from these two judgments that the method of granting aid applied, and the not Commission, in the clearance of EAGGF accounts, can disallow more expenditure 48 — Judgment of 12 July 1984 in Case 49/83 Luxembourg v Commission [1984] ECR 2931, paragraphs 29 to 32, where than that relating to individual issue is uken with the Opinion of Advocate General consignments or cases it knows with Darmon based on earlier case-law, see p. 2950. certainty are not entitled to Community 49 — See judgment of 5 October 1989 in Case 290/87 Commission v Netherlands [1989] ECR 3083, paragraphs 16 financing. This state of affairs, brought to 20, and the Opinion of Mr Advocate General Lenz of 11 July 1989, ECR 3091, paragraph 40. 50 — Commission v Greece [1988] ECR 4875. Since the Greek 51 — I refer here to the France v Commission judgment, cited Government submitted no evidence to the Court on this above in footnote number 7. point, the Court held that the facts had to be deemed to be 52 — Paragraph 19, and paragraphs 30 to 33 of Advocate established. General Lenz's Opinion o f 2 2 November 1988.

about by a lack of specific knowledge of The Member States may also in an appro- actual cases and the need for financial priate case be allowed to show that a much discipline, inevitably leads to a situation lower standard is applied towards other where a certain dislocation may occur Member States or regions. 54 between the undertaking-Member State relationship and the Commission-Member State relationship. For example, the Member State is not able, in the case of disallowance of expenditure on account of inadequate supervision or incorrect interpretation imputable to itself, to compensate for its failure to recover by demands for repayment from undertakings. 53 Rigour towards Member States thus does not mean rigour towards legal subjects.

On the other hand for the not only when, in relation to a region, there Stuttgart Regierungspräsidium it seems is no indication whether, if at all, a possible, in line with the judgment cited minimum standard of supervision exists over above in Case 49/83, 5 5 to hold that, regard the expenditure of money in the name of being had to 'the circumstances of the case' the Community — the case of the sheep and the 'implied' nature of the control premium in the Rhineland Chamber of requirements there is no adequate causal Agriculture — , but also when several link between the failings found by the significant control requirements have not Commission in the control system and the been fulfilled in a region, which inter alia expenditure incurred by the Member State. may be apparent from a considerable There was nevertheless some, albeit number of defective dossiers. It is for the deficient, form of on-the-spot inspection in Member State to cast doubt on the this area (see above at paragraph 18), so Commission's statement of reasons, which is that in my view compliance with the criteria inevitably based on suppositions and extra- as to income and the undertaking not to sell polations, and to suggest that it is not may be regarded as having been verified to supported by concrete facts with regard to some extent, albeit in an incidental fashion the supervisory situation in question. The (see above at paragraph 26). Member State must therefore put forward substantiated and detailed items of evidence. 54 — In this case no such argument going to equality was put forward by the applicant. The defendant on the other 53 — That does not mean to say that the disallowance of expen- hand adduced evidence giving the impression that other diture is a 'sanction' imposed on the Member State. In regions of the same Member Sute were tested against the contradistinction to a judgment under Article 171 of [he same yardstick and found to be satisfactory, whilst some Treaty no moral reproach is implied. The clearance of other Member States for the same reasons related to EAGGF accounts is therefore no more than a decision as supervision had to accept the disallowance of expenditure to the allocation of a financial burden as between two in the same sectors. authorities. 55 — See footnote 48 above.