C-197/91

— recover sums lost as a result of irregular- ities or negligence. 1. Council Regulation (EEC) N o 729/70 (OJ, English Special Edition, 1970 (I), p. 218) governs the financing of the common agricultural policy. Article 1(2) in combina- The Member States shall inform the Com- tion with Article 3(1) provide that the Guar- mission of the measures taken for those pur- antee Section of the Fund is responsible for poses and in particular of the state of the financing intervention intended to stabilize administrative and judicial procedures. the agricultural markets which is undertaken according to Community rules. Article 2. In the absence of total recovery, the finan- cial consequences of irregularities or negli- * Original language: English. gence shall be borne by the Community,

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FAC v ASPROFRUT AND AIMA

with the exception of the consequences of The facts and the legal issues irregularities or negligence attributable to administrative authorities or other bodies of the Member States.

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OPINION OF MR JACOBS — CASE C-197/91

'Whereas the expenditure disallowed for that Italy sought unsuccessfully the annul­ Italy comprises an amount of ment of Decision 90/213 in so far as it L I T 20 920 524 089 in respect of financial refused to recognize as chargeable to the compensations paid by producers' organiza­ Fund certain other expenditure declared by tions in the sector of fruit and vegetables; Italy (Case C-197/90 Italy v Commission whereas this amount must be charged to this [1992] ECR 1-1). Following the adoption of Member State pursuant to this Decision; Decision 90/213, AIMA, the Italian interven­ whereas, the special circumstances of this tion agency, sent to all fruit and vegetable case, however, justify re-examination by the producers' organizations in Italy a request Commission of the disallowance during the for the reimbursement of 5% of the total present clearance, provided this Member amount of the financial compensation paid to State provides the necessary evidence b y them in 1987. One of those organizations was 31 December 1989 at the latest; whereas this the Associazione tra Produttori Ortofrut­ Decision is none the less immediately appli­ ticoli Piemontesi (Piedmont Association cable.' of Fruit and Vegetable Producers, otherwise known as Asprofrut). When it received the request for reimbursement from AIMA, Asprofrut informed its members that it intended to debit their accounts by an The Italian authorities did not provide any amount equal to 5 % of the compensation evidence to justify re-examining the disal­ paid to them in 1987 for the withdrawal of lowance in question. That disallowance was products from the market. therefore confirmed by Commission Decision 90/213, the second recital of which reads as follows:

in the light of provisions of Community proceedings. Nor have observations been law relating to the budget and financial submitted by AIMA, which intervened in relations between the Community and the proceedings before the national court. the individual Member States, to the FAC regards the first question as the princi- extent to which those decisions charged pal issue, arguing that if the contested deci- to the Italian State the amount of sions of the Commission were found invalid LIT 20 920 524 089 corresponding to consideration of the second question would financial compensation granted by pro- be rendered superfluous. The Commission, ducers' organizations in the fruit and on the other hand, argues that the validity of vegetables sector; and the decisions on the clearance of accounts is not relevant to the outcome of the national proceedings. In its view, the obligation to recover unduly paid sums is imposed on the (b) whether the Italian authorities' claim to national authorities directly by Article 8 of charge to all fruit and vegetable produc- Regulation N o 729/70 and exists whether or ers' organizations without distinction the not any irregularities have been recorded in flat-rate amount of financial compensa- its decision on the clearance of the accounts. tion for market withdrawals charged to I leave aside for the moment this argument the Italian State on the clearance of of the Commission. In my view, it is clear accounts in respect of the expenditure from the questions referred and the dispute for 1987 of the EAGGF, Guarantee Sec- pending before the national court that if the tion, is consistent with the general prin- second question is answered in the negative ciples of the Community legal order on there will be no need to examine the validity the lawfulness of administrative action, of the Commission's decisions. In other on protection and the rights of the words, if it is established that a Member defence, and on the supervision of Com- State may not operate a policy of flat-rate munity incentives in the agricultural sec- recovery of unduly paid aid from producers' tor, together with a ruling on the liability organizations, that finding will be sufficient of fruit and vegetable producers and to determine the outcome of the national their respective organizations. proceedings. I start therefore with the second question.

Germany [1983] ECR 2633, at paragraph are required to grant an indemnity to their 17 et seq. of the judgment. In particular, the members for products that remain unsold Court stated at paragraph 22 that 'the appli- (Article 15). Under Article 18(1) Member cation of national law must not affect the States are required to grant financial com- scope and effectiveness of Community law'. pensation to producers' organizations which The submission of the Greek Government intervene. Article 18(2) provides that the that the question concerns exclusively prob- value of the financial compensation shall be lems of Italian domestic law and as such falls equal to the indemnities paid by the produc- beyond the jurisdiction of the Court is ers' organizations, less any receipts from therefore without foundation. products withdrawn from the market. It fol- lows from the text of Article 18(1) and the objectives of Regulation N o 1035/72 that producers' organizations have a right to receive compensation when the conditions laid down by Article 18 are fulfilled. How- 10. In the present case the correction made ever, the flat-rate reduction of 5% was indis- to the accounts presented by Italy was not criminately applied to all fruit and vegetable based on particular findings of fraud or neg- producers' organizations irrespective of ligence but on the failure of the Italian whether they had complied with the condi- authorities to supervise adequately the func- tions laid down by Article 18 and therefore tioning of the producers' organizations. had the right to receive Community aid. After the second decision of the Commission which confirmed the disallowance of 5%, the Italian intervention agency proceeded to a mechanical application of the disallowance: it made no effort to establish the existence of irregularities on the part of specific produc- ers' organizations but sought to recover indiscriminately from all organizations of fruit and vegetable producers 5% of the aid granted for the withdrawal of products in 1987. In my view, such action is plainly not compatible with Community law because it disregards the rights of producers' organiza- 12. In my view, therefore, a Member State tions to receive aid once they fulfil the may not recover unduly paid aid on a flat- requirements provided for by Community rate basis, as was done by the Italian author- rules. ities in the present case. The obligation of Member States to recover aid presupposes, in my view, that it is established in the particu- lar case that (e. g. because of irregularity, negligence or error duly proved) the recipi- ent was not entitled to the aid; for the bur- den of proof in such cases, see Deutsche 11. As the Commission points out, an inte- Milchkontor, paragraphs 34 to 39. In the gral part of the price support mechanism present case, it was not established that the provided for by Regulation N o 1035/72 is recipients were not entitled to the aid; as the that when a withdrawal price is fixed in rela- Commission stressed at the hearing, there is tion to a product, producers' organizations no suggestion that the disallowance was

15. According to the Commission, decisions on the clearance of accounts concern only The first question the financial relations between the Commu- nity and the Member States and do not affect the rights or obligations of third parties. As already mentioned, the Commission consid- ers that the obligation to recover unduly 13. The Greek Government argues that the paid sums is imposed on the national author- first question is inadmissible because it ities directly by Article 8 of Regulation No relates to the validity of decisions on the 729/70 and exists whether or not any irregu- clearance of past accounts. It points to the larities have been recorded in its decision on practical difficulties that would ensue if the the clearance of the accounts. Any change in accounts were found invalid after they had the legal position of third parties results become final and argues that the issue of exclusively from the measures taken by their validity should not be raised after the Member States for the recovery of unduly expiry of the time-limit laid down in Article paid sums. The Commission cites Joined 173 of the Treaty. I do not agree. Risk of Cases 89/86 and 91/86 Étoile Commerciale inconvenience cannot be a ground for ruling and CNTA v Commission [1987] ECR a request under Article 177 of the Treaty 3005 and Deutsche Milchkontor v Germany inadmissible. In any event, it would be open (cited above) in support of those arguments. to the Court to limit the effects of its judg- It concludes that a decision on the clearance ment if it considered it appropriate to do so of accounts produces no legal effects vis-a- in order to protect the requirements of legal vis third parties in proceedings concerning certainty. the recovery of unduly paid sums. It follows, according to the Commission, that the valid- ity of such decisions cannot be relevant to the outcome of such proceedings.

such circumstances. The cases referred to by and to examine documents with a view to the Commission do not support that propo- ensuring the effectiveness of the supervisory sition. In Deutsche Milchkontor v Germany control exercised by Member States. It is the Court was concerned with the extent to therefore always possible that the Commis- which the principles of Community law sion may uncover an irregularity by a partic- restrict the rules of national law applicable to ular trader missed by a Member State. The the recovery of unduly paid sums. The Com- Member State must then recover the sums mission's decision on the clearance of the lost. The possibility cannot be excluded that accounts was not in issue in the proceedings. the Commission may be mistaken in ascer- In Étoile Commerciale and CNTA v Com- taining the existence of the irregularity or in mission the Court held that a decision on the relation to the precise amount to be recov- clearance of accounts was not of direct con- ered. In my view, it is clear that in such a cern to a producer within the meaning of case the validity of the Commission's Article 173, second paragraph, of the Treaty decision would be relevant to the outcome of since the clearance of the accounts is a matter the national proceedings concerning the law- confined to relations between the Member fulness of the recovery measures undertaken State and the Commission. It is, however, by the Member State against the particular clear that the lack of direct concern on the trader, and that this Court would then have part of a producer does not prevent the to rule, under Article 177 of the Treaty, on Court from ruling on the validity of a Com- the validity of the Commission's decision. munity measure in the context of a reference The opposite solution would be incompati- for a preliminary ruling made by a national ble with the principle of legal protection of court; nor does it mean that the validity of a the individual which Article 177 of the decision on the clearance of accounts is of no Treaty is designed to ensure. Equally, a relevance to the outcome of national p r o - decision to disallow expenditure might be ceedings involving economic operators w h o taken by the Commission on the basis of a have been made subject to recovery measures questionable interpretation of the Commu- undertaken by a national intervention nity regulations. If the Member State con- agency. cerned did not challenge the Commission's decision but sought recovery from the trad- ers concerned, national courts might prop- erly be led to consider, and to refer to the Court under Article 177, the correctness of the Commission's interpretation of the regu- lations and the validity of the consequent decision.

a ground of challenge to the legality of part of the Community budget the clearance AIMA's action, I cannot see any reason why of accounts under Article 5(2) of Regulation the Court should not examine the validity of N o 729/70 must be made in conformity with the contested decisions. At the hearing, the official accounting procedures and provide Commission sought to make it clear that it justification for every entry. Any disallow- was not suggesting that the question was ance, therefore, must correspond to a precise inadmissible, but rather that it was not rele- sum of money charged to the Fund which vant. I agree, for reasons given earlier, that should not have been so charged. According that is likely to be the case. In principle, to the Greek Government, since the Com- however, it is for the referring court to assess mission's disallowance does not correspond the relevance of a question for the outcome to precise amounts paid irregularly it consti- of the national proceedings. Since the tutes a financial penalty not provided for national court considers that an answer to under Regulation N o 729/70. the question is necessary for it to give judg- ment, it is in principle in conformity with the division of competences between the Court of Justice and the referring court for this Court to address the question, and there is no reason to depart from that principle in the present case. 21. It should first be noted that the extent of the duty to state reasons provided for in Article 190 of the EEC Treaty depends on the nature of the act in question and the con- text in which it was adopted: see e. g. Case 13/72 Netherlands v Commission [1973] ECR 27, Case 819/79 Germany v Commis- 19. O n the basis of the above considerations, sion [1981] ECR 21. As FAC accepts, it is I proceed to examine the issue of validity of not the purpose of the decision clearing the the contested decisions. (It may be said that accounts to make detailed reference to the the question of validity could arise only in findings of the inspections of the Commis- relation to the second, definitive decision, sion nor to provide reasons for disallowance and not in relation to the first, which was to third parties which may be affected as a only provisional; for convenience, how- result of action which may be taken by the ever, the two decisions can be considered national authorities. The reasons which led together.) the Commission to make the disallowance are explained in the summary report preced- ing the clearance of the accounts. Moreover, as FAC again accepts, there were continuing negotiations between the Commission and the Italian authorities before the disallow- ance was made. It is true, however, that the Commission has not indicated how the fig- 20. FAC and the Greek Government argue ure of 5% was derived. It therefore falls to that the Commission did not explain suffi- be examined whether the Commission was ciently the grounds on which the disallow- justified in making a flat-rate deduction of ance was made. The Greek Government fur- the expenditure submitted by Italy in view ther argues that since the Fund constitutes of the failure of the Italian authorities to

22. It is beyond doubt that only aid granted 23. The case-law of the Court makes it clear in accordance with Community rules may be that where the Commission refuses to charge financed by the Fund and that the Commis- certain expenditure to the Fund, it is for the sion is required to disallow all expenditure Commission to establish that the Member effected by the Member States unless satis- State in question has infringed the rules of fied that it was carried out strictly in accord- the common agricultural markets, while the ance with Community law: see e. g. Case burden of proving that the amount disal- 11/76 Netherhnds v Commission [1979] lowed by the Commission is wrong falls E C R 245. In Case 819/79 Germany v Com- upon the Member State: see Case mission [1981] ECR 21 the Court stated at 347/85 United Kingdom v Commission paragraph 8 of the judgment: [1988] ECR 1749 and Case C-197/90 Italy v Commission (cited above). In the latter case the Court held that a flat-rate disallowance of 10% of the expenditure declared by Italy in relation to processing aid for skimmed milk powder imposed by Decision 90/213 was justified in view of the failure of 'In cases where Community rules authorize the Italian authorities to carry out adequate payment of aid only on condition that cer- inspections as required by Article 10(2)(d) of tain formalities relating to proof or supervi- Regulation N o 1725/79 (OJ 1979 L 199, sion are observed, aid paid in disregard of p. 1). The Court stated, at paragraph 39 of that condition is not in accordance with the judgment, that since the controls were Community law and the expenditure inadequate the Commission could have incurred therein may not, in principle, be excluded the whole of the amounts in ques- charged to the EAGGF.' tion; the Italian Government could therefore not complain of a flat-rate reduction of 10%. Similar reasoning could be used in the present case where the disallowance of 5% was made as a result of the failure of the Ital- ian authorities to discharge their monitoring functions in the fruit and vegetable sector. As Similar statements were made in Case is made clear in the eighth recital to Regu- 327/85 Netherlands v Commission [1988] lation N o 729/70 on the financing of the E C R 1065, at paragraph 25 of the judgment, common agricultural policy and has been and in Case C-197/90 Italy v Commission acknowledged by the Court (Case [1992] ECR I-1, at paragraph 38 of the judg- C-366/88 France v Commission [1990] ECR ment. In the present case, neither the parties I-3571, paragraph 20), the responsibility for to the proceedings nor the Italian authorities ensuring the proper administration of the have presented evidence to challenge the Fund falls primarily on Member States. It is findings of the Commission's inspectors. I not the duty of the Commission to take over am therefore satisfied that Italy failed to or to duplicate the monitoring duties of carry out adequate supervision. It follows

(2) Where the Commission disallows expenditure from the European Agricultural Guidance and Guarantee Fund on the ground that a Member State has failed adequately to supervise the functioning of producers' organizations, that Member State is prohibited from recovering the corresponding sums on a flat- rate basis from those organizations; it may recover such sums only where it is established that an organization was not entitled to the sums in question.

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