C-32/89

GREECE v COMMISSION

O P I N I O N OF MR ADVOCATE GENERAL JACOBS delivered on 6 December 1990"'

My Lords, investigations carried out in connection with the clearance of accounts for 1986 ('the Summary Report'), extracts from which are annexed to the Commission's defence.

1. In these proceedings, Greece seeks the annulment under Article 173 of the EEC Treaty of Commission Decision 88/630 (Official Journal 1988 L 353, p. 30) in so 4. The present case is one of a series in far as it concerns the clearance of the which the conduct of the Greek authorities accounts presented by Greece in respect of in managing agricultural produce has been the expenditure for 1986 of the Guarantee in issue. Four such cases were decided Section of the European Agricultural earlier this year: judgments of 10 July 1990 Guidance and Guarantee Fund ('the Fund'). in Cases C-259/87, C-334/87 and On 26 April 1989, an application by Greece C-335/87, Greece v Commission [1990] for an interim order suspending the ECR I-2845, I-2849 and 1-2875; judgment contested decision was rejected. of 12 July 1990 in Case C-35/88, Commission v Greece [1990] ECR 1-3125. In the light of those judgments, the applicant withdrew a number of the claims made in these proceedings. There are in substance six remaining heads of claim. I 2. It appears from Article 1 of and the will examine each in turn. annex to the contested decision that the expenditure charged by the applicant in respect of the 1986 financial year amounted to DR 168 406 791 240. Of this, the Commission only recognized the sum of (a) The Commission's power to adopt DR 161 532 024 085 as chargeable to the decisions Fund, leaving DR 6 874 767 155 to be borne by the applicant.

6. The applicant contends that, in clearing the accounts presented by the Member (b) Programme contracts States, the Commission has no power to adopt decisions within the meaning of Article 189 of the EEC Treaty. According to the applicant, this conclusion follows from the terms of Article 5(2)(b) of Regu- 9. The Commission alleges that the Central lation No 729/70 on the financing of the Office for the Management of National common agricultural policy (Official Produce (KYDEP), an organization of agri- Journal English Special Edition 1970 (I), cultural cooperatives which acts as an EEC p. 218), under which the accounts presented intervention agency in respect of certain by the Member States are cleared. Unlike products, undertook on behalf of the State Article 5(2)(a), which uses the word to dispose of stocks of common wheat in its 'decide', Article 5(2)(b) simply states that possession. This operation was, according to the Commission ' s h a l l . . . make up the the Commission, carried out by means of accounts . . . '. According to the applicant, it two so-called programme contracts carrying does not confer on the Commission any an obligation to export within a certain power to adopt decisions for this purpose. time-limit flour obtained by processing. They are called 'programme contracts' because they establish a programme for the disposal by KYDEP of its stocks of cereal. These contracts are also in issue in another 7. This argument is in my view fallacious. case pending before the Court, Case As the Commission points out, it is difficult C-61/90 Commission v Greece. to see how accounts could be cleared in the absence of a decision in respect of them. The applicant does not say whether it thinks the Commission has the power to adopt any other type of act within the meaning of Article 189 for this purpose. Moreover, 10. The Commission claims that the first Article 8 of Commission Regulation such contract was made with a number of No 1723/72 on the clearance of accounts mills and covered 500 000 tonnes of concerning the Guarantee Section of the common wheat, which is said to have left Fund (Official Journal English Special national stocks between January and May Edition, Second Series (III), p. 109) refers 1983. The purchasers were required to specifically to decisions on the clearance of export the wheat within eight months of accounts adopted under Article 5(2)(b) of removal. The cost to the Greek State of this Regulation No 729/70, before setting out operation was, according to the what such decisions should contain. I Commission, DR 1 500 million. The second therefore have no doubt that the latter contract is said to have been concluded provision must be understood as conferring between KYDEP and the Government and on the Commission the power to adopt related to 400 000 tonnes of common decisions. wheat. Pursuant to this contract, it is

15. As far as the relationship between 12. The applicant's challenge to the KYDEP and the Greek State is concerned, corrections made by the Commission in the applicant emphasizes that KYDEP is a respect of these contracts has two elements. cooperative acting on behalf of its members, The first concerns the existence of the which are associations of agricultural contracts, the second the financial cooperatives composed in turn of individual relationship between KYDEP and the Greek producers. The applicant claims that, under State. Greek law, its deficits must be covered by its members and from its own reserves in equal proportions. The applicant does not deny that KYDEP receives substantial sums 13. The applicant does not deny that of money from the State, but claims that programme contracts in respect of common these sums are intended to finance its wheat flour and pasta were carried out, but general running costs rather than to cover denies that any such contracts were its deficits. concluded in respect of durum wheat meal. The Commission refers in the Summary Report, however, to a note dated 6 June 1985 sent by the Director-General of KYDEP to its administrative council. That note, which is attached to the Commission's 16. The Commission does not contest the defence at Annex VI, refers to the signature formal status of KYDEP under Greek law, by the Ministry for the National Economy but produces compelling documentary of a programme contract for the exportation evidence that it intervenes in the cereals of 40 000 tonnes of meal, which would sector in pursuit of domestic policy absorb 78 000 tonnes of durum wheat. It objectives on behalf of the Greek State,

20. The applicant has not put forward any 18. The financial links between KYDEP cogent evidence, either in the course of and the Greek State were examined by the these proceedings or during the earlier Court in some detail in Case C-35/88. investigations, to refute the conclusions the There the Court found that, by intervening Commission invites the Court to draw. in the purchase and sale of feed grain by Indeed, the Summary Report contains a KYDEP, by making up the deficit incurred catalogue of the obstacles which were by KYDEP as a result of its intervention in placed in the way of the Commission as it the market for feed grain and by allowing attempted to establish the extent of any KYDEP to obtain, by virtue of a State financial transfers made to KYDEP on guarantee, loans from the Bank of Greece, behalf of the Greek State. In particular, the Greece had failed to fulfil its obligations Commission seems to have been unable to under Community law. Moreover, the obtain access to KYDEP's premises and Greek Government accepted in that case KYDEP apparently refused to answer

I -1340

GREECE v COMMISSION

24. In its application, the applicant acknowledges that virtually all feed grain produced in Greece is handled by KYDEP. It also accepts that the price at which KYDEP purchases feed grain may be higher (c) Animal feed market than the intervention price where market conditions make this necessary. However, the applicant denies that KYDEP constitutes a State monopoly, repeating its claim that 50% of any deficits it incurs are met by its members, the remainder being met from its 22. The Commission alleges that KYDEP own reserves. deals in animal feed as the agent of the State and that any deficits thereby incurred are made good out of the national budget. In support of this allegation, the Commission again refers inter alia to the minutes of a meeting of the joint committee 25. The applicant also maintains that the of the Ministries of Trade and Agriculture price of animal feed has little effect on held in Athens on 14 February 1984 (see demand, as only feed with certain well- Annex VII to the defence). This document defined characteristics will satisfy the gives details of the cost to the State for the requirements of purchasers. The applicant year 1982 of the management by KYDEP of does not, however, suggest that Greece is the feed grain market, which amounted in the only source of good quality animal feed, total to over DR 7 900 million. nor that price has no effect on purchasers

I - 1341

OPINION OF MR JACOBS —CASE C-32/89

28. The evidence put forward by the Commission in these proceedings is corro- borated by the findings of the Court in Case C-35/88, to which I have already referred. 26. The applicant's claim that KYDEP's There the Court based its conclusion that activities on the animal feed market had no Greece had failed, during the period 1 effect on competition between Member January 1981 to 26 March 1984, to fulfil its States is in my view irrelevant. The essence obligations under the legislation establishing of the Commission's case is that the acti- a common organization of the market in vities of KYDEP and of the Greek State cereals on the following findings of fact. facilitated exports of animal feed which would not otherwise have taken place. The result, according to the Commission, was to increase the amount of the export refunds which the applicant sought to charge to the Fund. The applicant's claim that other Member States showed little interest in many of the markets to which Greece 29. First, the Greek authorities fixed the exported animal feed has no bearing on the selling price of feed grain and the quantity Commission's claim that those exports only sold by KYDEP to farmers and to under- took place because they were subsidized. takings producing compound feed for animals. Secondly, the Greek State underwrote the deficit incurred by KYDEP as a result of its Government-imposed practice of selling at a loss. Thirdly, by standing as guarantor, the Greek State enabled KYDEP to borrow money from the 27. As far as the financial links between Bank of Greece in order to finance its oper- KYDEP and the Greek State are concerned, ations on the feed grain market. Fourthly, the Commission has produced the balance the price at which KYDEP bought in feed sheets of KYDEP for the years 1983, 1984 grain was fixed by the Greek authorities. and 1985. These show that KYDEP's total The Court concluded that the Greek auth- reserves in each of those years amounted to orities therefore controlled the way in which

32. According to the report of the 36th general assembly of KYDEP (defence, Annex XII), approximately 65 000 tonnes of durum wheat were taken into Community intervention by KYDEP in 1985. The wheat 30. Again, the period with which the Court in question was not purchased from was concerned in Case C-35/88 does not producers but merely transferred from coincide precisely with the period at issue national stocks already held by KYDEP. here. However, the two do overlap and the According to the Commission, the State applicant has not advanced any evidence to reimbursed KYDEP for the difference suggest that KYDEP's role altered in any between the original cost of the wheat to relevant respect after 26 March 1984. KYDEP and the intervention price. This Although the applicant suggests in its reply claim is supported by the note dated 6 June that any deficit incurred by KYDEP in 1985 sent by the Director-General of managing the feed grain sector could have KYDEP to its administrative council been met by borrowing from the Bank of (defence, Annex VI). Greece, it does not put forward any evidence that advantage was taken of any such facility nor of the terms on which the Bank of Greece might have been willing to make finance available to KYDEP. It is 33. The report of the 36th general assembly clear from the Court's judgment in Case of KYDEP recognizes that durum wheat C-35/88 that, between 1981 and 1984, the produced in Greece often fails to reach the relationship between KYDEP and the bank quality criteria laid down by Community was not an arm's length one and it seems legislation for taking cereals into inter- unlikely that that relationship changed vention. It appears to acknowledge that the fundamentally between 1984 and 1986. quantity taken into intervention in 1985 presented 'minimal divergences' from the quality criteria laid down by the Community. The Commission also suggests in the Summary Report that the durum wheat was taken into intervention in 1985 not in furtherance of the objectives of the common agricultural policy but pursuant to 31. The benefit of any doubt that remains a national market support policy, the cost of (and I do not entertain a great deal) must in which the Greek authorities were seeking to my view be accorded to the Commission. As transfer to the Fund. The Commission has I mentioned above and as the Court found therefore disallowed the intervention costs in Case C-35/88, the applicant was less than relating to the 65 000 tonnes of durum frank in its dealings with the Commission wheat bought in 1985. over the relationship between KYDEP and the Greek State. On the basis of the infor- mation available to it, the Commission was in my view entitled to conclude that the contested refunds in respect of animal feed 34. The Greek record on durum wheat is should not be charged to the Fund. not a good one. In Case C-214/86 Greece v

Commission [1989] ECR 367, in which question did not quite meet the quality Greece challenged the clearance of accounts standards applicable was strong, if not for 1982, the Court accepted that durum conclusive, evidence that this was in fact the wheat of the 1982 harvest was taken into case. Then, in the course of the defence, the intervention in Greece in breach of the Commission switches the emphasis of its Community quality standards. Moreover, in case from the quality of the wheat to the Case C-281/87 Commission v Greece [1989] reasons why it was taken into intervention. ECR 4015 the Court held, in proceedings The Commission claims that the principal under Article 169 of the Treaty, that Greece reason why the intervention costs were had breached its obligations under the legis- disallowed was that the wheat had been lation relating to the common organization taken into intervention, not in accordance of the market in cereals by instructing with the objectives of the common agri- KYDEP to purchase inferior quality durum cultural policy, but to reduce the cost to wheat of the 1982 harvest. KYDEP of its growing stockpile of unsold cereal. In its rejoinder, the Commission argues that, whether or not the contested wheat complied with the applicable quality standards, the fact that it was taken into intervention in pursuance of national policy objectives is in itself enough to justify the 35. None the less, the applicant does not Commission's refusal to allow the cost of accept that the contested wheat failed to the operation to be charged to the Fund. meet the relevant quality standards. Despite the remarks made in the report of the 36th general assembly of KYDEP, it claims that all the wheat was inspected when it was offered to KYDEP and found to meet the quality criteria laid down in Commission Regulation No 1569/77 fixing the procedure and conditions for the taking over of cereals by intervention agencies (Official Journal 1977 L 174, p. 15). In support of this claim, the applicant has produced a number of records made at the time the inspections were carried out. The applicant claims that the Commission's 37. As far as the quality of the disputed inspectors were informed of the existence of wheat is concerned, the applicant bears the these records on a number of occasions but burden of establishing that the applicable that the Commission chose not to examine standards were satisfied: see Case 347/85 them. United Kingdom v Commission [1988] ECR 1749, paragraph 14. However, I consider that, by producing records made at the time the wheat was offered to KYDEP which purport to show that the applicable quality standards were met, the applicant has done enough to shift that burden to the 36. In its defence, the Commission alleges Commission. It transpired at the hearing that the records in question were not that the Commission was unable to produce presented to it, but that the fact that any direct evidence to substantiate its claim KYDEP acknowledged that the wheat in that the disputed wheat was substandard, as

it had not actually examined the quality of 40. In the present case, the applicant does the wheat in question. I therefore proceed not deny that the disputed wheat was orig- on the basis that the disputed wheat inally bought in by KYDEP in accordance complied with the relevant quality with a national price support policy and standards. only later transferred to Community inter- vention. The Court's decision in Case 281/87 makes it clear that the arrangements under which the wheat was originally bought in were unlawful, since they interfered with the machinery established by the legislation on the common organization of the market in cereals. The subsequent 38. The applicant's claim under this head transfer of the wheat into Community inter- accordingly turns on the legitimacy of vention was wholly artificial, since it was KYDEP's decision to take the disputed carried out not to provide a safety net for wheat into intervention. This aspect of the producers, the purpose of genuine inter- dispute is not discussed by the applicant vention buying, but to transfer to the Fund either in its application or in its reply, part of the cost of a national price support perhaps because the Commission initially policy which was itself unlawful. placed greater emphasis on its claim that the contested wheat was substandard. None the less, the Commission's allegations to the effect that the wheat was improperly taken into intervention are mentioned in the Summary Report and dealt with more fully 41. I conclude that, even if the 65 000 in the defence. I do not therefore consider tonnes of durum wheat bought in by the that the applicant's right to be heard has Greek authorities in 1985 complied with the been prejudiced. relevant quality standards, the cost of the operation is not chargeable to the Fund since the operation was not carried out in accordance with the objectives of the legis- lation establishing a common organization of the market in cereals. This head of the applicant's claim should therefore be dismissed. 39. In Case 281/87 Commission v Greece, cited above, the Court stated, reiterating its previous case-law, that in sectors covered by a common organization of the market, and a fortiori when that organization is based on (e) Contract concluded outside deadline a common price system, Member States can no longer take action, through national provisions adopted unilaterally, affecting the machinery of price formation as established under the common organization. The Court therefore held that, by instructing KYDEP 42. Article 2(2)(b) of Regulation to purchase inferior quality durum wheat of No 1082/85 introducing private storage aid the 1982 harvest, Greece had failed to fulfil for Kefalotyri and Kasseri cheeses (Official its obligations under the legislation relating Journal 1985 L 114, p. 29) provides that to the common organization of the market storage contracts shall be concluded 'at the in cereals. latest 40 days after the date on which the

43. The applicant states that, before such contracts can be signed, the storer must (f) Sales at fixed prices of dried grapes from provide evidence that the cheese in question the 1983 harvest has actually been put into storage. In the case of this particular quantity, the evidence was allegedly delayed in the post during the period approaching Christmas. (The date on which the evidence was posted is not, 46. In the clearance of accounts for 1985, a however, specified in the application.) The correction was made to take account of the applicant claims that the postal delay effect on the Fund of expenditure on constitutes force majeure and that the failure storage costs and financial compensation to comply with the time-limit laid down in arising out of restrictions placed by the Regulation No 1082/85 should therefore be Greek authorities on exports of dried grapes condoned. from the 1983 harvest. The Commission takes the view that those restrictions interfered with the proper functioning of the system established by Regulation No 3444/84 on the sale at a price fixed in advance of dried grapes from the 1983 44. I am unable to accept this argument. It harvest held by Greek storage agencies is well established that, although the (Official Journal 1984 L 318, p. 33), which concept of force majeure 'does not pre- was in force between 10 December 1984 suppose absolute impossibility, it never- and 31 January 1985. The result is said to theless requires the non-performance of the have been a sharp fall in the quantity sold act in question to be due to circumstances and a corresponding increase in storage beyond the control of the person claiming costs. Moreover, it is claimed, by the time force majeure which are abnormal and the restrictions were relaxed, the quality of unforeseeable and of which the conse- the dried grapes had deteriorated and lower quences could not have been avoided prices had to be accepted. despite the exercise of all due care' (see Case C-109/86 Theodorakis v Greece [1987] ECR 4319; Cases C-334 and C-335/87, already cited). The Greek Government acknowledges in its application that it is 47. The Commission considers that the well known that the post is subject to delay actions of the Greek authorities also in the period immediately preceding affected the amounts declared to the Fund Christmas. It is therefore not unreasonable in respect of 1986. Financial corrections to expect those who have important were therefore made in relation to that year deadlines to meet to make allowance for on a similar basis as for 1985.

49. In the instant proceedings, the applicant 52. Finally, I consider it appropriate to add has again denied that any restrictions were some general observations about the duties placed on the export of dried grapes from of Member States in their dealings with the the 1983 harvest. The only factor advanced Fund. The financing of the common agri- by the applicant to distinguish 1986 from cultural policy is achieved by means of a 1985 in this respect is the adoption of Pres- system based on trust in which the idential Decree No 215/86. The applicant management of the Fund is left principally claims that that decree removed any in the hands of the competent national remaining restrictions on the export of dried authorities: see Case 349/85 Denmark v grapes. The decree was not adopted until 13 Commission [1988] ECR 169, paragraph 19. June 1986, however, and its adoption is not Thus, Article 8(1) of Regulation No 729/70 in my view enough to establish that the requires the Member States to: effects of the restrictions on the export of dried grapes considered by the Court in Case C-335/87 were confined to 1985. Indeed, it emerges from the file that most of ' — satisfy themselves that transactions the storage costs in respect of which the financed by the Fund are actually Commission made financial corrections for carried out and are executed correctly; 1986 were incurred between 1 January 1986 and 30 June 1986.

— prevent and deal with irregularities;

50. It also emerges from the file that the applicant sought to charge to the Fund for — recover sums lost as a result of irregu- 1986 financial compensation paid in respect larities or negligence.' of dried grapes from the 1983 harvest which were sold at prices below that fixed by Regulation No 3444/84. The applicant has not, however, sought to refute the If it proves impossible to recover such sums Commission's finding that those lower in their entirety, the financial consequences prices were due to the restrictions on are, by virtue of Article 8(2), to be borne by exports which were considered by the Court the Community only where the national in Case C-335/87 to have interfered with authorities were not at fault.

53. In exercising their responsibility for The obligation imposed on Member States ensuring that the relevant Community rules by that provision is reinforced by Article 5 are strictly observed, the Member States act of the Treaty. essentially as trustees of the Fund. Any veri- fication which the Commission decides to undertake is ancillary to the supervision 54. I consider that the Member States, in carried out by the Member States, as the their capacity as trustees of the Fund, have a eighth recital to Regulation No 729/70 duty to ensure that the conditions under makes clear and as the Court acknowledged which expenditure, intended to be charged in Case C-366/88 France v Commission, to the Fund, is effected are as transparent as judgment of 9 October 1990, paragraph 20. possible. Otherwise, an unreasonably heavy Nevertheless, the national authorities are burden is placed on the Commission in the under an obligation to cooperate fully with exercise of the supervisory functions the Commission in the exercise of its own accorded to it by Regulation No 729/70. supervisory functions. That obligation finds The Commission is not merely entitled but expression in Article 9(1) of Regulation required to disallow all expenditure effected No 729/70, the first paragraph of which by the Member States unless satisfied that it states : was carried out strictly in accordance with the relevant Community rules. Where the Commission refuses to charge certain expenditure to the Fund on the basis that the relevant rules have been breached, the Member State concerned bears the burden of establishing that the conditions for 'Member States shall make available to the obtaining the finances in question were met: Commission all information required for the see Case 347/85 United Kingdom v proper working of the Fund and shall take Commission [1988] ECR 1749, paragraph all suitable measures to facilitate the super- 14, cited above at paragraph 37. Member vision which the Commission may consider States which fail to comply with their duty it necessary to undertake within the to ensure transparency and which are less framework of the management of than frank in their dealings with the Community financing, including inspections Commission will inevitably find that burden on the spot.' a difficult one to discharge.