C-245/97

OPINION OF MR FENNELLY — CASE C-245/97

OPINION OF ADVOCATE GENERAL FENNELLY delivered on 16 December 1999 *

I — Introduction stated that it would adopt an ad hoc amendment to the contested Decision. This amendment had not yet been adopted when the oral hearing was held on 11 November 1999. None the less, Germany formally 1. The Federal Republic of Germany seeks withdrew this part of its application on the the partial annulment of Commission Deci- explicit basis of an undertaking by the sion 97/333/EC of 23 April 1997 on the agent for the Commission that the requisite clearance of the accounts presented by the amendment would be adopted within two Member States in respect of the expendi- to three months. As a result, I shall only ture for 1993 on the Guarantee Section of discuss the first part of Germany's applica- the European Agricultural Guidance and tion in this Opinion. Guarantee Fund (EAGGF) 1 (hereinafter 'the contested Decision'). Its action relates to the denial of r e i m b u r s e m e n t of DEM 608 583.40 as part of the expenses for a campaign promoting milk c o n s u m p t i o n (item 2062) and of DEM 485 466.68 in respect of payments to farmers under a scheme of temporary withdrawal from cultivation of arable land II — Legal and factual background (item 401).

3. Article 8(1) of Council Regulation (EEC) No 729/70 of 21 April 1970 on the 2. The Commission conceded in its defence financing of the common agricultural pol- to the present action, lodged on 17 October icy 2 states: 1997, that it was mistaken regarding the alleged breach of time-limits for the making of payments in the latter case, as Germany had provided proof in its application that payment had been effected in time, except for an amount which was already covered by the applicable reserve. The Commission 'The Member States in accordance with national provisions laid down by law,

5. In order to place the dispute in its proper 'Member States shall make available to the setting, it is necessary to set out in some Commission all information required for detail the regulatory and contractual frame- the proper working of the Fund and shall work in question and the contents of the take all suitable measures to facilitate the pre-contentious correspondence between supervision which the Commission may the parties. consider it necessary to undertake within the framework of the management of Community financing, including inspec- 3 — OJ 1977 L 356, p. 1. tions on the spot.' 4 —OJ 1990 L 70, p. 1.

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6. The disputed milk-promotion expendi- submit proposals to conduct the promo- · ture arises from two campaigns, which tional campaign or to the content of such were launched in 1992 and 1993 respec- proposals. Article 2(1)(c) states: tively pursuant to Commission Regulation (EEC) No 465/92 of 27 February 1992 on the implementation of measures to promote awareness of the health and nutritional value of milk and milk products 5 and 'The promotional measures referred to in Commission Regulation (EEC) No 585/93 Article 1: of 12 March 1993 on the implementation of promotional and publicity measures in respect of milk and milk products. 6

Article 1(1) of Regulation No 465/92 states that measures to promote an aware- (c) must: ness of the health and nutritional value of milk and milk products, which are aimed at target groups such as medical staff, teachers and consumer categories selected on the basis of objective criteria, such as age, shall — make use of the means best suited be financed under the Regulation and to ensure maximum effectiveness continues: of the measure undertaken,

'(b) all details concerning the measures 7. Regulation No 585/93 envisages a pro- proposed together with detailed descrip- motional campaign of a more general tions, giving reasons and indicating the character for human consumption of milk time required for completion, the expected and milk products. Article 2(1) and (2) of results and any third parties who may be Regulation No 585/93 is worded in terms involved' and '(c) a detailed presentation of similar to those of Article 2(1) of Regul- the planned strategy for the whole pro- ation No 465/92; the above-quoted part of gramme'. Article 4(2) provides for the Article 2(1 )(c) of the latter regulation is Commission to lay down selection criteria, essentially reproduced in the first two which parties submitting proposals must indents of Article 2(2) of the former. Arti- undertake to observe and which shall be cle 4(1)(b) and (c) of Regulation attached to the contract. No 585/93 is couched in similar terms to the same provision of Regulation No 465/92, while Article 4(2) of Regul- ation No 585/93 contains similar obliga- tions to those in Article 4(2) of Regulation No 465/92 regarding implementation cri- Article 6 of Regulation No 465/92 states: teria to be laid down by the Commission. Article 5(1) of both regulations states that the competent authorities shall use stan- dard contracts to be provided by the Commission to conclude contracts with interested parties for the relevant promo- '(1) The contract referred to in Arti- tional campaigns. Article 6 of Regulation cle 5(1 )(b) shall include the details referred No 585/93 provides: to in Article 4(1) and (2) or make reference to them and supplement those details, where necessary, by additional conditions.

9. Point 18 of the selection criteria adopted by the Commission under Regulation — other on-the-spot checks, where No 465/92 and annexed to the relevant necessary. standard contract states that in examining proposals regard must principally be had to the completeness of the information refer- red to in Article 4 of that regulation and specifies, inter alia, that the objectives of the detailed measures contained in the Contracting parties must be subject to at proposal must be clearly set out. Point 19 least two inspections during the period of states that, in the scrutiny of the final validity of the contract.' report, special weight is to be attached to compliance with the original proposal, statements on the achievement of the objectives pursued and statements on the development of sales of milk and milk 8. Much of the dispute centres on the products. The implementation criteria laid extent of the reporting obligations imposed down under Regulation No 585/93 do not by the contracts, in particular as regards contain any equivalent provisions. the contents of the interim reports. The second subparagraph of point 6.1 of the standard contract accompanying Regul- ation No 465/92 provides that the con- tracting partner and any subcontractors shall submit a monthly report (hereinafter 'the interim report') to the competent 10. After having obtained the Commis- authority on the work completed, along sion's approval, the German Federal Office

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11. During the period of application of the contracts, the Commission requested BALM to furnish it with copies of the interim reports regarding the two cam- paigns. After an inspection visit from 19 to 23 September 1994, the Commission stated 12. The Ministry replied, in a letter to the in a letter of 27 October 1994 to the Commission of 20 February 1995, that the Bundesministerium für Ernährung, Land- form of the interim reports had until then wirtschaft und Forsten (Federal Ministry of been found to be acceptable and that more Food, Agriculture and Forestry, hereinafter detailed information was normally provi- 'the Ministry') that the interim reports ded in the final report, at which time the contained insufficient information regard- campaign as a whole was assessed and a ing the nature and scale of the campaign decision could be reached on outstanding and the correct implementation of the payments and on the return of the contract- contractual obligations. 8 It added that the or's deposit. An alteration in the content of lack of detailed information made it diffi- the interim reports would require the cult for BALM to assess the success of the insertion of more specific requirements in promotional measures. BALM should have the regulations and the standard contracts, pursued its earlier recommendations to which did not refer to any such analysis of cost-effectiveness at this stage. BALM's role during the performance of the contract was 7 — The competent authority is now the Bundesanstalt für Landwirtschaft und Ernahrung ('BLE'), hut for convenience I use the term BALM throughout this Opinion. 8 — Point C of the Annex to the Commission's letter of 9 — Op. cit., point D. 27 October 1994. 10 — Op. cit., point E.

13. In a letter of 2 May 1996 to the Permanent Representative of Germany to the European Union, 11 the Commission proposed that the reimbursement of costs for the two milk-promotion campaigns be reduced by 2%, on two grounds. First, under the heading of financial regularity ('finanzielle Ordnungsmäßigkeit'), the Commission stated that CMA's interim reports did not reveal whether sufficient 14. On 10 March 1997, the Commission progress ('ausreichend Fortschritte') was forwarded to the Ministry an internal note being achieved through the operation of from the head of the relevant unit in the the contract. Secondly, under the heading Directorate-General for Financial Control of cost-effectiveness ('Kosten-Nutzen'), it to the acting director of the relevant stated that nothing had been done to directorate at the Directorate-General for quantify the achievement of objectives Agriculture. This note stated that the through measures such as advertising in control mission to Germany of 19 to periodicals, on television and at exhibitions 23 September 1994 had revealed that the and the distribution of brochures on requirement in Article 6 of both regulations research results regarding the qualitative of administrative checks on implementa- aspects of milk products. Furthermore, tion of measures by CMA in accordance insufficient details were given about the with the contracts was not being met. The reaction of the public to the advertising interim reports by CMA did not contain campaigns and about their actual effect on enough information to show that the consumption. This assessment and the contracts were progressing properly, which recommended 2% reduction were repeated should have prompted BALM to take verbatim in a letter of 26 November 1996, corrective management action pursuant to that of 2 May 1996 having been with- its monitoring obligation. The level of financial correction was therefore based on an overall assessment of the risk that the 11 — This letter was the formal notification of the Commission's promotional measures could not be conclusion that certain items are not chargeable to the EAGGF Guarantee Section for the purposes of Article 1 of adjusted during the period of the contract Commission Decision 94/442/EC of 1 July 1994 setting up a conciliation procedure in the context of the clearance of to ensure achievement of the campaign's the accounts of the European Agricultural Guidance and objectives. This could not be redressed after Guarantee Fund (EAGGF), Guarantee Section, OJ 1994 L 182, p. 45. presentation of the final report.

15. Point 4.3.2.1 of the Commission's con- tions in its letters of 2 May 1996 and solidated summary report of 15 April 1997 26 November 1996. on the results of inspections concerning the clearance of the EAGGF Guarantee Section accounts for 1993 1 2(hereinafter 'the sum- mary report'), which underlies the con- tested Decision, justifies the 2% reduction in the amount chargeable for the German milk promotion campaigns by stating that the competent authority had failed to check on the implementation of the relevant contracts and, in particular, to ensure that the objectives of the programmes were III — Arguments of the parties achieved. The different language versions of the report are not perfectly consistent in this respect. While the German version refers in particular to the latter alleged failing ('Die Zahlstelle hat es unterlassen, die Durchführung der betreffenden Verträge zu überwachen und insbesondere 16. It should be noted at the outset that it zu gewährleisten, daß die Ziele des Pro- appears that the Commission accepts that gramms erreicht wurden'), the French the promotional campaigns achieved their refers to the two items disjunctively ('L'or- stated objectives (although, somewhat con- ganisme payeur n'a pas contrôlé la mise en fusingly, its written pleadings cast doubt on œuvre des contrats en cause ni veillé à this conclusion at one point). Germany l'application des objectifs des pro- submits that it is not lawful for the grammes'') and the English mentions them Commission to reduce the amount charge- conjunctively ('The paying agency failed to able to the EAGGF in the light of a merely monitor implementation of the contracts abstract risk, which failed to materialise, concerned and to ensure that the objectives that Community funds might not be used in of the programmes were met'). 13 This an optimal fashion. The Commission conclusion is explained under the two responds that the insufficiency of headings of financial regularity (finanzielle Germany's surveillance of CMA's imple- Ordnungsmäßigkeit) and cost-effectiveness mentation of its contracts was, in itself, a (Kosten-Nutzen-Verhältnis). Under the first breach of Article 8(1) of Regulation heading, the Commission stated that No 729/70, applied in conjunction with CMA's interim reports to BALM did not Article 6(2)(b) of Regulations Nos 465/92 'show whether the contracts were pro- and 585/93. Germany contends that there gressing properly' or, in German, whether was nothing in the exchanges leading to the or not they were being properly implemen- adoption of the contested Decision to ted ('ob die Verträge ordnungsgemäß suggest that the reduction concerned a durchgeführt wurden'). Under the second, general lack of surveillance of the type the Commission essentially reiterated, with required by Article 6(2)(b) of the latter two only minor textual variations, its observa- regulations. The Commission counters that it raised the general insufficiency of checks by BALM in its letters of 27 October 1994 12 — Doc. VI/5210/96 - EN consolidated. and 26 November 1996 and in the sum- 13 — Emphasis added in both cases. mary report for the financial year 1993.

17. Germany submits that BALM conclu- the general obligations imposed by Art- ded contracts in the precise terms provided icle 2 of the Financial Regulation, as for by the two Regulations and that the amended, and by Articles 8 and 9 of Reg- interim reports were prepared in accord- ulation No 729/70, allied with the fact that ance with point 6.1 of these standard Community funds could be wasted if it contracts. They all contained a short were not possible to abandon a promo- description of measures adopted to date, tional strategy which failed to reach or to accompanied by receipts for expenditure. have an effect on its target audience. Even a No obligation was imposed regarding a short interim report could give the numbers cost-effectiveness assessment in such of persons attending presentations or the reports, as distinct from the case of the readership levels of publications which final report, for which such an assessment carried advertisements, without having to was expressly required. Interim reports on engage in actual market studies at this similar lines were submitted without object- stage. ion under previous schemes, although the terms of the relevant Community rules had not been altered in the meantime. Instead, the express requirements regarding the content of interim reports under later schemes have been expressly altered to reflect the concerns raised by the Commis- sion in the present case. Germany also cited a fax from the Commission of 27 January 1993, indicating that interim reports need not be more than half a page in length. Furthermore, the proposals on the basis of which CMA was awarded the contracts, which included details such as the titles of periodicals in which advertisements would be placed, had been approved by the Commission. BALM could not impose 19. Germany submits that, in any event, additional obligations on CMA which were BALM conducted all the inspections not contained in the contracts. required by Article 6(2)(b) of Regulations Nos 465/92 and 585/93, and gives details of two inspection visits in an annex to its application. The Commission responds that the insufficiency of the interim reports should have prompted BALM to make more than the minimum two inspections. In addition, it criticises BALM for railing to assess qualitative aspects of CMA's activ- ities during its inspections in order to ascertain that Community funds were being used correctly. It also asserts that BALM accepted non-itemised invoices from one of 18. The Commission considers that the CMA's subcontractors and did not even need for an interim assessment of cost- check if television advertisements for which effectiveness and of the progress made in CMA produced invoices had actually been executing the contract can be implied from broadcast.

IV — Analysis

23. Thus, the laconic character of the reference at point 4.3.2.1 of the summary report for the financial year 1993 to the 21. It is necessary, first of all, to determine competent authority's failure to check on the scope of the grounds on which the the implementation of the relevant con- Commission decided to reduce by 2% the tracts could be understood as referring to amount chargeable to the EAGGF in other problems, in addition to those respect of the German milk-promotion campaigns under Regulations Nos 465/92 14 — See, for example. Case 819/79 Germany v Comission and 585/93. In particular, I wish to deter- [1981] ECR 2 1 , paragraphs 19 to 21 ; Case C-59/97 Italy v mine whether that reduction was attribut- Commission [1999] ECR I-1683, paragraph 55; Case C-44/97 Germany v Commission [1999] ECR I-7177, able exclusively to BALM's failure to paragraph 21.

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of CMA's campaigns on consumption in the submitted by interested organisations. Fur- absence of such a requirement. thermore, the detailed proposals are required by Article 4(1)(b) and (c) of both regulations to justify the measures pro- posed, to indicate the expected results and to outline a detailed strategy, while point 18 of the selection criteria in respect of Regulation No 465/92 stresses the need 28. More generally, however, I take the for a clear statement of objectives in the view that the Commission's approach is proposal. inconsistent with the terms and scheme of the two regulations governing the milk- promotion campaigns and the accompany- ing standard contracts and criteria and is in no way bolstered by reference to Article 2 of the Financial Regulation. The latter provision establishes an obligation of a general character which does not neces- 30. Upon the completion of the campaigns, sarily (and, in practical terms, probably it is clear from point 6.4 of both standard cannot) apply with equal intensity at all contracts that the contracting partner must stages of the implementation of Commu- give an account of the likely results of the nity-funded programmes. In my view, that measures adopted. Point 19 of the selection obligation to observe the principle of cost- criteria under Regulation No 465/92 indi- effectiveness and to monitor the achieve- cates that the final report should advert to ment of quantified objectives, which is compliance with the original proposal, the mirrored in part in Article 1(1) of Regu- achievement of its objectives and the devel- lation No 465/92, is given concrete expres- opment of milk sales. In contrast, point 6.1 sion at two stages in the procedure govern- of the contracts merely requires the interim ing the milk-promotion campaigns at issue reports to refer to work completed and to in the present case: the assessment of be accompanied by the relevant receipts. proposals and the submission of the final reports on the campaigns. As a result, it is not, in my view, permissible for the Com- mission to seek to derive supplementary substantive obligations from the Financial Regulation itself.

for) at the initial and final stages. In of the detailed provisions of Regulations contrast to the detailed requirements Nos 465/92 and 585/93. regarding the content of the proposal, there is no hint that information should be provided in the course of the campaign which might, if necessary, prompt a change 32. As a result, I conclude that the Com- of strategy. It may represent a positive step, mission erred in law in characterising the from the point of view of sound financial response of the German authorities to the management, to impose such an additional interim reports submitted by CMA as a requirement. However, in a regulatory breach of the applicable Community rules, framework which already makes express which merited a reduction in the expenses provision for checks on cost-effectiveness chargeable to the EAGGF because of the and the achievement of quantified results at attendant risk that Community funds other stages, such an additional obligation would be improperly employed. In these cannot, without more, be derived directly circumstances, there is no need to address from the terms of Article 2 of the Financial Germany's distinct argument that the Com- Regulation. That would be an affront to mission is not entitled to make such the principle of legal certainty and would reductions in respect of an abstract risk cast an unnecessary doubt on the adequacy which does not, ultimately, materialise.

V — Conclusion

33. In the light of the foregoing, I recommend that the Court:

(1) Annul Commission Decision 97/333/EC of 23 April 1997 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1993 on the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) in so far as it reduces by 2 % the expenditure chargeable to the EAGGF in respect of item 2062;