C-15/95

3. EARL de Kerlast is an undertaking engaged principally in milk production, 2 — That abbreviation stands for: Staking van de Levering van which has an individual reference quantity of Melk en Zuivclprodukten en Omschakeling van het 365 045 litres. Mr Kergus, who works both Melkveebestand (Suspension of deliveries of milk and milk products and conversion of dairy herds). as a farmer and as a lorry driver, is the owner 3 — Council Regulation (EEC) N o 1078/77 of 17 May 1977 of a milk undertaking which has been introducing a system of premiums for the non-marketing of milk and milk products and for the conversion of dairy herds (OJ 1977 L 131, p. 1). 4 — Council Regulation (EEC) N o 764/89 of 20 March 1989 amending Regulation (EEC) N o 857/84 adopting general rules for the application of the levy referred to in Article 5c * Original language: Spanish. of Regulation (EEC) N o 804/68 in the milk and milk prod- 1 — OJ 1984 L 90, p. 13. ucts sector (OJ 1989 L 84, p. 2).

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EARL DE KERLAST v UNICOPA

'(1) On a proper construction of Article 7 of Council Regulation (EEC) N o 857/84, are producers precluded from setting up sociétés en participation (private joint The rules applicable venture arrangements) — which are without legal personality of their own, are not effective against third parties and are unpublicized — in so far as they constitute a disguised form of quota- leasing, or are such arrangements autho- rized as a necessary structural adjust- 7. With a view to correcting the imbalance ment within the meaning of Article 1 of between supply and demand for milk and Council Regulation (EEC) N o 856/84? milk products and the consequent structural

I - 1965

OPINION OF MR RUIZ-JARABO COLOMER — CASE C-15/95

surpluses, Regulation (EEC) N o 856/84 5 — If they exceeded their reference quantity, modified the common organization of the producers were required to pay an addi- market in the sector by introducing an addi- tional levy intended to finance the expen- tional levy system applicable from 2 April diture occasioned by the marketing of 1984. This machinery for the control of milk those excess quantities. The levy was production was organized as follows: payable by the producer (formula A) or by the purchaser of the milk with a right to pass on the burden to the producer (formula B), depending on the choice made by each Member State. France opted for formula B.

— A total quantity was laid down for the Community as a whole, corresponding to the guarantee threshold for milk produc- tion.

8. The general rules for the application of — That quantity was distributed among the this additional levy system were laid down Member States on the basis of deliveries by the Council in Regulation N o 857/84, of milk on their territory during the 1981 which allowed the Member States to choose calendar year increased by 1%, with the the year 1981, 1982 or 1983 as the reference exception of the quantity intended for period for the calculation of producers' indi- the Community reserve set up to allow vidual quotas and to establish in addition for the special needs of certain Member national reserves of reference quantities to States and certain producers. take into account the special situations of certain of their producers.

12. The first modification of the system of transfer of reference quantities was effected Article 7(3) allowed the Member States to by Regulation (EEC) N o 590/85, 7 which provide that a part of the quantities trans- maintained the principle of linking quotas to ferred be added to the national reserve of holdings but introduced two exceptions reference quantities. intended to alleviate economic and social dif- ficulties. It allowed the Member States to assign reference quantities relating to a hold- ing to an outgoing lessee whose lease was due to expire and who intended to continue milk production elsewhere and to a depart- 10. Article 5 of Regulation (EEC) N o ing producer in the event of transfer of land 1371/84 6 implemented Article 7 of Regu- to public authorities or for purposes of pub- lation N o 857/84 by providing that the pro- lic use. ducer who took over the holding was to receive the whole of the reference quantities in the event of transfer of the entire holding and that in cases of partial transfer of the holding the reference quantities were to be distributed in proportion to the areas used for milk production or according to other 13. Regulation (EEC) N o 2998/87 8 further objective criteria laid down by Member relaxed the principle linking reference quan- States. Other legal measures for the transfer tities to holdings by authorizing temporary of quotas, having comparable legal effects as transfers of individual reference quantities far as producers were concerned, were assimilated to sale, lease or transfer by inher- itance. 7 — Council Regulation (EEC) N o 590/85 of 26 February 1985 amending Regulation (EEC) N o 857/84 laying down general rules for the application of the levy referred to in Article 5c of Regulation (EEC) N o 804/68 in the milk and milk prod- ucts sector (OJ 1985 L 68, p. 1). 6 — Commission Regulation (EEC) N o 1371/84 of 16 May 1984, 8 — Council Regulation (EEC) N o 2998/87 of 5 October 1987 laying down detailed rules for the application of the addi- amending Regulation (EEC) N o 804/68 on the common tional levy referred to in Article 5c of Regulation (EEC) N o organization of the market in milk and miik products (OJ 804/68 (OJ 1984 L 132, p. 11). 1987 L 285, p. 1).

'For the purposes of applying Article 7 of Regulation (EEC) N o 857/84 and without prejudice to paragraph 3 thereof, the follow- ing rules shall apply to the transfer of refer- ence quantities granted to producers and purchasers in application of formulas A and B and of reference quantities granted to pro- 4. In the event of the application of the sec- ducers selling for direct consumption: ond subparagraph of Article 7(1) of Regu- lation (EEC) N o 857/84, concerning the transfer of land to the public authorities and/ or for public use, and Article 7(4) of the said regulation, concerning rural leases which are 1. Where an entire holding is sold, leased or due to expire and which cannot be extended transferred by inheritance, the corresponding on similar terms, all or part of the reference reference quantity shall be transferred in full quantity corresponding to the holding or to to the producer who takes over the holding. the part of the holding which is the subject of the transfer or of the said lease shall be put at the disposal of the producer con- cerned if he intends to continue milk pro- duction, provided that the sum of the refer- 2. Where one or several parts of a holding is ence quantity thus made available to him and sold, leased or transferred by inheritance, the the quantity corresponding to the holding which he takes over or on which he contin- ues milk production does not exceed the ref- erence quantity which was available to him 9 — Commission Regulation (EEC) No 1546/88 of 3 June 1988 laying down detailed rules for the application of the addi- before the land was transferred or before the tional levy referred to in Article 5c of Regulation (EEC) No lease expired.' 804/68 (OJ 1988 L 139, p. 12).

15. The application of temporary transfers be authorized to continue implementing of quotas was continued under Regulations national restructuring programmes and to (EEC) Nos 3879/89 and 1630/91. >° A fur- organize some degree of mobility for refer- ther derogation from the principle of linking ence quantities within a given geographical reference quantities to holdings was made as area, on the basis of objective criteria'. a result of German unification by Regulation (EEC) N o 3577/90, " which allowed Ger- many to authorize a single transfer of refer- ence quantities without transfer of the corre- sponding land, although for a reduced period and within the limits of a framework pro- gramme. 17. These aims are implemented in Articles 6, 7 and 8 of Regulation N o 3950/92. Article 6 allows the Member States to authorize, if they think fit, temporary transfers of indi- vidual reference quantities and to lay down conditions for effecting them. Article 7(1) 16. The additional levy system was simpli- lays down the principle of linking reference fied and clarified by the adoption of Regu- quantities to holdings in the following terms: lation (EEC) N o 3950/92, 12 which to a cer- tain extent consolidated the previous provisions and extended the application of the scheme for seven years as from 1 April 1993. Regulation N o 3950/92 repeals Regu- lation N o 857/84 and therefore lays down fresh provisions on the system of transfer of reference quantities. As stated in the recitals 'Reference quantities available on a holding in the preamble to Regulation N o 3950/92, shall be transferred with the holding in the the mobility of reference quantities is still case of sale, lease or transfer by inheritance governed by the principle of linking refer- to the producers taking it over in accordance ence quantities to holdings, but it is indicated with detailed rules to be determined by the that: 'in order to continue restructuring milk Member States taking account of the areas production and improving the environment, used for dairy production or other objective certain derogations to the principle linking criteria and, where applicable, of any agree- reference quantities to holdings should ment between the parties. Any part of the be extended, and Member States should reference quantity which is not transferred with the holding shall be added to the national reserve.

18. Article 7(1) also provides for a deroga- — authorize, upon application by the pro- tion from that general rule in the event of ducer to the competent authority or the transfer of land to public authorities and/or body designated by that authority, the in the public interest, and Article 7(2) pro- transfer of reference quantities without vides for such a derogation in the event of transfer of the corresponding land, or expiry of rural leases. Apart from these dero- vice versa, with the aim of improving the gations from the application of the principle structure of milk production at the level of linking reference quantities to holdings, of the holding or to allow for extensifica- already permitted in the previous rules, tion of production'. Article 8 of Regulation N o 3950/92 allows, to promote restructuring of milk production and environmental improvement, three addi- tional exceptions to the basic principle gov- erning the transfer of quotas. The Member States which decide to apply them may:

19. The transfer of reference quantities must always be carried out between producers and must be related to a dairy holding. Both con- cepts are therefore defined in identical terms in Article 12 of Regulation 857/84 and Article 9 of Regulation N o 3950/92. 13 Thus 'producer' means 'a natural or legal person or group of natural or legal persons farming — 'provide, in the case of land transferred a holding located within the geographical with a view to improving the environ- territory of the Community: ment, for the allocation of the reference quantity available on the holding con- cerned to the departing producer if he intends continuing milk production;

20. With regard to the system of transfer of reference quantities, Article 7 of Regulation N o 857/84 and the rules supplementing it — When dairy holdings are combined, as a and, even more, Articles 6, 7 and 8 of Regu- result of sale, lease, donation or transfer lation N o 3950/92 allowed the Member by inheritance, with the subsequent States a relatively wide discretion to apply, to aggregation of reference quantities, a per- a greater or lesser extent, the derogations centage of the quotas of the holding from the principle of linking reference quan- transferred is deducted to be added to the tities to holdings. The national measures national reserve of reference quantities adopted by France for the application of the whenever the total quota exceeds the additional levy system were Decree N o threshold of 200 000 litres. The percent- 84-661 of 17 July 1984, "» repealed by Decree age retained to add to the national reserve N o 91-157 of 11 February 1991, 1 5 and par- is 50% of the reference quantity trans- ticularly, as far as this case is concerned, ferred when the quota of the transferee Decree N o 87-608 of 31 July 1987 on the prior to the aggregation exceeded 200 000 transfer of reference quantities. 16 litres, and 50% of the quantity in excess of the threshold of 200 000 litres if the reference quantity of the transferee prior to the transfer was below that threshold.

21. The most important aspects of the French rules on transfer of milk quotas are as follows:

— Where a dairy holding is broken up into one or more parts by sale, lease, donation or transfer by inheritance, the same crite- — The additional levy system is imple- ria are applied as in the case of aggrega- ' mented by the Office National Interpro- tion of holdings as regards transfer of ref- fessionnel du Lait et des Produits Laitiers erence quantities and the percentages (Onilait). deducted to add to the national reserve. However, when the part of the holding transferred is less than 20 hectares, the 14 — journal Officiel de L· République Française ('JORF') of 21 corresponding part of the reference quan- July 1984, p. 2373. tities passes automatically to the national 15 — JORF of 13 February 1991, p. 2199. 16 — JORF of 8 August 1987, p. 8727. reserve.

23. As the events leading to the main pro­ The main characteristic of the société en par­ ceedings giving rise to the questions referred ticipation is that it lacks legal personality to the Court of Justice took place in the milk because it is not entered in the register of years 1992/93 and 1993/94, the Community companies according to the first paragraph rules on quota transfer which must be con­ sidered are both Article 7 of Regulation N o 857/84 with the provisions amending it and 17 — Sec Dermppć, J.: 'Sociétés en participation', Juis-classeur, the new rules laid down in Articles 6, 7 and 8 Traités des sociétés, vol. 3, fascicules 44-10, 44-20, 44 C and of Regulation N o 3950/92, which are 44 D; Hamel, J., Lagarde, G., and Jauffrc, A.: Traité de droit commercial. Tome I, vol. 2, Dalloz, Paris, 1980, pp. 196 to broadly similar. 205.

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EARL DE KERLAST v UNICOPA

28. The transfer of reference quantities by 26. The use of a contractual entity such as a one of those procedures, which are expressly sodété en partidpation in the milk sector accepted, requires, under the French rules, an raises difficulties in view of the considerable administrative authorization from the Préfet part played by the State. Recourse to such a of the département in which the holding is sodété is attractive for producers since it situated. In addition, a percentage of the ref- does not involve a transfer of the holding or, erence quantities is normally deducted from consequently, a transfer of the reference quotas transferred and added to the national quantities linked to it, which would be sub- reserve used by the French State for redis- ject to the obligation to hand over a percent- tributing quotas among producers in order age to the national reserve. The first of the to restructure and improve milk production. questions raised by the national court On the other hand, where an owner aban- requires an examination of the compatibility dons milk production, reference quantities of the use of sodétés en partidpation with the assigned to his holding revert automatically Community rules on the transfer of milk to the national reserve. quotas.

29. The list, contained in the Community 27. As I stated previously, the transfer of and French measures, of the ways in which reference quantities is governed by the prin- the title to holdings may be transferred is not

I-1973

O P I N I O N O F MR RUIZ-JARABO C O L O M E R — CASE C-15/95

30. In this connection I should like first to point out that the establishment of a soaété en participation does not entail a transfer of the members' dairy holdings to the société, which has no legal personality and can there- As the Commission has stated in its observa- fore have no corporate assets. Consequendy tions, the linking of quotas to land expresses I think that members' quotas cannot in prin- the Community legislature's intention to ciple be transferred to the société because make reference quantities non-negotiable that would be contrary to the principle of between individuals in order to prevent a linking quotas to holdings, embodied in concentration of quotas in the hands of cer- Community rules as the decisive criterion tain producers, which would favour intensive for transfer of milk quotas. In fact a société holdings. In my view, that legislative choice of this kind constitutes a contrivance to cir- was intended to avoid a concentration of cumvent that principle whenever one of the production and to encourage the occupation members produces the reference quantities assigned to the others, because that leads to covert quota-leasing. As the French Govern- 18 — [1994] ECR 1-223, at paragraph 13. ment states, by setting up that kind of 19 — Judgments in Case 5/88 Wachauf [1989] ECR 2609, at société, a producer can covertly transfer his paragraph 15, in Case C-177/90 Kühn [1992] ECR 1-35 and in Case C-81/91 Twijnstra [1993] ECR 1-2455, at quota while retaining it in name and thus paragraph 25.

I-1974

EARL DE KERLAST v . U N I C O P A

32. Since the establishment of sociétés en participation intended to conceal transfers of 34. Article 7 of Regulation N o 857/84 and the supplementary provisions allowed four 20 — Sec in this connection Boon-Falleur, A.: 'Le point sur les derogations, namely: temporary transfers of quotas laitiers', Revue de droit rural. N o 184, June/July 1990, p. 297; Lemonicr, E.: 'Dix ans dc quotas laitiers', quotas, outgoing tenants who continue their Revue de droit rural. N o 226, October 1994, p. 393, and milk production, departing producers in case Petit, Y.: 'Organisations communes dc marches', Répertoire Dalloz de droit communautaire, 1995, pp. 14 and 15. of transfer of land to public authorities and/

I-1975

OPINION OF MR RUIZ-JARABO COLOMER — CASE C-15/95

In its judgments in Case C-44/89 Von Deetzen II and in Case C-2/92 Bostock 21 the Court of Justice stated clearly that 'the right to property thus safeguarded within the Community legal order does not compre- hend the right to dispose, for profit, of an advantage, such as the reference quantities allocated in the framework of the common organization of a market, which does not derive from the assets or occupational activ- ity of the person concerned'. The Court therefore took the view in the Von Deetzen 35. Article 8 of Regulation N o 3950/92 II judgment that the return to the Commu- retains the previous derogations from the nity reserve, in the case of transfer, of special principle that quotas are linked to holdings reference quantities allocated to SLOM pro- and allows the Member States to authorize ducers by Regulation N o 764/89 was justi- derogations in the three following circum- fied by the need to prevent "such producers stances: where the land of departing produc- from seeking the allocation of a special refer- ers is transferred to improve the environ- ence quantity in order, not to resume the ment, where regions or collection areas are marketing of milk on an enduring basis, but determined within which the principle does to derive from that allocation a purely finan- not apply to certain producer categories, and cial advantage by realizing the marketable where administrative authorization is value which the reference quantities had granted upon application by the producer. In acquired in the meantime. principle a société en participation designed to disguise a transfer of reference quantities cannot be justified by any of these deroga- 21 — [1991] ECR 1-5119, at paragraph 27, and [1994] ECR 1-955, tions either. at paragraph 19, respectively.

40. With this last question the national court is asking whether the disparity of treatment imposed by a Member State as between a 38. In this question the national court asks société en partiapation and a partial ' G A E C ' whether Article 12(c) of Regulation N o {groupement agricole d'exploitation en com- 857/84 and Article 3a of Regulation N o mun — collective farming grouping) con- 764/89 require actual resumption of produc- fined to dairy farming, with regard to the use tion by the person concerned. of both forms of association in transfers of milk quotas, is contrary to Article 40(3) of the EC Treaty. That difference in treatment was provided for in two Ministry of Agricul- ture circulars intended for the implementa- tion of Community rules on transfer of ref- erence quantities on French territory. 39. An answer to this question is necessary only if the producers concerned, Mr Kergus and EARL de Kerlast, are SLOM producers. Regulation N o 764/89 was adopted by the Council following the judgments in Case 170/86 Von Deetzen I and in Case 120/86 Mulder 22 in order to grant special reference quantities to such producers and therefore 41. The national court refers to two circu- affects only that class of producer. According lars, one of 1989 and the other of 1991. The to the information provided by the French 1989 circular in fact is concerned exclusively with the situation of SLOM producers and is of no relevance to this question. Ministry 22 — [1988] ECR 2355 ind [1988] ECR 2321 respectively. of Agriculture Circular N o 7051 of

42. The 1991 circular calls the attention of the competent national authorities to the emergence of legal practices, referred to as 43. In addition, the 1993 circular proposes 'contrivances', spreading in France and to producers a form of association, the par- designed to evade the Community rules link- tial G A E C confined to dairy farming, which ing quota transfers to the transfer of the cor- may be used by producers who wish to pool responding land. Amongst such fraudulent their dairy farming activities on a long-term practices the circular mentions the establish- basis with the object of improving their pro- ment of civil-law associations, particularly de duction and working conditions. The partial facto partnerships and sociétés en participa- G A E C confined to dairy farming allows its tion, to which the participants contribute members to combine their quotas without their quotas without transferring the land, the need to transfer the corresponding land the conclusion between two producers of and therefore constitutes an exception to the simultaneous contracts for lease of the herd rule of linking quotas to land, which the and for performance of services for milking, 1993 circular accepts, whilst requiring com- and the leasing of reference quantities, which pliance with a series of conditions intended is not permitted in France. The circular to prevent it from becoming a means of expresses the view that transfer of quotas covert quota-leasing or a transfer of refer- between producers by means of an entity set ence quantities. up without transfer of the land is illegal because it is contrary to the principle of link- ing quotas to land. The setting-up of an entity of this kind is void because its object is illegal. Finally the 1991 circular indicates the legal machinery to be used to counter such fraudulent practices. With regard to sociétés en participation the local authorities responsible for authorizing quota transfers 44. A GAEC is a civil-law association of are informed that they must refuse such farmers working jointly in conditions com- authorization even in cases in which the parable to those existing in a family-type members transfer the land because such holding. GAECs are subjected to a consider- sociétés have no legal existence and are able degree of control by the public authori- not effective against third parties, and ties (requiring administrative authorization because the members retain the title to their for their establishment), they are working respective milk quotas. For their part, dairies associations in which the work of their

members is crucial and they are groupings 47. It may be remembered that according to akin to companies, on which the authorities the second subparagraph of Article 40(3) the confer certain privileges. 23 They may be common organization of agricultural mar- total, if the members pool all their holdings kets to be established in the framework of and all their work, or partial, if the members the common agricultural policy 'shall contribute only part of their holdings and exclude any discrimination between produc- carry out only one of their agricultural ers or consumers within the Community'. operations jointly. The Court has consistently held that 'the prohibition of discrimination laid down in that provision is merely a specific enuncia- tion of the general principle of equality which is one of the fundamental principles of Community law; that principle precludes 45. Partial GAECs confined to dairy farm- comparable situations from being treated in a ing are described in the 1993 circular as a different manner unless the difference in form of association by which producers pool treatment is objectively justified'. 24 cows, materials, buildings and animal feed whilst retaining their land and the milk quo- tas allocated to them. The GAEC therefore aggregates the reference quantities of its members and may produce milk to a volume equal to the sum of all their individual quo- tas. Only farmers actually producing milk who have quotas and personally perform another type of agricultural work may form part of a partial GAEC confined to dairy farming. The members take part personally 48. That prohibition of discrimination in the actual work of the GAEC's milk pro- applies to the Community rules on the com- duction. Finally, the 1993 circular specifies mon organization of the market in milk and clearly the status of the reference quantities milk products and also to the rules adopted within the partial GAEC. by the Member States in the framework of that common organization of the markets. That statement is based on the case-law of the Court of Justice according to which 'the requirements flowing from the protection of fundamental rights in the Community legal order are also binding on the Member States 46. Having explained the different treatment when they implement Community rules and extended by the 1991 and 1993 ministerial ... the Member States must therefore, as far circulars to sociétés en participation and to as possible, apply those rules in accordance partial GAECs confined to dairy farming, it with those requirements'. 25 now remains for me to consider whether Article 40(3) of the Treaty applies to that situation. 24 — Judgment in Case C-351/92 Graff [1994] ECR 1-3361, at paragraph 15. See also the judgments in Joined Gases C-267/88 to C-285/88 Wuidart and Others [1990] ECR 1-435 and in Case C-177/90 Kühn and Case C-98/91 Her- 23 — In this connection see Dupeyron, C : 'G. A. E. C. (Groupe- brink, previously cited. ment agricole d'exploitation en commun)', Juris-dasseur, 25 — Judgments in Case 5/88 Wachauf and in Case C-2/92 Bos- Traité des sociétés, Vol. 8, fascicules 179-7-A and 179-7-B. tock, previously cited, at paragraphs 19 and 16 respectively.

49. In the case now under consideration, the possible breach of the principle of non- discrimination referred to by the national court lies in the difference in treatment meted out by the 1991 and 1993 French cir- — The establishment of partial GAECs culars as between producers associated in requires administrative authorization and partial GAECs confined to dairy farming their subsequent conduct is subject to and those associated in sociétés en participa- frequent administrative checks, whilst tion. Whilst transfer of quotas without trans- sociétés en participation are normally fer of the corresponding land is allowed to undisclosed, which prevents their being partial GAECs confined to dairy farming, recognized by the authorities and by sociétés en participation are considered to be third parties. legal instruments unsuitable for an associa- tion of dairy-farming operations, since they are regarded as constituting a source of pos- sible fraud in breach of the principle of link- ing quotas to land.

— A partial G A E C requires all the produc- ers to retain control over the milk- 26 — The judgment in Case C-351/92 Graff, previously cited, at producing activities which they pool and paragraph 18. Sec also the judgment in Joined Cases 201/85 and 202/85 Klemch [1986] ECR 3477, at paragraph 8. to pursue their work within the GAEC.

I-1980

EARL DE KERLAST v UNICOPA

The member managing a société en par- of milk production or to allow for extensifi- ticipation, however, generally runs the cation of production. The authorization of milk production without the participa- partial GAECs confined to dairy farming tion of other members. contained in the 1993 circular, is, in my view, justified by that derogation.

(2) The second subparagraph of Article 40(3) of the EC Treaty does not preclude a Member State from prohibiting the establishment of sociétés en participation whilst authorizing the establishment of partial GAECs for the management of milk-producing holdings.

I-1982