C-40/92

COMMISSION v UNITED KINGDOM

OPINION OF MR ADVOCATE GENERAL GULMANN delivered on 14 September 1993 *

Mr President, The Court will be familiar with the scheme Members of the Court, in question and its relationship to Commu­ nity law from previous cases. The most important of these cases is Case C-372/88 Milk Marketing Board of England and Wales v Cricket St Thomas Estate, in which the Court delivered its judgment on 27 March 2 1990. It is sufficient for the purposes of the present case to bear in mind the following matters in respect of the factual and legal background to the Commission's conten­ 1. In this action for failure to fulfil obliga­ tions. tions under the Treaty, the Commission is seeking in particular a declaration that the United Kingdom has failed to fulfil its obli­ gations under Community law to ensure that the Milk Marketing Boards do not extend the exclusive right granted to them to pur­ 2. The Milk Marketing Boards (hereinafter chase milk from milk producers beyond the referred to as 'the MMBs') are associations limits resulting from Article 25 (1) of Regu­ of milk producers. One covers England and lation No 804/68 of the Council on the com­ Wales, three cover various production areas mon organization of the market in milk and in Scotland, and one covers Northern Ire­ milk products ('the basic regulation'). 1 land. The MMBs were set up in the 1930s, apart from that in Northern Ireland, which was not set up until 1955.

The MMBs are statutory bodies. Their estab­ lishment presupposes the participation of a The fundamental question in this case is sufficient number of milk producers. The whether the exclusive right of the Milk Mar­ detailed rules regulating their activities are keting Boards to buy milk other than whole laid down within the legislative framework milk also covers slummed and semi-skimmed by arrangements known as the Milk Market­ milk, that is to say, milk from which a ing Schemes. The adoption of those arrange­ greater or lesser part of the fat contained in ments and their amendment are subject to raw milk has been removed.

3. At the time of the United Kingdom's Producers are in principle obliged to deliver accession to the European Communities, a their milk to the MMBs. Conversely, the declaration annexed to the Final Act of the MMBs are under an obligation to buy pro­ Treaty of Accession stated that the organiza­ ducers' milk. An essential aspect of the tion of the market in milk would not prevent MMBs' activity is that they resell the pur­ a producer organization from being '... free chased milk at prices which vary according by its own decisions to consign milk wher­ to the use to which the milk is to be put. ever it chooses in order to get the best return This differentiation in resale prices is of cru­ for its members, to pool its financial returns cial importance for an understanding of the and to remunerate its members as it wish­ 3 present case. The resale prices are determined es.' A few years after the United King­ on the basis of discussions between the dom's accession, measures were adopted MMB in question and the purchasers which with a view to ensuring that the system of take place within a Joint Committee. It is not marketing in the United Kingdom could be disputed that higher resale prices apply to preserved within the Community system of milk intended for direct human consumption common organizations of the markets. The than to milk which is processed into other first such measure was an amendment to the products such as cheese and butter. The basic regulation and was introduced by way 4 MMBs pay to the producers a price which of Council Regulation (EEC) No 1421/78, represents the average of the prices realized the second recital in the preamble to which by the MMBs on resale and the income from stated: the activities of the MMBs is in this way apportioned among the producers.

... they have in principle the exclusive right 4. It is apparent from the documents on the to purchase milk from producers established case-file that uncertainty has arisen as to in their area'. whether skimmed milk and semi-skimmed milk are covered by the exclusive right of the MMBs to purchase milk sold in an unproc­ essed condition. It is also apparent that, so far as the Scottish MMBs are concerned, this uncertainty was resolved in the early 1980s through amendments to their Milk Market­ ing Schemes which made it clear that the exclusive right also covered skimmed and Article 25 of the basic regulation was semi-slummed milk. It would not appear amended so as to provide that a Member that this has given rise to any problems in State could, at its request, be authorized practice. under certain conditions to grant to an orga­ nization of milk producers 'the exclusive right ... to buy from producers established in the area in question the milk which they produce and market without processing ...'. The United Kingdom argues that the North­ ern Ireland MMB has consistently adminis­ tered the scheme in such a way that its exclu­ sive right also covers skimmed and semi- skimmed milk. Although the Commission has disputed this, my view is that it may be assumed that the Northern Ireland MMB, in the individual cases in which problems arose, requested producers who wished to market The Council at the same time adopted Reg­ skimmed and semi-skimmed milk otherwise ulation (EEC) No 1422/78, 5 which con­ 6 than through it to pay a balancing levy. The tained, inter alia, the detailed conditions problem apparently first arose in Northern governing the operation of the scheme Ireland in a dispute between the local MMB within the framework of Community law. and a dairy concern which led to the institu­ Article 10 (1) thereof provided: tion of proceedings in 1991.

unless otherwise agreed, such agreement —the United Kingdom has failed to comply being conditional on payment of a balancing with its obligations of supervision under levy. In support of this view, the MMB Article 10 of Regulation No 1422/78 and stated that it is only over the last few years Article 5 of the EEC Treaty. that appreciable quantities of skimmed and semi-skimmed milk have been sold for direct human consumption. It appears that there is a considerable number of producers who wish to market skimmed and semi-skimmed milk otherwise than through the MMB and In the alternative, the Commission argues (in that those producers have argued that the the event that the exclusive right is held to MMB's exclusive right does not cover those cover skimmed and semi-skimmed milk) that types of milk. the United Kingdom is under an obligation to protect the legitimate expectations of those producers who, relying on the author­ ities' original interpretation of the law, acted in the belief that they were lawfully entitled to sell their skimmed and semi-skimmed 5. The Commission's attention was drawn to milk otherwise than to the MMBs. the problem and it approached the United Kingdom authorities, pointing out that it was contrary to Article 25 (1) of the basic regulation for the MMBs to administer the schemes in such a way that their exclusive purchasing right also covered skimmed and 7. The United Kingdom has argued that the semi-skimmed milk. Those authorities ini­ Court should rule in its favour in respect of tially expressed their agreement with that the main submissions and declare the alter­ view but subsequently changed their attitude native submission inadmissible or rule in following (as they phrased it) a comprehen­ favour of the United Kingdom. sive reappraisal of the issues involved.

In the Cricket St Thomas judgment, the at one time the MMB of England and Wales Court held that the pasteurization of milk tolerated the sale of skimmed and semi- did not cause it to fall outside the MMBs' skimmed milk otherwise than to itself and exclusive right. In other words, pasteuriz­ that the original view of the United King­ ation did not amount to processing within dom authorities was that the Community the meaning of Article 25 (1). In the present rules were to be interpreted as meaning that case the Court must determine whether the producers of slummed and semi-skimmed removal of fat from raw milk during the milk could sell otherwise than to the MMBs. slumming process means that the resulting The relevant Community rules must be product does not come within the MMBs' interpreted on the basis of their wording, exclusive right. The practical significance of their context and their objectives and that that question, as I have already pointed out, process cannot be dictated by the manner in is attributable primarily to the fact that the which the MMBs and national authorities sale of milk for direct human consumption concerned may have interpreted them at a attracts higher prices than does the sale of certain time. milk for other purposes. Producers who sell otherwise than to the MMBs obtain higher prices for milk intended for direct human consumption, while producers who sell through the MMBs obtain only the average price which the MMBs pay to producers.

case. The Court's examination thereof led to In support of that result, he made, inter alia, a result which in my opinion is wholly trans- the following observations: 'The MMBs' posable to the present case. The Court held monopoly is recognized in so far as it is nec­ that the distinguishing criterion established essary to ensure the effectiveness of the pol­ by the Community rules as regards the scope icy of price differentiation and equalization of the exclusive right 'is based on the main which they pursue ... But if this is the eco­ characteristics of the product in question and nomic justification for recognizing the its intended commercial use'. From that the MMBs' monopoly, it follows that that exclu­ Court concluded that the question was sive right must be able to be exercised in therefore 'whether the product concerned relation to any type of milk which may be may still be regarded as milk or whether it is marketed for human consumption ...' a different product, derived from milk' (points 10 and 11). (paragraph 21 of the judgment). The Court, which held on that basis that 'the pasteuriza­ tion process ... does not essentially alter the nature of the product, which remains milk for consumption', found that conclusion borne out by 'the objectives of the Commu­ nity legislation' inasmuch as 'if the Board's exclusive right to buy milk did not extend to pasteurized milk, producers would be able to refuse to supply their milk to the Board, and to pasteurize it and sell it directly on the 12. It may in my opinion reasonably be market'. The Court pointed out that that assumed on the basis of the information result 'would mean the creation of a second before us that skimmed and semi-skimmed marketing channel jeopardizing the effective­ milk have the same main characteristics as ness of the system operating under the Milk whole milk and that these 'low-fat' milks Marketing Scheme' (paragraphs 22 and 23 of have essentially the same commercial uses as the judgment). whole milk. This view is reinforced when one considers that the grounds for Commu­ nity recognition of the marketing schemes in question apply just as much to skimmed and semi-skimmed milk as to whole milk and that the objective of the common organiza­ tion of the market would be jeopardized if the Commission's interpretation of Arti­ cle 25 (1) were to be accepted.

This view is reinforced in large measure by the fact that they have the same commercial 15. The Commission has stressed that when use in all essential respects. As already skimmed and semi-skimmed milk are pro­ pointed out, it is not disputed that they are duced, cream is produced at the same time, sold for direct human consumption. They and that it is undisputed that cream is not are sold in competition with each other through the same commercial outlets in the same cartons or bottles at prices which are the same or almost the same. The products in 7 — Article 3 of Regulation (EEC) No 1411/71 of the Council of 29 June 1971 laying down additional rules on the common question are essentially substitutable. organization of the market in milk and milk products for products falling within tariff heading No 04.01 (OJ, English Special Edition 1971 (II), p. 412) provides the following def­ initions:

17. There can also in my opinion be no rea­ sonable doubt that restriction of the MMBs' exclusive right to the purchase of whole milk alone could jeopardize the objectives of the national milk marketing schemes. As has already been pointed out, the preamble to Regulation No 1421/78 makes it clear that the reason behind the Community's recogni­ The significance of the MMBs' price policy tion of those schemes was that they led to a for the interpretation of the provision on reduction in intervention on the United their exclusive purchasing right was also Kingdom market in line with the wishes of stressed by Advocate General Tesauro in his the Community. It was pointed out that opinion in Cricket St Thomas, in which, through the schemes the predominant quan­ inter alia, he stated that: tity of milk produced in the United King­ dom was channelled into direct human con­ sumption.

20. The Commission has raised the question in these proceedings of the degree to which the possibility for producers to enter into agreements concerning contract processing has been restricted in a manner contrary to Community law.

19. It is probable that the present marketing system will be amended in 1994 to discon­ tinue the MMBs' exclusive purchasing right. It was pointed out during the case that a decision has been taken to put draft legisla­ 21. The scope of permissible contract pro­ tion to that end before Parliament. cessing would be a matter of considerable practical importance if the Commission were

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correct in its contention that skimmed and Kingdom authorities to ensure that the status semi-skimmed milk are not covered by the quo was maintained after the MMB of MMBs' exclusive purchasing right. This is England and Wales, contrary to previous due to the fact that the large number of pro­ practice, began in 1991 to enforce its alleged ducers who might wish to sell slummed and exclusive right to purchase skimmed and semi-skimmed milk otherwise than to the semi-skimmed milk. MMBs would be obliged on practical grounds to enter into agreements with dair­ ies regarding the production of skimmed and semi-skimmed milk.

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COMMISSION v UNITED KINGDOM

That element is the undisputed fact that until As has already been mentioned, the MMB in June 1991 the United Kingdom authorities question accepted, at least until the begin­ dealing with the Commission took the view ning of the 1990s, that producers could sell that the exclusive purchasing right did not skimmed and semi-skimmed milk otherwise cover skimmed and semi-skimmed milk. than to it and it was consequently at a rela­ This interpretation of the position in law was tively late point in time (in relation to the expressed to the Commission as late as adoption of the Government's present legal March 1991. In contrast to this, the legal view in June 1991) that it was prompted to position in Scotland had been specified in intervene. However, it seems to me appro­ the early 1980s, following parliamentary priate to hold that, with regard to England approval, as being that the exclusive purchas­ and Wales, the United Kingdom authorities ing right did cover skimmed and semi- also failed to treat their supervisory duties skimmed milk. Also in contrast thereto, it with sufficient seriousness. They ought to would appear that no challenge was made to have been ready to take clear and unambigu­ the view of the law underlying the adminis­ ous action as soon as problems arose. By rea­ tration of the scheme by the MMB of son, inter alia, of their changing views as to Northern Ireland. the position in law, the authorities contrib­ uted to the problems underlying this case becoming as serious as they did.

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27. The Commission has also claimed that MMBs' exclusive purchasing right, the pro­ the Court should declare that, by failing to ducers and/or processors who relied upon notify the Commission of the changes to the the interpretation of Community law Scottish schemes to ensure that their exclu­ accepted by the United Kingdom until its sive right covered skimmed and semi- change of position in June 1991, to the effect skimmed milk, the United Kingdom has that low-fat milk fell outside the scope of the failed to fulfil its obligations under Article 5 Milk Marketing Schemes concerned, enjoy a of the EEC Treaty. legitimate expectation to carry on trading in low-fat milk outside the exclusive purchasing rights of the MMBs of England and Wales and of Northern Ireland for a reasonable period and at least up to the date of the judg­ 28. It is not disputed that no such notifica­ ment of the Court. tion was ever made.

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COMMISSION v UNITED KINGDOM

opinion — a question which is not entirely of disagreement which cannot be settled ami­ free from doubt, even though I am inclined cably by the parties themselves. In the course to agree with the United Kingdom on this of such proceedings, it may prove to be nec­ particular point. For there cannot, in my essary or appropriate to refer to the Court view, be any reasonable doubt that it is not questions for a preliminary ruling regarding, the function of the Court, in Treaty infringe­ inter alia, the extent to which Community ment proceedings, to determine the legal law, in a situation such as that of the present position of private undertakings which began case, imposes an obligation to protect the to market slummed and semi-skimmed milk legitimate expectations in question and, if so, otherwise than through the MMBs and the scope of that obligation. which did so on the basis of the interpreta­ tion accepted by the United Kingdom up to June 1991.

Costs

correctly its powers of supervision and Article 5 of the EEC Treaty through its failure to notify the Commission of the changes made in 1982 and 1984 to the Milk Marketing Schemes applicable in Scotland;

2. for the rest, rule in favour of the United Kingdom in respect of the Commis­ sion's main submissions;

3. declare the Commission's alternative submission inadmissible; and

4. order each of the parties to bear its own costs, including those in connection with the application for interim measures.

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