C-104/94

JUDGMENT OF 12. 10. 1995 — CASE C-104/94

J U D G M E N T O F T H E C O U R T (Fifth Chamber) 12 October 1995 *

In Case C-104/94,

R E F E R E N C E to the Court under Article 177 of the EC Treaty by the Tribunale Civile e Penale di Ravenna for a preliminary ruling in the proceedings pending before that court between

Cereol Italia Sri

and

composed of: D. A. O. Edward, President of the Chamber, J. C. Moitinho de Almeida, C. Gulmann (Rapporteur), P. Jann and L. Sevón, Judges,

Advocate General: C. O . Lenz, Registrar: L. Hewlett, Administrator,

after considering the written observations submitted on behalf of:

— Cereol Italia, by Roberto Ridolfi, of the Ravenna Bar,

— Azienda Agricola Castello, by Fausto Capelli, of the Milan Bar, and

— the Commission of the European Communities, by Eugenio de March, Legal Adviser, acting as Agent, assisted by Alexandre Carnelutti, of the Paris Bar,

Judgment

1 By order of 3 March 1994, received at the Court on 29 March 1994, the Tribunale Civile e Penale di Ravenna (Civil and Criminal Court, Ravenna) referred to the Court for a preliminary ruling under Article 177 of the EC Treaty seven questions on the interpretation of Council Regulation (EEC) N o 1491/85 of 23 May 1985 laying down special measures in respect of soya beans (OJ 1985 L 151, p. 15, hereafter 'Regulation N o 1491/85'), of Council Regulation (EEC) N o 2194/85 of 25 July 1985 adopting general rules concerning special measures for soya beans (OJ 1985 L 204, p. 1, hereafter 'Regulation N o 2194/85'), and of Commission Regulation (EEC) N o 2537/89 of 8 August 1989 laying down detailed rules for the application of the special measures for soya beans (OJ 1989 L 245, p. 8, hereafter 'Regulation N o 2537/89'), as amended by Commission Regulation (EEC) N o 150/90 of 19 January 1990 (OJ 1990 L 18, p. 10, hereafter 'Regulation N o 150/90').

2 Those questions were raised in the course of a dispute between Cereol Italia Sri (hereafter 'Cereol'), a soya processor, and Azienda Agricola Castello Sas (hereafter 'Castello'), a soya bean producer, concerning payment of LIT 112 509 187, repre- senting the amount of Community aid paid to Cereol which that company was required to repay by the Azienda di Stato per gli Interventi nel Mercato Agricolo (State Board for Intervention on the Agricultural Markets) (hereafter 'AIMA').

3 Regulation N o 1491/85 introduced an aid system for soya bean production in the Community, described as a system of aid 'to the first purchaser'. Under that sys- tem, aid equivalent to the difference between the guide price fixed by the Commu- nity and the world market price is granted to any person who has concluded a 'cultivation contract' providing for payment to the producer of a price at least equal to the minimum price fixed by the Community (Article 2).

(g) the yields obtained by the producer at the previous harvest;

y

5 Article 6(3), as amended by Regulation N o 150/90, adds that:

'After the contract has been signed, the areas indicated in accordance with para- graph 2(e) and (f) may not be used by the producer for any other purpose than for cultivating soya beans, except in cases oí force majeure.

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CEREOL ITALIA v AZIENDA AGRICOLA CASTELLO

beans under the contract ineligible for aid and exclude the producer from the benefit of the provisions of this regulation throughout the following marketing year.

4. The sanctions specified in this regulation ... shall be determined on the basis of the nature and gravity of the infringement and at the level necessary to ensure proper operation of the mechanism in question.'

7 O n 27 May 1991, Cereol and Castello concluded a cultivation contract for the 1991/1992 marketing year which provided that 93 hectares and 22 ares would be sown with soya beans.

B O n 7 October 1991, the Agricultural Inspectorate, Treviso, carried out an inspec- tion and found that only II hectares had been sown.

9 A I M A t o o k the view that, since it had not been notified accordingly, this reduc- tion in the area sown constituted a breach of Article 6(3) of Regulation N o 2537/89, as amended. Relying on Article 29a of that regulation, it proceeded to avoid the cultivation contract, declared the beans produced under that contract to be ineligible for aid and excluded Castello from entitlement to aid for the follow- ing marketing year. It accordingly requested Cereol to reimburse the aid which it had received.

2. Is the duty to notify, set out in Article 6(3) of Commission Regulation (EEC) N o 2537/89, one of the methods designed to enable the Community origin of the product to be determined, and as such should it, in the light of previous Commu- nity case-law, be considered a secondary obligation in relation to the primary obli- gation referred to in Question 1?

3. If the reply to the first two questions is in the affirmative: has the Commission, in adopting Article 29a of Regulation (EEC) N o 2537/89, introduced by Regu- lation (EEC) N o 150/90 (imposing serious penalties if the producer is negligent in the execution of the contract, in particular in the observance of Article 6(3)), exceeded the powers conferred on it by the Council in Article 2(8) of Regulation

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(EEC) N o 1491/85 by imposing the penalty, in the case of failure to fulfil one of the secondary obligations, of loss of the entitlement flowing from fulfilment of the primary obligation, thus misusing its powers?

4. If Question 3 is answered in the negative: does Article 29a of Commission Regulation (EEC) N o 2537/89, introduced by Commission Regulation (EEC) N o 150/90, which provides that for any serious negligence by the producer in the execution of the contract (in particular as regards compliance with Article 6(3)) the penalty shall be that the contract is rendered invalid, the beans produced under the contract are ineligible for aid and the producer is excluded from the benefit of the aid throughout the following marketing year, infringe the principle of proportion- ality as defined by the Court of Justice?

The first four questions

i3 The first four questions submitted by the national court concern the validity of Article 29a of Regulation N o 2537/89, as amended, and may be dealt with together.

u The national court asks whether it was possible for the Commission, without exceeding the limits of the power delegated to it by Article 2(8) of Regulation N o 1491/85 and without infringing the principle of proportionality, to provide that irregularities resulting from serious negligence on the part of the producer and concerning the obligation under Article 6(3) of Regulation N o 2537/89 to inform the competent national agencies of changes to the areas sown should be penalized by the invalidity of the cultivation contract and the exclusion of the producer from entitlement to aid for the current marketing year and the following marketing year, as laid down in Article 29a(l) of that regulation.

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is Castello submits that this latter provision is invalid. It argues that a penalty as severe as loss of entitlement to aid may attach to the obligation to grow soya beans within the territory of the Community, which is the primary obligation under the system of aid introduced in 1985, but may not attach to the obligation to notify changes of a certain extent in the use of the areas sown, which is no more than a secondary obligation under the system of aid.

20 The reliability of information on the areas sown can be guaranteed only if produc- ers notify the competent national authorities of changes in the use of the areas indicated in the cultivation contract and which, pursuant to the first subparagraph of Article 6(3) of Regulation N o 2537/89, as amended, must be used exclusively for the cultivation of soya beans, except in cases of force majeure.

21 It is for this purpose that the second subparagraph of Article 6(3) of Regulation N o 2537/89 provides that producers must, by way of an amendment to the con- tract, indicate any change in the areas sown which may take place before the con- tract has been lodged with the competent national agency, and that the third sub- paragraph of Article 6(3) provides that changes in excess of a specified amount must be notified to that agency if they occur after the contract has been lodged.

22 The obligation imposed on the producer to declare changes to the competent agency, as provided for in Article 6(3) of Regulation N o 2537/89, thus constitutes an obligation essential to the proper functioning of the system of aid and is there- fore of fundamental importance to that system.

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23 However, the first subparagraph of Article 29a(l) of Regulation N o 2537/89, as amended, provides for failure to comply with that obligation to be penalized only if it is the result of deliberate conduct or serious negligence on the part of the p r o - ducer. Furthermore, this provision must, in the light of Article 29a(4), be under- stood as allowing the competent national authorities to impose one or more of the penalties to which it refers, depending on the seriousness of the breach which the producer is alleged to have committed, as was argued by the Commission and accepted by Castello at the hearing.

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27 In those circumstances, the reply to the national court must be that examination of the first four questions referred for a preliminary ruling has revealed nothing capa- ble of affecting the validity of Article 29a of Regulation N o 2537/89, as amended by Regulation N o 150/90.

The last three questions

28 The last three questions submitted by the national court concern the interpretation of Article 6(3) of Regulation N o 2537/89. The national court seeks to determine whether the obligation to notify laid down in that provision applies to a reduction in areas sown such as that effected by Castello.

29 T h e n a t i o n a l c o u r t first of all asks w h e t h e r t h e ' c h a n g e ' referred t o in Article 6(3) covers r e d u c t i o n s in areas cultivated b y a p r o d u c e r b y reason of heavy rain d u r i n g a marketing year. Next, it asks whether producers are required to notify the com- petent national authority of changes arising more that three months prior to the date scheduled for the harvest but after the signing of the contract. Finally, the national court asks whether these producers are obliged to notify changes none of which individually exceeds 10% of the area originally declared in the cultivation contract but which, taken as a whole, d o exceed that threshold.

33 In view of the objective of control and fraud prevention pursued by Article 6 of Regulation N o 2537/89, any change made after the signing of the contract but before the beginning of the harvest must be notified to the competent public auth- ority either in the form of an amendment to the cultivation contract, as provided for in the second subparagraph of Article 6(3) of Regulation N o 2537/89, or, when it exceeds the thresholds laid down in the third subparagraph of Article 6(3), in the form of a notification by the producer to the competent agency, to the agency responsible for control and to the first purchaser, as provided for in this latter provision.

34 In this regard, the fact that the third subparagraph of Article 6(3) refers to changes occurring 'in the three months preceding the date laid down for the beginning of harvesting of soya beans' cannot exempt changes occurring after the contract has been lodged but more than three months before the beginning of the harvest from being subject to compulsory notification. Were they so exempt, and were one to

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assume that cultivation contracts could be lodged more than three months prior to the beginning of the harvest, producers could alter the areas under cultivation without the competent agencies being informed, increasing the risk of fraud which the notification system is specifically designed to prevent.

35 The need to have reliable information o n areas sown also justifies the obligation to notify the competent agency of changes which, individually or collectively, involve more than 10% of the area indicated in the cultivation contract and, where rele- vant, amendments to it, and more than one hectare of this area. In particular, if they are not to increase the risk of fraud, the words 'each time that ... a change involves more than [these thresholds]' in the third subparagraph of Article 6(3) of Regulation N o 2537/89 cannot be understood as covering only changes which, taken separately, exceed both of those thresholds.

T H E C O U R T (Fifth Chamber),

in answer to the questions referred to it by the Tribunale Civile e Penale di Ravenna by order of 3 March 1994, hereby rules:

1) Examination of the first four questions referred for a preliminary ruling has revealed nothing capable of affecting the validity of Article 29a of Commis- sion Regulation (EEC) N o 2537/89 of 8 August 1989 laying down detailed rules for the application of the special measures for soya beans, as amended by Commission Regulation (EEC) N o 150/90 of 19 J a n u a r y 1990.

2) Article 6(3) of Regulation N o 2537/89, as amended, m u s t be understood as meaning t h a t soya producers m u s t notify the competent agency of any change in the areas indicated in the cultivation contract, in particular any reduction in those areas, even if it is attributable to natural occurrences, such as heavy rainfall, where such a change occurs before the lodging of the contract, as well as all changes which occur after lodging of the cultivation contract and which, individually or collectively, involve more t h a n 10% of the areas indicated in the cultivation contract and more t h a n one hectare.

Edward Moitinho de Almeida

Gulmann Jann Sevón