C-45/97

SPAIN V COMMISSION

OPINION OF ADVOCATE GENERAL LÉGER delivered on 20 May 1999 *

1. The Kingdom of Spain is seeking annul- 3. The expenditure set out in the annex ment under Article 173 of the EC Treaty relates to consumption aid for olive oil (now, after amendment, Article 230 EC) of which the Spanish authorities paid, impro- Commission Decision 96/701/EC of perly in the Commission's view, to packa- 20 November 1996 amending Decision ging plants. The present application seeks 96/311/EC on the clearance of the accounts annulment of the Commission's decision presented by the Member States in respect not to refund that expenditure to the of the expenditure for 1992 of the Guar- Kingdom of Spain. antee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) and in respect of certain expenditure for 1993. 1

I — Legal background

2. The annex to Decision 96/701, in the section relating to the Kingdom of Spain, shows that expenditure amounting to ESP 721 255 271 was not recognised by the Commission and therefore remains charge- A — The Community rules able to that Member State in addition to the expenditure already set out in Commis- sion Decision 96/311/EC of 10 April 1996 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1992 of the Guarantee 1. The Community rules relating to the Section of the European Agricultural Gui- market in olive oil dance and Guarantee Fund (EAGGF) and in respect of certain expenditure for 1993, 2 with regard to 1992.

* Original language: French. 1 — OJ 1996 L 323, p. 26. 2 — OJ 1996 L 117, p. 19. Regulation No 136/66/EEC

'Where the production target price less the production aid exceeds the representative (a) have a minimum packaging capacity to market price for olive oil, a consumption be determined; aid shall be granted for olive oil produced and marketed in the Community. The aid shall be equal to the difference between these two amounts.' (b) carry out packaging activities for a minimum period to be determined; 3 — OJ, English Special Edition 1965-1966, p. 221. 4 — OJ 1978 L 185, p. 1. 5 — OJ 1988 L 197, p. 1. 6 — First paragraph in the preamble to Regulation No 1562/78. 7 — O J 1978 L 369, p. 12.

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(c) keep stock records according to rules to 12. Article 6(1) reads: 'The aid shall be be determined; and granted, on application by the party con- cerned, in the Member State in which the oil was packaged in accordance with Arti- cle 4(1)(b)'.

(d) agree to undergo any checks laid down for the purposes of the application of the aid system.' 13. According to the first paragraph of Article 7, 'The Member States shall insti- tute a system of supervision to ensure that the product for which aid has been applied qualifies for such aid'.

10. Article 3(1) of Regulation No 3089/78 states: 'The approval referred to in Arti- cle 2 shall be withdrawn if, except in the case of force majeure, one of the conditions 14. The second paragraph of Article 7 for approval laid down in Article 2(1) is no provides: 'In particular, checks must be longer met'. In addition, Article 3(2) pro- made to ascertain whether the amount of vides: 'The Member State concerned shall olive oil for which aid has been applied decide to withdraw approval temporarily corresponds to: from any packaging plant which has applied for aid for a quantity of olive oil in excess of the quantity for which entitle- ment to aid has been agreed'.

Regulation (EEC) No 2677/85

16. Commission R e g u l a t i o n (EEC) 20. The first paragraph of Article 3 of that No 2677/85 of 24 September 1985 lays regulation makes it clear that each packa- down implementing rules in respect of the ging plant must, from the date on which it system of consumption aid for olive oil. 9 is approved, keep records, referred to in that provision as daily 'stock records', giving a certain amount of compulsory information relating in particular to stocks of olive oil, the quality and quantity of olive oil entering the plant, packaged olive 17. That regulation was amended in parti- oil and olive oil leaving the plant, the cular by Commission Regulation (EEC) number of containers entering the plant No 571/91 of 8 March 1991 10 and Com- and the number of containers used, the mission Regulation (EEC) No 1008/92 of number of the purchase invoice for each 23 April 1992 11 in order to increase the consignment of olive oil and the number of effectiveness of the checks. containers entering the plant, to the sales invoices for each consignment of olive oil, and to movements of oils inside the area 9 — OJ 1985 L 254, p. 5. 10 — OJ 1991 L 63, p. 19. and between this area and the storage 11 — OJ 1992 L 106, p. 12. place.

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'Where the competent authority in each 25. Article 12 of that regulation describes Member State finds that the oil in question the checks which Member States may or does not meet one of the definitions must carry out at approved plants. Arti- referred to in paragraph 1 as a result of cle 12(1) provides as follows: blending or other chemical processes inten- ded to render oil not eligible for consump- tion aid so eligible, the competent authority shall forthwith withdraw the plant's approval for a period of one to five years depending on the gravity of the infringe- ment, without prejudice to any other penalties. In addition, the plant concerned 'For the purposes of the checks referred to shall be required to pay the Member State a in Article 7 of R e g u l a t i o n (EEC) sum equal to twice the consumption aid No 3089/78, the Member States shall applied for in the course of one of the inspect the stock records of all approved months following that in which the samples undertakings. They shall also carry out were taken. The sum collected by the random checks on the financial supporting Member State shall be deducted from the documents relating to the transactions expenditure of the European Agricultural carried out by these undertakings. Each Guidance and Guarantee Fund by the undertaking shall be inspected for this authorities or paying agencies of the Mem- purpose at least once in each marketing ber States.' year. Inspections shall cover a substantial

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percentage of the applications by each The Member State may also subject undertaking. ... approved undertakings to unannounced checks of the same type as those referred to above.

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the seriousness of the infringement, without attributable to administrative authorities or prejudice to any other penalties'. other bodies of the Member States are not to be borne by the Community.

2. The Community rules on the funding of the common agricultural policy

30. Article 9 of that regulation states that the Commission may undertake supervi- 27. Article l(2)(b) of Council Regulation sion within the framework of the manage- (EEC) No 729/70 of 21 April 1970 on the ment of Community financing, including financing of the common agricultural pol- inspections on the spot. The officials icy 12 provides that the Guarantee Section appointed by the Commission to carry out of the European Agricultural Guidance and such inspections are to have access to the Guarantee Fund is to finance intervention books and all other documents relating to intended to 'stabilise the agricultural mar- expenditure financed by the Fund. They kets. may in particular check whether adminis- trative practices are in accordance with Community rules, whether the requisite supporting documents exist and tally with the transactions financed by the Fund, and the conditions under which transactions 28. Article 3(1) of that regulation provides financed by the Fund are carried out and that intervention intended to stabilise the checked. agricultural markets, undertaken according to Community rules within the framework of the common organisation of agricultural markets, is to be financed.

29. Article 8(1) of Regulation No 729/70 requires Member States to satisfy them- B — The system of supervision introduced selves that transactions financed by the by the Kingdom of Spain Fund are actually carried out and are executed correctly, to prevent and deal with irregularities, and to recover sums lost as a result of irregularities or negligence. Article 8(2) provides that the financial consequences of irregularities or negligence

— imposing any penalties.

34. The system set up by the Spanish authorities provided that supervision of plants was to be carried out at the Agency's The Agencia para el Aceite de Oliva, 14 premises in Madrid, merely on the basis of which carries out the inspections required an inspection of documents, together with under the Community rules. an annual on-the-spot inspection. Major flaws were detected in the way the statu- tory records were kept, and in some cases no records had been kept at all, but the conclusions of the Spanish inspection reports made no mention of these facts. Furthermore, the penalties imposed bore no relation to the seriousness of the alleged I I— Facts offences.

32. In connection with the clearance of accounts in respect of 1992, Commission officials carried out two inspections in Spain, on 30 September and 1 October 1993 and between 14 and 18 March 35. During their inspections EAGGF offi- cials carried out random re-checks of 27 13 — National Agricultural Products Authority, hereinafter 'Senpa'. 14 — The Olive Oil Agency, hereinafter 'the Agency'. 15 — Annex I to the statement of defence.

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files on various plants. The end results of of the measure', a correction equal to 50% those checks showed: of the total amount of the consumption aid for olive oil due to the Kingdom of Spain, that is, ESP 15 447 431 500.

— a general absence of records in the following plants: Sagarra Bascompte, Amador Rodríguez, Lorenzo Sandúa, Hurtado Tenorio, Fco. J. Sánchez Fer- nández, Camar, Olivar de Segura, Ara- 39. Following these numerous contacts the gonesa del Aciete and Emiliano Vivas. Commission proposed to the Spanish authorities in a letter dated 13 June 1995 that the flat-rate financial correction should be replaced by a correction of ESP 721 255 271 in respect only of the 27 files which had been directly investigated by the EAGGF inspectors. 36. The Commission, represented by its Directorate-General for Agriculture, subse- quently conveyed to the Spanish authorities on 22 September 1994 its conclusions regarding the clearance of accounts of the Guarantee Section of the EAGGF in the 40. According to the Commission, finan- olive oil sector for 1992, informing them cial corrections on the basis of individual that the EAGGF proposed, 'in view of all files were limited to those cases where it the deficiencies detected in the management had been clearly demonstrated that either

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the conditions existed for the withdrawal of 44. The Conciliation Body delivered its authorisation or the gaps in the records or conclusions on 5 December 1995. Para- the incoming or outgoing stock entries, or graph 7 of the conclusions reads as follows: other grounds, prevented the Agency's authorities from carrying out effective checks.

'The Conciliation Body well understands the concerns of the Commission and the perplexity of the Spanish Authorities. It cannot ignore the failings on the part of certain plants revealed in the documentary evidence supplied by [the Agency] but must 41. As a consequence, the findings made at also conclude that there has been a certain four of those plants justified a financial amount of inconsistency in the Commis- correction equal to 100% of the aid sion's approach when deciding on the granted, whilst those at nine other plants appropriate financial consequences. The resulted in a financial correction equal to Conciliation Body questions in particular 10% of that aid. the justification for the Commission's approach in taking only a limited number of the files available to [the Agency] and arriving at corrections of either 10% or 100%.

46. In its reply dated 18 January 1996, the Commission informed the Spanish autho- rities and the Chairman of the Conciliation Body that 'it cannot accede to the Con- 49. The Commission pleads that the appli- ciliation Body's request either to individua- cation should be dismissed and that the lise and further adjust the correction rates Kingdom of Spain should pay the costs. to suit each of the plants concerned (not contested by the Spanish authorities), or to replace its proposed corrections by an overall correction of 2% of all the expen- diture for 1992 (a possibility already dis- cussed with the Spanish authorities, which they had dismissed)'. 18 A — The submission that the rules on the common organisation of the market in oils and fats and those on the financing of the common agricultural policy have been infringed 47. On 20 November 1996 the Commis- sion adopted Decision 96/701 imposing the financial correction of ESP 721 255 271 which is the subject of the present action. 50. The Kingdom of Spain maintains that the EAGGF is under an obligation to provide finance, since the plants receiving the aid and the Spanish authorities have complied with the Community rules apply- ing within the framework of the common organisation of the agricultural markets, in accordance with Article 3 of Regulation III— The application No 729/70.

48. The Kingdom of Spain puts forward two submissions in support of its applica- 51. It analyses in turn each of the 13 files tion for annulment. The first concerns on which the Commission based its deci- sion and concludes that there are no irregularities justifying the contested finan- 18 — Paragraph 15(2) of the Commission defence. cial corrections.

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57. It adds that neither the description of 1. The burden of proof the facts, nor the explanations put forward by the Kingdom of Spain, nor the docu- mentary annexes accompanying the appli- cation prove that there were no accounting irregularities either in relation to stock and 61. The Commission claims that in cases incoming and outgoing consignments, or as involving its decisions on the clearance of regards the conditions relating to the trans- EAGGF accounts it is not required, accord- parency of the accounts and finances of the ing to the case-law of the Court, to prove plants concerned. exhaustively that the information supplied to it is unsound, but that it is sufficient for the Commission to provide some evidence of the serious and reasonable doubts it has regarding figures supplied by national administrations.

infringement of the rules on the common 66. According to those principles, it is organisation of the agricultural markets ... necessary to examine the evidence gathered Accordingly, the Commission is obliged to by the Commission following the EAGGF give reasons for its decision finding an inspections which led to the financial absence of, or defects in, inspection proce­ correction, and the evidence relied upon dures operated by the Member State in by the Kingdom of Spain in support of its 20 question ...'. Hence the latter 'cannot action. rebut the Commission's findings by mere assertions which are not substantiated by evidence of a reliable and operational supervisory system. If it is not able to show that they are inaccurate, the Commission's findings can give rise to serious doubts as to the existence of an adequate and effective 2. The existence of infringements of Com­ series of supervisory measures and inspec­ munity law tion procedures ...'. 21

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Financial correction of 100%: five invoices; the plant did not submit its VAT records or its accounts since the documents concerned were in the hands — Lorenzo Sandúa, of an outside accountant. — Hurtado Tenorio, — Olivar de Segura, — Agroalimentaria Minerva;

70. Examination of the documents drawn up at the time of the Agency's inspection Financial correction of 10%: confirms each of those points. They are expressly mentioned in the report compiled on 17 March 1992 and in the report of 26 November 1992. Photocopies of the — Sagarra Bascompte, allegedly falsified delivery notes attached — Amador Rodríguez, to the file show that the notes in question — Fernández y Ruiz de Aguilar, had indeed been altered. No evidence was — Uteco Jaén, produced to explain how that anomaly — Argonesa de Aceite de Oliva, might have occurred. — Martínez Henarejos, — Hispanoliva, — Hijos de Joaquín Seguí, — Emiliano Vivas.

71. According to the Spanish Government, the aid was paid in accordance with the (a) Lorenzo Sandúa rules.

73. In this connection, it is sufficient to stocks did not tally with the business books state that no evidence has been produced and the results of the tests carried out at the by the Spanish Government showing that plant revealed that the oil contained 0.5 further investigation was carried out or p.p.m. of trichloroethylene although the describing the content of the alleged inves- maximum permitted level is 0.1 p.p.m. tigation. According to the Commission, that tri- chloroethylene content should have led the competent authorities to analyse the entire stock and to take the necessary action. It considers that the aid was paid without proper investigation. 74. The various items of evidence found by the EAGGF investigators thus point to serious failures to comply with the Com- munity rules on the common organisation of the market in oils and fats, as with the requirements in respect of supervision by Member States laid down in the rules on the financing of the common agricultural policy. 77. Examination of the documents drawn up at the time of the Agency's inspection confirms each of those points. The report of 16 November 1992 shows that, under the heading 'stock records' in the section for movements of olive oil in bulk, and the 75. There is therefore no need to challenge section for incoming and outgoing contain- the financial correction imposed in respect ers, none of the information required was of those irregularities. entered against the appropriate item. The report also shows that physical stocks did not correspond with the records, and some of the information in the records did not tally with the business papers. 26

79. The Spanish Government states that recorded stocks and the physical stocks of the discrepancies between the stocks were containers, contrary to the relevant rules. due to the fact that the quality of the oils changes naturally and that oil which is initially described as 'extra virgin' may subsequently become 'virgin'. This change may be reflected in corrections to the records, but has no effect on the amount of aid. This, according to the applicant, 82. The Spanish Government adds that it is explains why the physical stocks did not wrong to refer to the possible presence of tally with the recorded stocks. trichloroethylene in the oil as an impurity when this might be due to pollution, which would not come under Regulation No 2677/85. The situation at issue was on the contrary an infringement of Arti- cle 4 of Regulation No 3089/78, which gives a definition of olive oil, and so there was no justification for withdrawal of 80. It must be pointed out that the King- authorisation. dom of Spain has not produced any evi- dence in support of this allegation to show that the deficiencies noted within the plant concerned could be explained in the way it claims. 83. It should be mentioned that the sam- pling referred to in Article 5(1) of Regula- tion No 2677/85 is intended precisely to test whether the oil complies with one of the definitions contained in Regulation No 3089/78 and might, if appropriate, result in withdrawal of approval as provi- 81. The applicant refers to a discrepancy of ded for in Article 5(2). In this particular 5 litres between the data given in the case, the oil was not regarded as comply- subsidiary record and those in the business ing. The position maintained by the appli- papers, a discrepancy which it classes as cant that the question of the definition of insignificant. This evidence only partly olive oil should be treated separately from conveys the true situation, since other that of withdrawal of approval is thus discrepancies can be found in the section unfounded. of the report relating to the checks on whether the stocks correspond: there are unsubstantiated discrepancies between the recorded stocks and the physical stocks of bulk oil and between the recorded stocks and the physical stocks of oil put up in containers. 28 In addition, there is also a 84. It follows that the irregularities estab- difference, albeit a small one, between the lished and the fact that they had no effect on the approval granted to the plant concerned justify the financial correction 28 — Ibid., p. 9. applied by the Commission.

86. Examination of the documents drawn up at the time of the Agency's inspection confirms each of those points. The section 88. This line of argument cannot be of the report of 8 September 1992 relating accepted. to the inspection of the business papers and the entries of olive oil 31 contains a hand- written note that the relevant records had been approved. The form contained in the

89. As regards the reporting of the investi- 29 — Annex I to the defence. gation carried out, it must be stated that a 30 — Annex to Annex V to the application for annulment, p. 9. mere reference to the plant's records ren- 31—Annex XI to the application for annulment, 'Olivar de Segura' file, pp. 12 and 13. ders the reports useless and reduces the

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(d) Agroalimentaria Minerva 94. The Spanish Government claims that the scale of the discrepancy between the figures shows there was no irregularity and that in its view they corresponded suffi- ciently closely. It adds that a discrepancy of 92. The EAGGF's findings regarding the 1 320 units out of a total of 130 000 Agency's inspection of this undertaking, as containers stored in the plant at the time set out in the table annexed to the inspec- should be viewed against the almost total tion report of 31 May 1994 32 and in the correspondence ascertained in other cases, letter sent by the Commission to the 33 — Annex to Annex V to the application for annulment, p. 9. 34 — Annex XI to the application for annulment, 'Agroalimen- 32 — Annex I to the defence. taria Minerva' file, p. 10 of the report, point 4.3.

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which makes it probable that an error to support such an assumption, to justify occurred. the failure to apply Article 12(6) of Reg- ulation No 2677/85.

95. It should be pointed out that the four sets of figures relating to containers, which 98. The financial correction imposed by the the Spanish inspectors compared, reveal Commission should therefore be accepted. discrepancies amounting to several hun- dreds of units at least, which, even when compared with the figures for the four categories of stocks at issue of between 10 500 and 95 600 units, cannot be regarded as negligible amounts. In particular, the figure of 1 320 units set against a total of 8 (e) Sagarra Bascompte 211 in its corresponding category constitu- tes a substantial discrepancy which it is difficult to put down to a mere error.

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100. Examination of the documents drawn 103. The Spanish Government adds that no up at the time of the Agency's inspection significant discrepancy was detected in the confirms each of those points. The Agency's checks on the stocks of containers. inspector mentioned in the report of 19 January 1993 that he had not been able to check whether the physical goods corre- sponded with the goods shown in the records since the accounts ledgers were not available. 37 Discrepancies were noted 104. It fails, however, to provide any between the recorded stocks and the phy- explanation of the figures noted by the sical stocks of containers. 38 Furthermore, inspectors, which indicate a difference of 8 there is no evidence to explain how the 000 units in one case and 1 320 units in the Agency managed to make the figures tally other. 39 once the records had been examined.

105. All of this evidence is sufficient to justify the financial correction imposed by 101. The Spanish Government states that the Commission. the stock records were up to date and that the inspection procedure had taken place normally. It asserts that the procedure started with checks on the records, during which the inspector examined the records submitted to him by the undertaking, (f) Amador Rodríguez followed by a site visit, after which the results of the two parts of the inspection were assessed at the Agency's offices.

108. The inspection report of 10 December 1992 contains the words 'no change since last inspection according to the undertak- 113. As regards the accusations relating to ing' in the section relating to the descrip- the lack of any changes in the plant's tion of the packaging facilities and storage packaging facilities, it maintains that on areas. 42 an initial visit to an undertaking details of the facilities are always described in the report on the basis of mere observation. During subsequent visits the inspector examines the existing facilities again and checks whether there have been any 109. That document also notes a discre- changes since the last time. If so, he pancy in that there were 21 physical units indicates this in his report. If not, he of 25-litre containers less than the 384 units ascertains from a representative of the shown in the records. The report of plant that no alteration likely to pass 26 January 1993 does not mention any unnoticed on a visual examination has containers. 43 taken place.

110. The inspectors clearly mentioned in the report of 10 December 1992 that it was 114. The explanation given by the King- not possible to count the 1-litre and 5-litre dom of Spain would be acceptable if the containers. 44 systematic examination of the facilities which should take place during each inspection were described in the report. 41 — Annex to Annex V to the application for annulment, p. 7. The inspector's remarks however make no 42 — Annex XI to the application for annulment, 'Amador Rodriguez' file, pp. 2 and 3. 43 — Ibid., p. 9, and report of 26 January 1993, p. 9, point 4.3. 44 — Page 8. 45 — Page 13.

116. As regards the fact that 1- and 5-litre 120. The EAGGF's findings relating to the containers were not inspected, the King- Agency's inspection of this plant, as set out dom of Spain alleges that they were in the table annexed to the inspection checked by a reckoning process, which report of 31 May 1994, 46 noted the fol- indicated there was no significant discre- lowing irregularities in particular: there pancy. were no records of stocks of olive oil put up in containers or of stocks of containers; the inspectors concluded that there was 'nothing to report', although no inspection could be carried out to establish that there 117. These explanations by no 'means were no discrepancies. The letter sent by relieve the plant from its responsibility, the Commission to the Spanish authorities since it is established that those containers on 13 June 1995 states that the aid was could not be counted according to the usual paid without proper investigation. 47 method. Nor do they justify the working methods of the inspectors, who merely noted that it was impossible to carry out their checks without giving any reasons or describing the alternative inspection method which was ultimately used. 121. Contrary to what the Commission claims, it appears from the inspection report of 13 July 1992 that stock records relating to stocks of olive oil put up in

118. Lastly, the Spanish Government main- 46 — Annex I to the defence. tains that there is information available on 47 — Annex to Annex V to the application for annulment, p. 8.

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127. Examination of the documents drawn up at the time of the Agency's inspection confirms each of those points. The Agency's inspectors made an entry in the section of 124. Suffice it to state, however, that the the report of 23 July 1992 intended for Kingdom of Spain does not provide any details of the packaging plant and the evidence in support of the assertion that the storage depot, to the effect that the equip- check on whether the stocks corresponded ment and premises concerned had not was eventually carried out. undergone any change since the last inspec-

48 — Annex XI to the application rot annulment, 'Fernández y Ruiz de Aguilar' file, pp. 6 to 8. 50 — Annex I to the defence. 49 — Ibid., p. 9, points 4.2 and 4.3. 51 — Annex to Annex V to the application for annulment, p. 8.

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tion, merely on the basis of a statement by (i) Aragonesa de Aceite de Oliva the representative of the plant. 52

133. Examination of the documents drawn up at the time of the Agency's inspection 130. It should be pointed out that no confirms each of those points. evidence was produced in support of this latter assertion. As for the first complaint, I merely refer to my reasoning with regard to Amador Rodríguez, which applies also in this case. 54 134. The report of 9 March 1993 notes that the stock accounting was incom- plete. 57 The plant's representative was not able to produce confirmation of the com- petent authority's approval. 58 The records 131. The financial correction imposed by were not available, with the result that the the Commission must therefore be approved. 55 — Annex I to the defence. 56 — Annex to Annex V to the application for annulment, p. 9. 52 — Annex XI to the application for annulment, 'Uteco Jaén' file, pp. 2, 3 and 5. 57 — Annex XI to the application for annulment, 'Aragonesa de 53 — See point 115 of this Opinion. Aceite de Oliva' file, pp. 6, 7, 9 and 18. 54 — Ibid., point 116. 58 — Ibid., p. 5, point 1.1, and p. 18.

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inspectors were not able to check whether consider it acceptable to disregard the legal the recorded stocks corresponded to the consequences of such irregularities where, physical stocks. 59 Neither the report nor as in the present case, they are so numerous any other document on the file provides and relate to all of the plant's activities. data on olive oil entering and leaving the plant. 60

136. These arguments are unacceptable. Although some of the irregularities noted (j) Martinez Henarejos may be tolerated from time to time by the administration from a purely instructional viewpoint in order to ensure that the plants concerned comply with the legal require- ments more closely in the future, I do not

139. The EAGGF's findings regarding the 59 — Ibid., p. 9, point 4.2. Agency's inspection of this plant, as set out 60 — Ibid., pp. 12 and 13. in the table annexed to the inspection

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141. The Spanish Government maintains that the fact that the data did not corre- spond, as was discovered following the (k) Hispanoliva inspection carried out at the Agency's

61 — Annex I to the defence. 62 — Annex to Annex V to the application for annulment, p. 9.

63 — Annex XI [to the application for annulment], 'Martinez Henarejos' file, p. 10, before the addition of further data 144. The EAGGF's findings regarding the by the Agency's inspectors. 64 — Ibid., p. 10, after further data was added by the Agency's Agency's inspection of this plant, as set out inspectors. in the table annexed to the inspection

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147. The applicant states that the inspec- tors decided not to carry out a precise count of the containers present since the 145. Examination of the documents drawn data contained in the stock records corre- up at the time of the Agency's inspection sponded to the amounts of oil put up in confirms each of those points. The Agency's containers which were physically present in inspectors recorded in the section of the the plant at the time of the inspection. report of 5 August 1992 intended for the description of the features of the packaging facility, the storage depot and the structure of the plant that the undertaking had stated that no changes had taken place since the previous inspection. 6 7 The section of the 148. This line of argument fails to take into report relating to checks on containers account the fact that Article 12(1) of Reg- contains a comment by the inspector that, ulation No 2677/85 stipulates that Mem- due to the large number and variety of sizes ber States must check that the total quan- of the containers, no inspection had been tities of oil stored in bulk in containers and made of them. 68 The table in the report the empty containers physically present in relating to checks on whether the recorded the plant correspond to the figures given in stocks corresponded to the physical stocks the stock records. It cannot for that reason be accepted. 65 — Annex I t o the defence. 66 — Annex to Annex V to the application for annulment, p . 10. 69 — Ibid., p. 9, point 4.3. 67 — Annex XI to the application for annulment, 'Hispanoliva' 70 — I b i d . , pp. 12 and 13. file, pp. 2 to 4. 71 — See point 115 of this Opinion. 68 — Ibid., p. 8, point 3.3. 72 — I b i d . , point 116.

152. The Spanish Government submits that the discrepancies found are not significant 150. The EAGGF's findings regarding the since they affect only a total of 142 litres. It Agency's inspection of this plant, as set out adds that the inspectors carried out indivi- in the table annexed to the inspection dual checks, that is to say, they examined report of 31 May 1994 73 and in the letter the invoices and receipts relating to the sent by the Commission to the Spanish commercial transactions and also the authorities on 13 June 1995, 74 noted the entries in the tax records of the business following irregularities in particular: papers submitted. invoice numbers were not entered in the stock records; errors were discovered in the recording of amounts of olive oil; the labels on the containers did not include any identification number; the recorded stocks did not correspond to the physical stocks. 153. The figure put forward by the appli- Aid was thus paid without proper investi- cant does not take into account all the gation. discrepancies discovered at the time of the inspection, since discrepancies amounting to several hundred units were revealed between the recorded and physical esti- mates of quantities of olive oil stored in bulk, on the one hand, and those of the stocks of containers, on the other. 79 Fur- 151. Examination of the documents from thermore, the Spanish Government does the Agency's inspection confirms each of not specify what conclusions it draws from those points. The Agency inspector's com- the fact that the inspectors carried out ments recorded in the report of 6 May individual checks, nor does it indicate the 1992 indicate that invoice numbers were extent to which this is likely to reduce its omitted from the stock records. 75 Accord- liability in granting aid paid without any ing to the inspector, the description of some proper investigation.

157. The Spanish Government claims that the absence of stocks of olive oil was (m) Emiliano Vivas attributable to the plant's low level of operation and cannot be regarded as an anomaly. As regards the containers, it states that the inspector estimated their number by a process of reckoning, which confirmed that the physical stocks corresponded to the recorded stocks. Lastly, the applicant states 155. The EAGGF's findings regarding the that there was an invoice for each of the Agency's inspection of this plant, as set out consignments of oil checked leaving the in the table annexed to the inspection plant, apart from one where there was a report of 31 May 1994, 80 noted the fol- delivery note, as the invoice had not yet lowing irregularities in particular: stock been issued due to the amount of time was missing, it was not possible to check required between actual delivery and invoi- containers, and there were significant omis- cing. sions in the accounts. Aid was thus paid without proper investigation.

160. The foregoing information demon- 1. Withdrawal of approval strates, to my mind, that the plants in question committed a large number of infringements of the rules relating to the common organisation of the market in oils and fats. Those infringements were not 163. The Spanish Government states that adequately investigated in accordance with the relevant Community rules provide for the measures laid down in Regulation two cases in which approval should be No 729/70. In accordance with Article 8(2) withdrawn: the first, where withdrawal of that regulation, the Community should should be permanent, is if the conditions not have to bear the financial consequences laid down for granting approval have been of irregularities or negligence attributable infringed; the other, where withdrawal to administrative authorities or other should be temporary, is if aid has been bodies of the Member States. sought in respect of a quantity of olive oil greater than the quantity to which entitle- ment has been granted or if the olive oil fails to comply with the statutory defini- tions.

B — The plea that the principle of propor- tionality has been infringed 164. It considers that, by calling for tem- porary withdrawal of the approval granted to Olivar de Segura and Agroalimentaria Minerva, the Commission was in breach of Community law and infringed the principle of proportionality. 161. The Kingdom of Spain claims that the principle of proportionality, which is a general principle of Community law, requires that Community institutions should not, when exercising their powers, go beyond what is necessary and appro- 165. The applicant claims that temporary priate to achieve the desired objective. withdrawal is not automatic since it is subject to two conditions being met.

167. Fraudulent intent must also be the intent to defraud when the tests reveal proved. The applicant quotes Article 5(2) the presence of trichloroethylene. The of Regulation No 2677/85, which states Commission considers that the company that withdrawal shall take place if the oil in managers are, at all events, responsible for question does not meet one of the defini- the final composition of their products and tions referred to as a result of blending or for describing those products in a way that other chemical processes 'intended to ren- ensures they are entitled to aid according to der oil not eligible for consumption aid so the relevant conditions. eligible'. It asserts that the requirement that there must be fraudulent intent is to be inferred from the actual wording of the text. 171. The Kingdom of Spain states that making temporary withdrawal subject to the requirement that there must be a minimum amount of surplus is inherent in 168. The Spanish Government therefore the necessary degree of proportion which claims that the two undertakings in ques- should exist between the infringement tion cannot be penalised by withdrawal of committed and the penalty imposed. their approval since the quantities of oil at issue are insignificant and they cannot be accused of any fraudulent intent. It states that the corresponding amount of aid was not paid to the plants concerned. 172. It claims that the line of reasoning adopted by the Commission is inconsistent with the statement that the Commission asked to be included in the minutes of the 169. The Commission maintains that the meeting of the Management Committee for requirement of a minimum quantity of Oils and Fats held on 26 February 1993 to 20%, which applies in respect of the the effect that 'Article 12(6) of Regulation temporary withdrawal of approval under No 2677/85 provides for cases where Article 12(6) of Regulation No 2677/85, is incorrect statements are made deliberately contained in a regulation amending Regu- or through serious negligence, and cases of lation No 2677/85, which entered into clerical error are excluded from the scope force after the end of the 1992 accounting of that provision'. period. It accordingly takes the view that that condition does not apply in the present case.

1 7 6 . Both Article 3(2) of R e g u l a t i o n N o 3089/78 and Article 12(6) of Regula- tion N o 2677/85 state that a Member State must order temporary withdrawal of the approval granted to a packaging plant which has made an application for aid relating to a quantity of olive oil greater 1 8 0 . A r t i c l e 5 ( 2 ) of Regulation than that for which the entitlement to aid N o 2677/85, which the Spanish Govern- was recognised. ment quotes in support of its line of reasoning, does not apply to an application for aid relating to a surplus amount. It actually provides for the case of temporary withdrawal of approval due to a change in the nature of the olive oil as a result of blending or other chemical processes. How- 177. The wording of those provisions does ever, there is no question of that type of not contain any ambiguity regarding the irregularity in the proceedings involving the obligation on Member States to withdraw two plants referred to above.

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(b) The requirement that there should be a minimum amount exceeding the quantity 186. Considered in this light, it is necessary on which the application for aid is based to assess, according to the rules applying at the time the Agency's investigations took place and not in the light of subsequent law, whether the Kingdom of Spain exercised proper supervision and whether proper

183. The principle that a minimum amount is required before approval can be with- 85 — Commission Regulation of 19 March 1993 (OJ 1993 L 69, p. 19). drawn does not follow from the version of 86 — Article 2 of Regulation No 643/93 states that it was to Article 12(6) of Regulation No 2677/85, enter into force on the seventh day following its publica- tion in the Official Journal of the Éuropean Communities, as amended by R e g u l a t i o n (EEC) that is to say, 27 March 1993.

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action was taken subsequently by the 2. The percentage rates of the financial Spanish administration in respect of the corrections irregularities that were found. Thus, in order to assess whether the Kingdom of Spain complied with the rules enforceable in respect of those irregularities and, if appropriate, to establish that they did not give rise to the measures prescribed at that 189. The Kingdom of Spain considers that time under the relevant law, it is necessary the financial corrections decided on by the to view the situation as it was at the date of Commission are unjustified and manifestly the inspections. disproportionate in relation to the insignif- icance of the errors committed by the plants in question.

191. The Spanish Government adds that 188. It is clear from all those considera- the Commission did not follow the criteria tions that the Commission may legitimately which it had itself laid down in its com- base the financial corrections imposed on munication of 3 June 1993 to the EAGGF the Kingdom of Spain on the fact that no Committee regarding the assessment of the temporary withdrawal of approval was financial consequences during the prepara- ordered in respect of Olivar de Segura and tion of the decision on the clearance of Agroalimentaria Minerva although those accounts of the Guarantee Section of the plants had made applications for aid in EAGGF, in which it proposed three cate- respect of a quantity greater than that to gories of financial correction depending on which they were entitled. The fact that that the seriousness of the shortcomings estab- excess was under 20% and that no frau- lished. 87 dulent intent on the part of the plants concerned was formally proved is irrelevant in this regard. 87 — Annex III to the defence, doc. VI/216/93.

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192. The Commission's response is that the sion proves that the Commission's positions correction made does not infringe the were inconsistent. principle of proportionality.

195. Only the measure finally adopted by the Commission, because it is the only one 198. As regards the disproportionate nat- which adversely affects the Member State ure of the financial corrections, it should be concerned, can be taken into account in pointed out that the Court has consistently support of an application for annulment held that Article 3 of Regulation based on infringement of the principle of No 729/70 permits the Commission to proportionality. Proposals for financial charge to the EAGGF only sums paid in corrections, which are by nature likely to accordance with the rules laid down in the change, cannot therefore be relied on to various sectors of agricultural production, support the argument that the difference while leaving the Member States to bear the between the proposals and the final deci- burden of any other sum paid, in particular

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any amounts which the national authorities recognised and oil the composition of wrongly believed themselves authorised to which did not meet the statutory definitions pay in the context of the common organi- because of blending or chemical processes sation of the markets. 88 designed to obtain aid to which there was no entitlement.

199. Although it is therefore for the Com- 202. Those inspections thus proved that an mission to prove an infringement of the adverse effect on the Community budget Community rules, as I have stated above, was likely. As the Court has consistently the Member State concerned must demon- held in this connection, the Commission strate that the Commission committed an cannot be required to do more than that, error as to the financial consequences to be since it cannot carry out the systematic attributed to it. 89 checks and since analysis of the current state of a given market depends on infor- mation gathered by the Member States. 90

206. Thirdly, the rate of 100% relates, as explained, to four plants responsible for serious irregularities. 210. In this particular case, it is not dis- puted that the inspection method used by the Commission and agreed with the Span- ish authorities was that of checking a sample of files, which involves investigating 207. Lastly, the application of a lower rate a specified number of plants in order to in respect of the less significant irregula- reveal individual irregularities. The finan- rities noted in the nine other packaging cial corrections are therefore assessed on a plants shows that the calculation of the plant-by-plant basis, which may mean that financial correction took into account the in some cases the conditions for the pay- degree of seriousness of the facts. ment of aid are not met and may justify the application of maximum rates.

(2) order the Kingdom of Spain to pay the costs.

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