C-349/97

SPAIN v COMMISSION

OPINION OF ADVOCATE GENERAL LEGER delivered on 21 February 2002 1

Table of contents

I — Facts I - 3860

II — General legal background I - 3861

A — Rules on verification of operations financed by the ĽAGGF I - 3861

1. Individual financial correction of the aid paid to two producer organi­ sations I - 3871

(a) Arguments of the parties I - 3871

(b) Assessment I - 3873

(i) Conditions for withdrawing recognition from RPGs I - 3874

(ii) Irregularities justifying withdrawal of recognition I - 3876

(iii) The extent of the individual correction applied to the Kingdom of Spain I - 3879

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(b)Relations between the AAO and the autonomous communities I-3885 (i) Arguments of the parties I-3885 (ii) Assessment I-3886

(c) Lack of a register of olive cultivation I-3888

(i) Arguments of the parties I-3889 (ii) Assessment 1-3891

(d)Lack of computerised files of olive and olive oil production data I-3892 (i) Arguments of the parties I-3892 (ii) Assessment I -3893 (e) Inadequacy of checks on mills I - 3894 (i) Arguments of the parties I - 3894

IV — Olive oil consumption aid I - 3919

A — Legal background I - 3919

B — Individual financial correction of the aid paid to two approved oil-packaging

undertakings I - 3921

1. The undertaking F. Fernandez I-3921

(a) Arguments of the parties 1-3921

V — Production aid for dried fodder I - 3933

A — Legal background I - 3933

B — The flat-rate correction in respect of production aid for dried fodder I - 3935

1. Arguments of the parties I-3936

2. Assessment I- 3937

VI — Infringement of certain principles of Community law I - 3939

VII — Costs I- 3945

Conclusion I- 3945

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1. Under the first paragraph of Article 173 3. In the case of the Kingdom of Spain, the of the EC Treaty (now, after amendment, Commission found that part of the expen- the first paragraph of Article 230 EC), the diture declared did not meet the conditions Kingdom of Spain has applied for the imposed by the Community rules and annulment of that part of Commission therefore could not be financed by the Decision 97/608/EC of 30 July 1997 EAGGF Guarantee Section. The relevant amending Decision 97/333/EC on the clear- expenditure is that relating to aid for the ance of the accounts presented by the production and consumption of olive oil Member States in respect of the expendi- and for the production of dried fodder. The ture for 1993 of the Guarantee Section of following financial corrections were the European Agricultural Guidance and imposed: Guarantee Fund (EAGGF) 2 which con- cerns it.

(1) Production aid for olive oil:

— a flat-rate financial correction of 6. Article 4(2) of Regulation No 729/70 2% of the expenditure declared by requires the Commission to make available Spain, or ESP 384 545 035. to Member States the necessary credits so that the authorities and bodies designated by the Member States may, in accordance with Community rules and national legis- lation, make such intervention payments. Under Article 5(2)(b) of the regulation, the 4. The grounds for these corrections to the Commission is to clear the accounts of the expenditure are summarised in the Sum- authorities and bodies of the Member mary Report on the outcome of the verifi- States before the end of the following year, cations for clearance of the accounts of the on the basis of the annual accounts accom- EAGGF Guarantee Section for 1993. 5 panied by the documents required for their clearance.

5 — Document VI/5210/96, consolidated version of 15 April 1997, hereinafter the 'Summary Report'. 6 — OJ, English Special Edition 1970(1), p. 218.

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SPAIN v COMMISSION

scrutiny of the commercial documents of larity of the expenditure, such that it undertakings, taking account of the nature can reasonably be concluded that the of the transactions to be scrutinised. The risk of loss to the EAGGF was signifi- detailed rules for such scrutiny are gov- cant. erned by paragraph 2 et seq. of this article.

12. As regards the financial consequences C. 10% of expenditure where the defi- for clearance of the accounts of the EAGGF ciency relates to the whole of or Guarantee Section of deficiencies in the fundamental elements of the control verifications effected by Member States, a system or to the operation of controls Commission interdepartmental working essential to assuring the regularity of party has adopted criteria 9 which have the expenditure, such that it can rea- been approved by the Commission and sonably be concluded that there was a communicated to all Member States at the high risk of widespread loss to the EAGGF Management Committee, where EAGGF.' they were received favourably. These crite- ria lay down three categories of flat-rate correction:

— check that the work of the producer o r g a n i s a t i o n s and associations complies with Council Regulation (EEC) No 2261/84 of 17 July 1984 laying down general rules on the granting of aid for the production of B — Establishment of a supervisory olive oil and of aid to olive oil producer agency for the olive oil sector organisations; 12

— verify the accuracy of the data set out 15. Experience had shown that, despite the in the crop declarations and aid appli- existence of rules providing for numerous cations, without prejudice to the specific controls, there were problems in checks carried out by the Member ensuring timely and effective performance State pursuant to Article 14 of Regu- of those controls, that this could lead to lation No 2261/84; unwarranted expenditure for Community funds and that administrative structures in the producer Member States were not adequate to implement the controls pro- vided for in the Community rules. On 17 July 1984, therefore, the Council — conduct checks of approved mills; and adopted Regulation (EEC) No 2262/84 laying down special measures in respect of olive oil. 10 The first subparagraph of Article 1(1) thereof, as amended by Council Regulation (EEC) No 593/92 of 3 March 1992, 1 1provides that each producer — monitor the approved packaging Member State is to set up, in accordance plants, in accordance with Article 7 of with its legal structure, a specific agency for Council Regulation (EEC) No 3089/78 the purpose of carrying out certain activ- of 19 December 1978 laying down ities and checks in connection with Com- general rules in respect of aid for the munity aid for olive oil, except for export consumption of olive oil 13 and, where refunds. Article 1(2) provides among other necessary, the professional bodies things that, in order to ensure that the recognised under Article 11(3) of Regu-

1. General provisions

19. Regulation No 136/66 establishes a 17. The Servicio Nacional de Productos common organisation of the market in oils Agrarios (SENPA) (now the Fondo Español and fats. de Garantía Agraria 1 7 ), by contrast, is the body responsible for approving beneficiary undertakings, making direct aid payments and advances against the deposit required, and imposing penalties. 20. Article 5(1) of that regulation, as a m e n d e d by R e g u l a ž i o n ( E Ľ C ) 14 — Regulation of the Council of 22 September 19(,f, on the N o 1915/87, l f i introduced a system of aid establishment of a cominou organisation of the market in oils and fats (OJ, English Special Fdituin 196 S-l 966, for the production of olive oil in order to p. 221). contribute towards the establishment of a 15 — Ley ele Creación de la Agencia para el Aceite de Oliva (BOF N o 297, 12 December 1987). 16 — Agencia para el Aceite de Oliva, hereinafter 'the AAO'. 17 — Hereinafter 'FFGA'. IS — Council Regulation of 2 Inly I98~ (OJ 1987 1. 181, p. 7).

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23. In that context Article 5(3) of Regu- lation No 2261/84 provides that all RPGs 21. Following the adoption of Council must by 30 June of each year declare to the Regulation (EEC) No 1413/82 of 18 May competent authority any changes made in 1982 amending Regulation No 136/66, 2 0 a their structure since their recognition or last special system was introduced based on annual declaration and report any notices olive-grower groups or associations of withdrawal of or application for mem- thereof, which would be responsible for bership received. The competent authority carrying out certain operations relating to must ascertain, on the basis of this state- the implementation of the aid system. 21 ment and of any appropriate enquiries, The eighth recital in the preamble to that whether the conditions for recognition are regulation states that, since the associations still met. If they are no longer met or if the are to make more rigorous checks on structure of an organisation does not allow production in the case of growers who are for its members' production to be verified, members of the groups belonging to such the competent authority must, without associations, the latter are to be paid the delay and at the latest before the beginning advance on the amount of the aid. of the following marketing year, withdraw recognition and notify its decision to do so to the Commission.

22. Under Article 20c(1)(b) of Regulation No 136/66, as amended by Regulation No 1 4 1 3 / 8 2 , the recognised 2 4 . F i n a l l y , in a c c o r d a n c e w i t h Article 11(2) of Regulation No 2261/84, Member States are to ensure that the sums 19 — Council Regulation of 27 November 1990 (OJ 1990 L 338, p. 1). 20 — OJ 1982 L 162, p. 6. 21 — Seventh recital. 22 — Hereinafter 'the RPGs'.

made over to the associations and to oil produced. The application must be producer organisations in application of accompanied by a declaration from the Article 11(1) are used by them only for mill to corroborate the particulars supplied financing the activities for which they are by the olive grower. responsible under that regulation. Article 11(3) provides that if sums withheld by a producer group are not used, in whole or in part, for financing the activities for which they are responsible they are to be deducted from the expenditure financed by the EAGGF. 26. For the purposes of approval, partici- pating mills must comply with certain conditions listed in Article 13 of Regulation No 2261/84 and in Article 9 of Regulation No 3061/84. In Regulation No 2261/84, Article 13(4) provides that if one of the conditions for approval is no longer ful- filled approval is to be withdrawn for a period in keeping with the gravity of infringement, but Article 13(6) provides that, should the withdrawal of a mill's approval have serious consequences on the 2 5 . Under Article 2(3) of Regulation pressing capacity in a given production N o 2261/84, aid is to be granted on zone, it may be decided to approve the mill application by the parties concerned to under special control arrangements. For the Member State in which the oil has been this purpose Article 9(4) of Regulation p r o d u c e d . The first s u b p a r a g r a p h of No 3061/84 requires the Member State to Article 2(4) of that regulation, as amended submit a reasoned request to the Commis- by Council Regulation (EEC) No 3500/90 sion specifying the type of control which it of 27 November 1990, 23 provides that in undertakes to exercise over the mill in the case of olive growers whose average question. production is at least 500 kg of oil per marketing year the aid is to be granted in respect of the quantity of oil actually produced at an approved mill. Article 5(1) of C o m m i s s i o n R e g u l a t i o n ( E E C ) No 3061/84 of 31 October 1984 laying down detailed rules for the application of the system of production aid for olive oil 24 requires applications for aid submitted by 2. System of controls each olive grower to include certain par- ticulars, including the approved mill or mills at which the oil was produced, together with details for each mill of the quantity of olives used and the quantity of 27. Article 14( 1 ) of Regulation No 2261/84 requires each producer Member State to introduce a system of checks to ensure that 23 — OJ 1990 1. 338. p. 3. the product in respect of which aid is 24 — OJ 1984 L 288, p. 52. granted is eligible for such aid.

30. Under Article 10(1) of Regulation N o 3061/84, as amended by Commission Regulation (EEC) N o 928/91 of 15 April 1 9 9 1 , 2 5 the checks p r o v i d e d for in Article 14(3) of Regulation N o 2261/84 are to cover at least 1 0 % of the approved mills operating during the marketing year concerned. Article 10(3) provides that, in checking the accuracy of crop declarations as indicated in Article 14(3a) and (4) of Regulation N o 2261/84, as amended by Regulation N o 3500/90, producer Member 29. Article 14(3) of Regulation N o 2261/84 States are to make use inter alia of data in requires producer Member States to carry the register of olive cultivation and the out on-the-spot checks on the activities and computerised files, the figures from on-the- stock records of a percentage of approved spot checks made on the grower and the mills. Paragraph 3a of Article 14 (added by yields of olives and oil set for the zone in Regulation N o 3500/90) provides that, for which the holding or holdings are located. the purposes of paying aid to olive growers whose average production is at least 500 kg of olive oil per marketing year, the pro- ducer Member States are to check the accuracy of the crop declarations on the basis of criteria to be determined, the correspondence between the quantity of oil entered in the aid application and that 3 1 . A r t i c l e 1 5 ( 3 ) of R e g u l a t i o n stated in the stock records of approved N o 2261/84, as amended by Regulation mills, and the compatibility between the N o 3500/90, provides that where the olive production declared by each olive checks specified in Articles 13 and 14 do grower as having been pressed in an not confirm the figures in the stock records approved mill and the particulars given in of an approved mill the Member State his crop declaration on the basis of criteria concerned must determine, without preju- to be determined. For olive growers whose dice to any sanctions which may be average production is less than 500 kg of imposed on the mill, for each producer olive oil per marketing year, Article 14(4) whose average production is at least 500 kg of Regulation N o 2261/84, as amended by of olive oil per marketing year and who has Regulation N o 3500/90, provides that the checks should verify the accuracy of the crop declarations on the basis of criteria to 25 — OJ 1991 L 94, p. J.

34. In Regulation (EEC) No 2276/79 of 16 October 1979, the Commission laid 3. Register of olive cultivation and com- down the detailed rules for drawing up a puterised files register of olive cultivation in the Member States producing olive oil. 28 Commission Regulation (EEC) No 586/88 of 2 March 1988, amending Regulation No 2276/79, 29 added Articles 6a and 6b. Under Article 6a, 32. In order to obtain the information Member States producing olives must needed to determine the Community's undertake, in accordance with the pro- potential production of olives and olive cedure laid clown in Article 6( 1 ), an annual oil and to improve the operation of the updating of the register of olive cultivation, Community aid system for the latter prod- taking account in particular of any changes uct, the Council adopted Regulation (EEC) in cultivation declarations submitted by No 154/75 of 21 January 1975 on the olive growers. Article 6b(1) provides that establishment of a register of olive culti- the olive-producing Member States which vation in the Member States producing acceded to the Community after the entry olive oil. 26 into force of the regulation may carry out trials to determine what method for obtain- ing information is best suited to olive cultivation as practised in those Member States. To that end, the Member States concerned must submit a programme of trials to the Commission for approval. 33. Article 1(1) of Regulation No 154/75 Under Article 6b(2), the Commission must provides that the Member States producing notify the Member State of its decision on olive oil are to establish a register of olive the programme submitted, with any cultivation to cover all olive-growing hold- changes which it considers desirable. After ings within their territory. For Spain, the time allowed for establishing this register 27 — 0 1 198S L 367, p. 1. 28 — OJ 1979 L 262, p. II 26 — OJ 1975 L 19, p. 1 (sec first recital). 29 — OJ 1988 L 57. p. 18, corrected in OJ 1988 I. 95, p. 21.

36. Article 16(1) of Regulation No 2261/84 38. The first subparagraph of Article 11(2) also requires each producer Member State of Regulation No 3061/84, as amended by to draw up and keep up to date permanent Regulation No 98/89, provides that all the computerised files of olive and olive oil components of the computerised files must production data. Under Article 17(2), the be operational before 31 October 1990.

30 — OJ 1979 L 206, p. 3. 31 — OJ 1989 L 14, p. 14.

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B — Financial corrections applied to olive Commission would wish. Firstly, the pro- oil production aid cedures for the application of penalties are governed by the laws of the Member Slates, in accordance with Article 2(4) of Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities' financial inter- ests, 32 which, in the case of the Kingdom 1. Individual financial correction of the aid of Spain, requires the initiation of a lengthy paid to two producer organisations and complicated procedure between the parties. Thus no speedy penalty can be imposed forthwith. Secondly, withdrawal of recognition is quite a serious measure and should not occur where the infringe- ment is minor. (a) Arguments of the parties

39. The Spanish Government challenges the correction of ESP 224 414 161 imposed on it in respect of the aid paid to the RPGs OPROL (Toledo) and APROL-JJAA (Ba- 42. It points out that recognition was dajoz). withdrawn from OPROL by an order of 25 April 1995 of the Consejería de Agri- cultura de la Junta de Comunidades de Castilla-La Mancha, upon a proposal from the AAO. In the case of APROL-JJAA, it acknowledges that the proposal for with- 40. It claims that there are no reasons for drawal made by the AAO was not acted refusing aid to a Member State where it upon but adds that this proposal was based shows that its system of controls is accept- on mere suspicion or doubt and not on able. adequate grounds.

45. The Spanish Government adds that the contested decision would still be illegal even if it were shown that certain RPGs operated incorrectly. The correction must 48. The Commission explains that the be applied in any event to the aid withheld individual financial correction applied rep- by the RPG for its own operation, and not resents both the aid granted to OPROL and to all its member olive growers. That is to APROL-JJAA and the aid granted required by the principle that a penalty is through those two organisations to olive an ad personam measure, and above all by oil producers in 1993. the principle of proportionality. The Span- ish Government also points out that the Commission's decisions do not always relate to the aid paid to all olive growers, and that raises the question of the criteria used by the Commission and of the poten- 49. It notes that this correction, like the tially arbitrary nature of its decisions. other corrections applied in the contested decision, is the result of the information — or the lack of information — from the various Spanish authorities, of the inspec- tions by the AAO and of the various checks carried out on the spot by EAGGF inspec- tion officers. 33

46. It alleges that the Commission has created significant legal uncertainty by failing to identify the conditions that justify the withdrawal of recognition. Since that is a measure which restricts individual rights, 50. These verification procedures revealed it is important for it to be taken where serious and persistent irregularities in the evidence of irregularities has been assembled under the applicable procedure. 33 — Missions of 20 to 24 June 1994, January and February The Spanish Government denies the exist- 1995 and January 1996.

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56. I shall examine each of those points in 60. Article 5(3) of Regulation No 2261/84 turn. lays down detailed rules for the withdrawal of recognition. It provides that, on the basis of the annual declaration required from RPGs, reporting to the competent authority any changes made in their structure since their recognition, and of the results of any enquiries, the competent authority is to ascertain whether the conditions for recog- nition continue to be met. If not, 'the (i) Conditions for withdrawing recognition competent authority must, without delay from RPGs and at the latest before the beginning of the following marketing year, withdraw recog- nition...'.

57. Regulation No 1413/82, as I said, established a special system based on the activity of olive-grower groups or associ- ations thereof, responsible for carrying out 61. It seems to me that four conclusions are more rigorous checks on the production of to be drawn from this requirement. growers who are members of the groups belonging to such associations.

62. First, it is easy to identify the con- ditions for recognition of an RPG. They 58. Article 20c(1)(b) of Regulation include the ability to verify the olive and No 136/66, as amended by Regulation olive oil production of their members, and No 1413/82, lays down the conditions it is precisely that shortcoming of the RPGs governing recognition of producer groups. concerned which is complained of. In particular, RPGs must be capable of verifying the olive and olive oil production of their members.

Commission, that is, the inability of the that the RPG is not sufficiently able to RPGs to verify production, was clearly conduct verification operations, that is explained by the Commission. 34 enough to justify withdrawing recognition. That reading is confirmed by the object of the Community legislation applicable, which is to introduce, for the purpose of ensuring effective management of the aid system, more rigorous checks on the production of growers who are members 64. Next, the RPG's recognised status must of the groups belonging to professional be withdrawn as soon as one of the con- associations 3 5and to make the latter ditions for recognition is not met. responsible for those checks. 36 Where it- Article 20c of Regulation No 136/66, as has been established, I believe that the amended by Regulation No 1413/82, lists inability to verify production cannot be the conditions upon which recognition regarded as a minor ground which allows depends, so that the absence of any one of national authorities not to order derecog- them is sufficient to compromise it. In this nition. instance, verification of production by the RPGs must be effective and consistent for the RPG to retain its original status.

The Spanish Government cannot maintain therefore that the matters complained of in 65. Thus, if it is shown that the verification respect of the RPGs concerned arc not- operations required of the RPG are not important enough to justify a measure carried out or that the organisation or withdrawing recognition. operation of the RPG does not allow it to carry them out, the organisation's RPG status is compromised.

68. Member States' powers as regards the 72. However, the Spanish Government derecognition procedure are thus subject to maintains that the original request for a very precise temporal limit. Although, derecognition was based upon mere suspi- when irregularities have been established cion or d o u b t and not on a d e q u a t e but before any adverse decision such as grounds. derecognition has been taken, there must unquestionably be an exchange of views between the competent authority and the RPG concerned, there is nothing to justify that decision being taken after the legal time-limit. The Kingdom of Spain is sub- ject, like all the other Member States, to the 7 3 . We therefore need to examine the obligation to observe the timing prescribed argument set out by the applicant govern- in Article 5(3) of Regulation N o 2261/84: it ment regarding APROL-JJAA and OPROL must adapt its internal procedures to that the irregularities established were not comply with that provision and apply them serious enough to justify derecognition. in such a manner that they do not exceed the limit so established.

69. The Spanish Government admits that formal notices from the AAO did not always lead to automatic withdrawal of (ii) Irregularities justifying withdrawal of recognition from the RPG. It also states recognition that recognition was w i t h d r a w n from OPROL on 25 April 1995, after a year of observation had failed to establish an improvement. 74. We have seen that withdrawal of the recognition enjoyed by these two RPGs was either not carried out or decided upon out of time. But derecognition was mandatory, 70. The time-limit in Article 5(3) of Regu- since the conditions enabling them to retain lation N o 2261/84 was therefore clearly their original status had not been observed. not observed.

76. In the letter of 14 June 1994 to the management records, there were no copies AAO, the competent authorities of the of titles of ownership, there were gaps in Autonomous Community of Extremadura the quarterly reports of operations and, for stated that they had carried out two certain marketing years, it was not possible inspections at APROL-JJAA, on 3 March to verify compliance with the deadlines and 10 March 1994. The letter shows that prescribed for transferring aid. the AAO had carried out an inspection at the same RPG on 23 September 1993, and the outcome of that had served to justify the derecognition proposal of 24 January 1994. The inspections in March 1994 showed certain improvements compared with the position described by the AAO, and that led the officers of the Autonomous 78. But recognition was not withdrawn at Community of Extremadura, although cer- that stage, nor had it been after the tain shortcomings persisted, to propose inspection carried out by the A A O , 'monitoring of the management of APROL although more serious and more numerous Jóvenes Agricultores de Badajoz until it is irregularities had been recorded. 39 established that all the conditions which justified recognition are again met and that the provisions of the legislation applying to this type of organisation are complied with'. 38 The letter states that the AAO's inspection took place at a time when the RPG was without its manager, who had not yet been replaced, so that staff at APROL-JJAA had not been in a position 79. Furthermore, the lack of a manager at to take account of the warnings notified by that date docs not seem sufficient on its the AAO. own to justify these shortcomings, as is shown by the checks by the EAGGF officers: the report written by them follow- ing an inspection mission carried out from 20 to 24 June 1994 shows that a number of RPGs visited by the AAO were not com- plying with the most basic conditions prescribed by Regulation No 2261/84 for continued recognition. Among them is APROL-JJAA. 4 0The EAGGF inspectors 77. The letter of 14 June 1994 confirms state that this RPG had been the subject of that there were shortcomings at the time of a number of inspections by the AAO since the AAO's inspection, and also that some 1989 and that the various recommen- of these persisted at the time of the dations formulated and the proposed pen- inspections by the officers of the Auton- alties had never been taken into account by omous Community of Extremadura. On the date of the latter inspections inad- equacies were found regarding the specific .19 — Irregularities relating t o t h e registers o f documents received and dispatched, the register of olive groveoper- ational returns, the regisier of aid applications and the register of members (letter of 14 June 1994, at (e)). 38 — Letter from the Junta de Extremadura to the AAO, dated 40 — Point 7 in the annex to Commission letter 2.Ï27I of 15 J u n e 14 June 1994 (Annex 2 to the defence!. 1995(Annex 2 to the application).

85. In adopting this position, the Spanish 82. As regards the existence of irregular- Government is restricting the Commis- ities justifying the withdrawal of recogni- sion's right to disallow all or part of the tion, the position of OPROL is even expenditure incurred by the Member State clearer. The order of 25 April 1995, cited to a single situation, contrary to the settled above, for withdrawal of recognition from case-law of the Court of Justice on this that producer organisation is proof that matter. OPROL had failed to fulfil its obligations as an RPG. The year of observation which the competent national authorities granted to it, in vain, as we have seen, shows that the complaints made against the organi- sation were genuine and of long standing. In any case those points are not disputed. 86. The provision invoked by the Spanish Government is very specific. Regulation No 2261/84 shows that RPGs are entitled 41 — Among the many irregularities shown in this document we to withhold a contribution from the find, for example, the absence of accounting records, of the report of operations, of the register of documents received amount of production aid made over to and dispatched or or the register of aid applications (ibid.). them, to contribute towards the expendi-

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ture resulting from the checking operations draw approval, it is adding the failure of for which they are responsible. 42 paying aid which is not due. Such is the Article 11(3) of that regulation provides position here of the Kingdom of Spain. for a deduction from the expenditure financed by the EAGGF where the sums withheld are not used for that purpose.

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to ascertain whether the means which the No 729/70 is that measures are to be taken provision applies in order to achieve its aim to prevent and deal with any irregularities correspond to the importance of that aim and to recover the amounts lost as a result and whether they are necessary in order to of such irregularities. achieve it. 4 5

45 — See, among others, Case 266/84 Denkavit France [1986] ECR 149, paragraph 17; Case C-69/94 France v Commis- sion [1997] ECR 1-2599, paragraph 38; and Case C-356/97 Molkereigenossenschaft Wiedergeltingen [2000] ECR 1-5461, paragraphs 35 and 36. 46 — See paragraph 87 of this Opinion. 47 — See, for example, Case 238/86 Netherlands v Commission [1988] ECR 1191, paragraph 25, and Case C-28/94 95. Like the Commission, I feel that these Netherlands v Commission [1999] ECR 1-1973, paragraph 50. are not conclusive points, chiefly because

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97. We may indeed accept that it has been shown that certain producers did not commit any irregularity. Under the system of financing that has been established for oils and fats, aid may be paid by means other than through the RPGs. 4 8 If the

99. For all of the above reasons, it is my 48 — Article 3(6) of Regulation N o 2261/84, for example, view that the financial correction con- relates to the case of an olive grower who is not a member of a producer organisation, and that docs not deprive lum cerned in no way disregards the principle of the right to receive production aid. of proportionality.

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100. Similarly, the Spanish Government cation of ultimate liability among the has claimed that applying the consequences operators concerned which, in any event, of an irregularity detected within an must be in accordance with the principle of organisation to the aid received by all its Article 7 of Regulation N o 2988/95 to the members is also not in accordance with extent that it applies at the date of the facts Article 7 of Regulation N o 2988/95. The at issue. Commission denies that this regulation is applicable to financial year 1993.

50 — Case C-374/99 Spain v Commission [2001] I-5943, 49 — See paragraph 5 et seq. of this Opinion. paragraph 26.

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financial correction to all of the expendi- 109. On a subsequent mission, from 17 to ture incurred through those organisations. 21 June 1996, in respect of 1993 and the years following, it was possible to supple- ment the earlier findings.

106. It follows from the above that the plea based on the irregularity of the individual financial correction to the aid paid to O P R O L and A P R O L - J J A A must be 1 10. All these operations, together with the rejected. explanations provided by the Spanish auth- orities, enabled the EAGGF to demonstrate the existence of a number of shortcomings or irregularities.

2. The 1 0 % flat-rate correction of the production aid paid during marketing year 1992/93. 1 11. According to the EAGGF, 'in the system of management and control of olive oil production aids in Spain there are very 107. According to the Summary Report, many deficiencies as regards its general the EAGGF officers carried out two checks effectiveness (the part played by FEGA, at the AAO, relating in particular to olive application of penalties proposed by the oil production aid, in September and AAO, payment on trees used for table October 1993 and in March 1994. 51 olives), and the most important checks involved (register of olive cultivation, com- puterised files, flat-rate yield attributed to producers, checks at mills and RPGs).

112. On the basis of the details in the substantial sums for purposes other than Summary Report, the Commission com- those provided for by the Community plains in respect of the Kingdom of Spain legislature. that relations between the AAO and the autonomous communities were too limited, that there was no register of olive culti- vation and there were no computerised files of olive cultivation data, that the checks on oil mills and yields were inadequate and that aid had been wrongly paid to pro- 115. According to the Commission, ducers who had marketed part of their responsibility for the checking of expendi- production as table olives. ture lies primarily with the Member States. Consequently, failure to apply the checking mechanisms prescribed by Community legislation is an infringement obliging the Commission to make the requisite financial corrections. 113. The Kingdom of Spain challenges the correction of ESP 5 939 261 511 which was applied to it in consequence.

(ii) Assessment (a) Conditions leading to application of the 10% flat-rate correction

117. The reason for this mitigation of the 10% of the expenditure is to be used where burden of proof on the Commission is that the deficiency relates to the whole of, or it is the State which is best placed to collect fundamental elements of, the control sys- and check the data required for the clear- tem or to the operation of controls essential ance of EAGGF accounts, and which is for ensuring the regularity of the expendi- consequently required to adduce the most ture, so that it can reasonably be concluded detailed and comprehensive evidence that that there was a high risk of widespread its figures are accurate and, if appropriate, loss to the EAGGF. that the Commission's calculations are incorrect. 55 In the event of a dispute, it is for the Commission to prove that the rules of the common organisation of the agricul- tural markets have been infringed, and once it has established such an infringement the Member State concerned must then, if 120. It is in the light of these considerations appropriate, demonstrate that the Commis- that the evidence provided by the Spanish sion made an error as to the financial Government to challenge the findings upon consequences to be inferred from that which the Commission based the contested infringement. 56 decision must be examined.

118. We see that for the EAGGF to refuse, in the context of the procedure for clearing accounts, to accept certain expenditure (b) Relations between the AAO and the incurred by the Member State concerned autonomous communities it is by no means necessary to show that the infringement is serious. It is sufficient that the expenditure has been incurred in breach of the Community rules and for the Com- munity budget thereby to be exposed to the risk of loss. (i) Arguments of the parties

122. The Spanish Government denies that communication between the AAO and the autonomous communities is inadequate. It considers that those relations are constant and easy. 125. Thus, according to the Summary Report, the AAO does not have knowledge of the criteria used by the autonomous communities to identify producers whose yield is abnormal, or of the method for and extent of the verifications conducted by the autonomous communities at mills to con- 123. The Commission replies that the AAO firm the findings which gave rise to the does not have those facilities necessary for proposal made by the AAO to withdraw performing tasks which, in accordance with recognition. 60 The EAGGF inspection the Community rules, are needed by the officers noted 'a strong spirit of rivalry olive oil agencies set up in the Member between [the AAO and the autonomous States. It complains that information is not communities], which greatly weakens col- adequately forwarded by the autonomous laboration and the exchange of information communities to the AAO, and also that the between the two organisations'. 61 SENPA, former adopt decisions unilaterally without the central organisation in charge of the prior consultation with the AAO. Accord- payment of production aid, does not seem ing to the Commission, all of the AAO's to be able to resolve the disagreements proposals for derecognition are founded on between the AAO and the autonomous the existence of serious irregularities and on communities. The EAGGF's officers rec- disregard of the legal conditions for the ommend that the conclusions to be drawn grant of aid. However, whilst the auton- from the results be made centrally. 62 That omous communities do not dispute the majority of the irregularities, they do not withdraw recognition, simply for reasons 58 — Annex to Commission letter 23271, cited above. of convenience. 59 — Annex to Commission letter 14826, of 3 April 1996 (Annex 7 to the application). 60 — Section 4.7.2.2.1 (p. 139). 61 — Annex to letter 23271, cited above, in Section 2. 57 — Summary Report, at Section 4.7.2.2.2 (p. 139). 62 — Ibid.

127. The Spanish Government describes the various items of information communi- cated to the AAO by the autonomous communities for 1993. They include infor- mation on the holdings suspected of excess- ive yields and on progress on the cases Thus, FEGA letter 18759, sent in response opened by the autonomous communities to EAGGF letter 14826, of 3 April 1996, receiving proposals to withdraw recogni- shows that a coordinating working group tion. But it produces no evidence at all that was set up on 10 July 1995, consisting of these collaborative relations among the representatives from the various national various institutions were genuine and per- institutions, including the AAO and the manent. autonomous communities, to carry out management, supervision and coordination of production aid. 65 Its objective is 'to ensure smooth relations between all the organisations involved in any way in aid for olive oil, by coordinating their activity 128. The Spanish Government refers to the and by means of regular monitoring of their letter of 13 September 1995 in which the Autonomous Community of Andalusia

64 — Annex 1 to Annex 8 to the application. 63 — Ibid. See also the annex to letter 14826, cited above, in 65 — FEGA letter 18759, of J June 1 1996, in Section 1.1 (Annex 8 Section 1.1. to the application).

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(c) Lack of a register of olive cultivation 131. The Spanish Government maintains that the complaint made by the Commis- sion was already raised in support of the previous financial correction; thus a single 134. According to the Summary Report, argument is being used to justify the the Spanish register of olive cultivation application of a double penalty.

67 — See paragraph 41 of this Opinion. 66 — Ibid. 68 — Ibid., at paragraphs 61 to 69.

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135. The Spanish Government maintains that the Commission's complaint that the ROE does not permit systematic identifica- tion of every mistaken or fraudulent dec- 138. Nor does the doubt expressed by the laration is unreasonable: a Member State EAGGF as to the possibility of using the cannot be penalised for failing to achieve ROE justify the correction applied: the Spanish Government maintains that no register is able to reflect the position 69 — Hereinafter 'the ROE'. systematically. It is necessarily an approxi-

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mation and is primarily an aid to checking, tains, the controls conducted in Spain are and does not have the absolute effectiveness inadequate and reveal substantial defi- which the Commission attaches to it. ciencies, so that they do not make it possible to offset the absence and the poor operation of the ROE.

SPAIN v COMMISSION

145. The Commission argues that Regu- (ii) Assessment lation No 2276/79, as amended by Regu- lation No 586/88, relates to a pilot pro- gramme of method trials which in no way reduces the need to establish the ROE within the time-limit provided for by Community legislation. It considers that the Spanish Government has not shown that the delay in establishing the ROE was 147. Article 1(1) of Regulation No 154/75 due to absolute impossibility. It adds that requires Member States producing olive oil the fact that it assisted the Spanish Govern- to establish a register of olive cultivation ment to perform its obligations after the relating to all olive-growing holdings end of the period allowed for establishing within their territory. Article l(2)(b) of the ROE does not nullify the infringement that regulation, as amended by Regulation complained of, nor does it prove that it was No 3788/85, shows that the olive culti- absolutely impossible for the Kingdom of vation register — the function of which is Spain to meet the deadline at issue. Even to provide the necessary data on potential less should that situation be read as implicit production and to improve the operation of acceptance of the delay and its con- the aid system — was to have been fully sequences for the system of supervision of established in the Kingdom of Spain by aid. 1 November 1992.

(d) Lack of computerised files of olive and olive oil production data 150. As the Commission observes, checks on the oil mills, regardless of their extent, cannot make up for failure to complete the 153. The Summary Report shows that register of olive cultivation. Since Commu- there was no central computerised file at nity aid is paid to the olive growers and not the time of the inspections carried out by to the mills, it is not sufficient to direct the the EAGGF officers. Because of the large controls chiefly to the latter. The data in number of beneficiaries, therefore, no the olive cultivation register are of real effective verification was reasonably poss- importance, particularly for the tree count, ible. According to the EAGGF officers, because the determination of the quantity certain improvements presented by the of olive oil produced and eligible for aid competent national authorities in 1996 depends on the olive yield and the oil yield; and certain supplementary checks could these are set on a flat-rate basis, which only have had effect in marketing year requires an accurate knowledge of the 1995/96 and not in marketing year number of trees. 1992/93, the time at issue here.

151. I would add that the operational (i) Arguments of the parties difficulties with the ROE are not disputed by the Spanish Government, which states that the reason for the lack of the annual update prescribed by Article 6a of Regu- 154. The Commission stresses that the lation No 2276/79, as amended by Regu- absence of central computerised files, in I - 3892

155. For the Spanish Government, the computerised files were only partly lacking. The file content provided for in Article 16 157. Under Article 16 of Regulation of Regulation No 2261/84 was already No 2261/84, each producer Member State included within the part-files giving the is required to draw up and keep up to date outcome of the checks conducted, the data permanent computerised files of olive and relating to crop declarations, and the data olive oil production data. Under Article 1 1 contained in the homogeneous-zone pro- of Regulation No 3061/84, as amended by grammes. Furthermore, the autonomous Regulation No 98/89, all the components communities were in a position to detect of the computerised files had to be oper- abnormal yields from their computerised ational before 31 October 1990. files. Since Regulation No 3061/84 allowed six years for the installation of the com- puterised files, it is reasonable that the Kingdom of Spain should have an equival- ent period, counting from the date of its accession to the Community. Lastly, for financial year 1993, the autonomous com- 1 5 8 . T h e S p a n i s h G o v e r n m e n t has munities were in possession of all the admitted that the computerised files were details that had to be shown in the incomplete on expiry of the legal time- computerised files referred to in Regulation limit. It should be said that the time-limit No 2261/84. applies to all Member States, regardless of

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when they joined the European Commu- According to the Summary Report, in the nity. The Kingdom of Spain, like the other absence of an olive cultivation register and Member States, is therefore bound by this. computerised files, the Kingdom of Spain The computerised records produced by the should have conducted more detailed Spanish Government relate to only a part checks at the mills. of the information that should be held on the computerised files prescribed by the Community legislation. As the Commission notes, there is no information relating to stock-keeping. Consequently, their incom- plete nature means that they cannot be used to refute the details set out in the Summary Report regarding the lack of central com- puterised records complying with the appli- cable Community legislation.

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161. Regarding cross-checks, the Spanish those checked already. The Commission Government maintains that there are physi- reiterates the need for a check that uses an cal obstacles to making them, such as (with external source of evidence. Cross-checks reference to electricity consumption at are required by Community legislation. The mills) the fact that electricity is used for fact that it is difficult to do them docs not purposes other than pressing olives. It does alter the need to carry them out. It cannot acknowledge the importance of cross- be denied that no list was produced of the checks, however, in particular those on cross-checks carried out by the AAO on the the intended use of the oil obtained and, spot as from marketing year 1992/93. where there is doubt, the accounts.

162. The Commission replies that the absence of an olive cultivation register 164. The Spanish Government replies that and of computerised files meant that more the absence of part of the register and of complete checks were required of oil mills certain files was compensated for by and, in particular, certain cross-checks that increased checks on parcels of olive trees were not carried out. It explains that mills and on mills in respect of both quality and organised as cooperatives create more risk quantity. It cannot be claimed that there because the producer and the mill-owner arc serious gaps in the checks on mills, nor are one and the same person, which can it be assumed that the oil mills checked assumes an identity of interest that makes annually are always the same. it easier to overestimate the quantity of oil.

166. Regarding the supposed greater risk ised files are not complete, it is undeniably of irregularities inherent in the status of necessary to carry out a greater number of cooperative mill, the Spanish Government controls and to make them highly effective. states that it is not accurate to claim that the producer and the mill-owner are the same person, for the mill is owned by an association of producers, not one producer. For fraud to exist there is an absolute requirement of confidentiality and secrecy, which is unlikely within a cooperative. If fraud occurs, it will be public and wide- spread. According to the Spanish Govern- 169. The register of olive cultivation and ment, although cooperatives are the rule in the computerised files in fact bring together Andalusia, the proposals to withdraw a great many particulars relating both to approval in this autonomous community the olive-growing holdings themselves and relate to only a minority of them. to the quantity of olives and olive oil produced and for which aid is sought, and also to the checks already carried out. The range and the extent of the information brought together here, all computer-pro- cessed, help to make checking and detec- tion of fraudulent practices anywhere in the national territory very effective. Without 167. The Commission considers that such resources, it becomes necessary to increasing the number of checks cannot be ensure that checks are more thorough. a substitute for an improvement in quality, in the absence of an olive cultivation register and computerised files. It recalls that the Community rules on the procedure for clearance of accounts are not intended to restrict refusals to charge expenditure by the EAGGF to cases where the existence of fraud has been clearly demonstrated. 170. This is required p a r t i c u l a r l y because — as the Commission states — the chiefly cooperative structure of Spanish oil mills increases the risk of fraud. Although the Spanish Government disputes this point, FEGA admits that the specific purpose of a cooperative mill, within the olive and olive oil sector, is generally to press the olives of the members and to sell (ii) Assessment the oil in bulk on a joint basis. 71 That confirms the Commission's view that the operations of growing the olives, and of production and sale of the olive oil, are in

172. The various documents drawn up by the EAGGF officers following inspections on the spot show that the absence of these resources makes it impossible to specify 175. But these controls, which enable the exactly the sample mills to be checked. The plausibility of the declarations which serve plausibility check on the data used by those as a basis for aid applications to be verified responsible for checking to identify suspect by comparing data of different types, are mills cannot be carried out satisfactorily required by the Community legislation because the data on holdings and on the itself. Article 13 of Regulation No 2261/84 production declared is not complete. 72 and Article 9 of Regulation No 3061/84 prescribe the data which oil mills must 72 — See, for example, Commission letter 14826. The dossier shows that this type of check is conducted by comparing the quantities of olives pressed and the quantity of olives or 73 — Commission letter 34128, at point 1.5 (Annex 11 to the trees for the producer concerned. application).

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forward to the Member State to obtain (i) Arguments of the parties approval. 74

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SPAIN v COMMISSION

have evidence enabling it to estimate the (ii) Assessment extent of this practice but notes that on all occasions when a Community unit inspected the records of a Spanish oil mill it found that this was the position.

182. It must be observed, first, that in accordance with Articles 5(1 )(d) and 9(2) of Regulation No 3061/84, as amended by Regulation (EEC) No 828/90, 75the quan- tities of olives entering an approved mill 180. The Spanish Government denies that and the quantities of oil obtained from most mills assign the same yield to all those olives must be accurately identified producers. It maintains that at most pro- and recorded, so that for each batch of ducer mills the yield is taken from the olives there is the corresponding batch of laboratory yield for each input, corrected oil. That must enable the yields for each of by a coefficient. The Spanish Government the producers concerned to be quantified. regrets that the documents referred to by the Commission in support of its argument were not communicated to it, and con- cludes that the Commission has infringed the right to a fair hearing.

184. It must be noted that the Spanish must be read as reflecting the difficulty for Government submits two, apparently con- the Spanish authorities to apply Commu- flicting, types of arguments. nity legislation, because of what they regard as the special nature of the Spanish olive and olive oil sector. The technique described next seems to have been the content of a response from FEGA to the EAGGF officers in which — even assum- First it maintains that 'the yield cannot... be ing that the technique worked — it was allotted, interpreting the Community legis- not in any way alleged that the Spanish lation literally, in a way that makes it authorities actually applied it. 79 In any possible to isolate... each batch of olives event, it must be noted that the Spanish and to weigh the oil produced by that Government produces no evidence to show batch'. 76 It had also replied to the Com- that the global yields noted by the EAGGF mission that 'such a system would... add no inspection officers are not applied in the substantial item of information to the majority of cases. The report of the visit to current procedure' 77 and that, in certain the Pedro Valera Garía mill does not cases, 'it is no longer possible to discover provide such evidence: first, it contains the extraction line in which each olive data for marketing year 1993/94 and not grower's olives are, nor which batch of the for 1992/93, and secondly, that item is oil obtained at a given time derives from a restricted to the data for one mill and is not given batch of olives'. 78 wide enough to counter the broader obser- vations made by the EAGGF officers.

188. The Spanish Government points out that it is not possible to specify the intended use of a crop in the crop declaration because at the time when such declarations are submitted the olive growers cannot forecast the intended use of the olives, (g) Payment of aid not due to producers which may he used for producing oil or as marketing part of their production as table condiments. Nor was it possible to recal- olives culate the aid paid to small producers, as the payment dossiers took account only of the tree count and the estimated yield for the relevant zone. The Spanish Government maintains that it proposed to modify the Community rules so that all olive growers receive aid for the oil actually produced, since small olive growers generally receive 'flat-rate' aid, under the rules in force, 187. In the Summary Report and in letter regardless of the actual production. I t adds 23271, the EAGGF inspection officers that the risk of fraud by small olive growers found that the Autonomous Community is minimal, because the olives sold as table of Andalusia allows the payment of olive olives are harvested earlier than those oil production aid to small producers who intended for producing oil, and only the have marketed part of their harvest as table latter arc still on the trees at the time of olives. No check was made of the docu- quantifying the yields used for calculating mentation relating to the possible market- 'flat-rate' aid. ing of table olives. Furthermore, the Span- ish authorities did not make any recalcu- lation for the Autonomous Community of Andalusia and all other autonomous com- munities acting in the same manner of the aid paid to small producers during 1992, 1993 and 1994, to make it possible to recover the amounts paid when not due, on the basis of the crop declarations and the pressing declarations from the mills. The 189. For the Commission, the amount of Spanish authorities were also requested to olive oil production aid granted by the modify the national instructions so as to Spanish authorities to olive growers make it compulsory to state the intended infringes Article 2 of Regulation use of the production on the crop declar- No 2261/84 and Article 1(5) of Regulation ation. No 3061/84 inasmuch as it includes the

192. Given these proven irregularities, the Spanish Government should have made a calculation enabling the EAGGF officers to 190. In accordance with Article 2(1) of assess that portion of the aid paid when not Regulation N o 2261/84, as amended by due. The latter do not deny that they did Regulation (EEC) N o 8 9 2 / 8 8 , 8 0 and not make that assessment, citing the Article 1(5) of Regulation N o 3061/84, impossibility of determining the intended aid for the production of olive oil may not use of the olives harvested. be granted in respect of the production of olives used for purposes other than the production of olive oil and, in those cases, the aid must be paid in proportion to the olives intended only for the production of olive oil. Article 1(2) of R e g u l a t i o n N o 3061/84 provides that the first crop declaration must indicate the number of olive trees producing olives for the manu- 193. Indeed, it is not easy to understand the facture of oil. Spanish Government's position: while say- ing that it is impossible to show this intended use at the time of making the crop declaration, it points out that there is in Spain a 'legal obligation to declare the use made — in each marketing year ·— of 191. The Community legislation is there- the olives harvested [which] applies to all fore entirely unambiguous as to the nature producers and does not exist only in of the obligations incumbent upon Member exceptional c a s e s ' . 8 1 In those circum- States: they must require the operators stances, I cannot see why it was not concerned to declare the intended use of possible to calculate the aid wrongly paid, the olives produced on their holdings. In nor why the Spanish authorities regard this shortcoming as legitimate.

195. The Spanish Government points out that supervision is not an end in itself but is the means of avoiding financial loss to the Community. It maintains that the absence of loss in this case precludes the application 197. The Spanish Government states that of a financial correction. The total quantity its reading of the case-law of the Court, in of oil obtained from olives pressed in the respect of financial corrections ordered mills corresponds to the quantity for which against Member States in the context of aid applications were received from pro- procedures to clear the EAGGF accounts, ducers. The amount of aid paid was for less differs from that of the Commission. It than the total quantity of oil and of oil considers that such a correction requires an residues produced, which precludes any active infringement on the part of the possibility of fraud and removes any basis Member State concerned and not simply for the financial correction set for the inadequate controls. Furthermore, the Kingdom of Spain. Commission's view that it may reject the whole of the relevant Community expendi- ture, if a national measure infringing Com- munity law leads to an increase in Com- munity expenditure but it is not possible to quantify that increase, effectively gives it 196. The Commission objects that the unlimited power. The Spanish Government figures referred to by the Spanish Govern- maintains that it has shown that the total ment were requested of it in the context of aid paid was for a quantity less than the the procedure for clearing accounts for total of oil and oil residues produced, and 1994. The Spanish authorities were draws the Court's attention to the content required to calculate those figures on the of FEGA's letter 25002, of 30 September

198. The Commission replies that non-ap- plication or misapplication of the rules and control mechanisms imposed by the Com- munity agricultural rules is regarded by the Court as an infringement of the Commu- 200. It has long been accepted that the nity legislation, requiring the Commission Commission is not compelled to prove that to make the relevant financial corrections. there have been losses but may simply According to the case-law, where it is adduce significant evidence to that effect. impossible to determine precisely the extent The reason for this mitigation of the burden by which the EAGGF expenditure has been of proof on the Commission lies in the increased because of the irregularities division of powers between the Community attributable to the national authorities, and the Member States in the context of the the Commission is entitled to refuse financ- common agricultural policy. 83 ing for the whole of the relevant expendi- ture. The Commission questions the relia- bility of the figures for olive oil production that were produced by the applicant gov- ernment: none of the data provides suffi- cient proof that there was no loss. With 201. The management of EAGGF financ- reference to FEGA letter 25002, the Com- ing is principally in the hands of the mission objects that this document relates to clearance of the accounts for 1994 and therefore has nothing to do with the 82 — See paragraphs 87 and 116 et seq. of this Opinion. 83 — Case C-238/96 Ireland v Commission [1998] ECR I-5801, financial correction at issue. It maintains paragraph 29.

205. We should remember that, in its final report — forwarded to the Spanish auth- orities in a letter of 3 March 1997 — the Conciliation Body gave its opinion that the flat-rate financial correction of 10% pro- 203. But although, in the event of a dis- posed by the EAGGF in respect of olive oil pute, it is for the Commission to prove that production aid appeared to be reasonable the rules of the common organisation of the and that there was no reason to challenge agricultural markets have been infringed, it. The Conciliation Body noted that, not- once it has established such an infringe- withstanding certain later improvements, ment, the Member State concerned must, if although the positive effect of these could appropriate, demonstrate that the Commis- not have been noticed before 1995/96, 'the sion made an error as to the financial

86 — Belgium v Commission, paragraph 37. 84 — Ibid., paragraph 30. 87 — Ibid. 85 — Cited in Ireland v Commission, paragraph 3 1 . 88 — Paragraphs 110 and 111.

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I - 3906

SPAIN v COMMISSION

possession at the deadline, except in cases Germany v Commission does not apply where the late submission of information is here, because the Commission rejected all justified by exceptional circumstances. 96 explanations given by that government, Regarding the Commission's power to set a forcing it to add new evidence, must be deadline, the first recital in the preamble to rejected. Regulation No 422/86 refers to the need for rapid scrutiny of the accounts and states that the Commission must take account of the progress made on clearance of the accounts. 97

212. We should remember that in the 1996 judgment the Court held that the produc- tion of a survey conducted before the deadline which the Commission set for producing additional information but 210. As we have seen, the reference date relied on by the applicant government after specified in Article 1(3) of Regulation the deadline, without any exceptional cir- No 1723/72, as amended by Regulation cumstances that might justify the delay, No 422/86, was set by the Commission as was out of time. 29 February 1996. Since the Spanish Gov- ernment has not sought to rely on the existence of exceptional circumstances, additional information produced after that date must be regarded as out of time.

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mation — provided by the Spanish auth- C — Financial corrections owing to the orities — establishing that the total quan- fact that certain expenditure for the olive tity of oil corresponds to that for which aid cultivation register is not to be charged to applications were submitted by the pro- the EAGGF ducers, information already to be found in FEGA note 4047, of 12 February 1997, sent to the Conciliation Body. 98 But it is relevant to observe that this latter docu- ment, which was communicated before the deadline, failed to alter that body's support of the financial correction at issue.

I - 3908

SPAIN v COMMISSION

219. On the basis of the Summary Report, 221. It considers that the figure of 15% for the Commission proposes a financial cor- overheads is not excessive and is the same rection of ESP 217 007 368 to the expen- as the percentage authorised for work of diture for the register of olive cultivation. this type. The lack of project-based accounts does not justify rejection of this figure, as no such obligation was imposed on the undertaking concerned.

This falls into three parts:

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I - 3910

SPAIN v COMMISSION

beforehand of the terms of the contracts or 231. Having examined the legislation to contract documents or the estimated cost of which Tragsa is subject in Spanish law, the the work. But the Community legislation Commission maintains that this undertak- does not introduce special accounting or ing is a public administration. It adds that financial systems for the expenditure, although, as the Spanish Government which is thus cleared in accordance with claims, Tragsa is an independent undertak- the customary procedure for EAGGF ing, there is no justification for making a accounts. direct award to it of the contract for setting up the olive cultivation register.

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234. The Commission does not consider the essential basis being, depending on the that its arguments are contradictory. The case, the failure of the Spanish Government fact that Tragsa is a department of the to provide justification, the fact that the administration does not mean that the silence of the Community rules amounts to Community rules on public contracts have a prohibition, or failure to comply with the been observed. Replying to the Court, the Community rules. Commission stated that Council Directive 77/62/EEC of 21 December 1976 coor- dinating procedures for the award of public supply contracts 99 applied here and that the Spanish Government had not complied with Article 9 thereof. 100 237. Although these grounds are different, I think that a preliminary answer to the question of whether Tragsa, the contractor undertaking, is public or private may assist 235. The Spanish Government also failed us in identifying the criteria, albeit to a to comply with the last subparagraph of different extent for each, to be used in Article 3(5) of Regulation No 154/75, as adjudicating on the grounds of the con- amended by Regulation No 1794/79, under tested decision and on the Spanish Govern- which the Member State is to inform the ment's objections to it, however diverse Commission beforehand of the terms of those objections are. contracts or the contract documents or the estimated cost of work.

238. Whether the point at issue is for the Community budget to be charged with a 2. Assessment high level of overheads, or with the profit made by the contractor undertaking, or the requirement for the awarding authority to follow the Community procedures on pub- lic contracts, the response on these points depends partly or entirely on the legal (a) Introductory remarks classification applicable to Tragsa for the purposes of Article 3(5) of Regulation No 154/75, as amended by Regulation No 1794/79. 236. The grounds for the three financial corrections at issue are of different kinds,

240. From the documents in the case, we must determine whether Tragsa comes a m o n g the ' n a t u r a l or legal persons 243. I believe that the line must therefore entrusted with the... work', within the be drawn as between tasks entrusted to meaning of Article 3(5) of Regulation third parties and those which the Member No 154/75, as amended by Regulation State's competent authorities decide to N o 1794/79, or among the 'own official carry out themselves. This interpretation departments' of the Member State so is confirmed by the wording used in entrusted, within the meaning of the same Article 3(5) of Regulation No 154/75, as provision. amended by Regulation N o 1794/79, which makes a distinction between natural or legal persons and the Member State's own official departments. This provision also refers to contracts, so expressing the idea that consent is exchanged between two 2 4 1 . In the former instance, eligible expen- separate entities with the legal capacity to diture shall be 'that incurred under con- commit themselves. tracts' with the Member State and, in the latter, the 'costs incurred other than admin- istrative and supervision costs'.

244. We have seen that the information 242. Since this provision gives no guidance communicated by the Spanish Government on the matter, we may take it that the and by the Commission is incomplete and rationale for the distinction thus made the conclusions which they draw from it between expenditure and costs, according conflict. None the less, the Court must give to whether the operator in charge of the a ruling on the basis of those details.

246. Tragsa was incorporated as a limited company subject to the rules of private law, particularly commercial law; its capital is public. Under Article 88 of Spanish Law No 66/97 of 30 December 1997, 101 regard- ing fiscal, administrative and social meas- 248. Certain consequences therefore follow ures, Tragsa is regarded as a means of from the need to regard Tragsa as a implementation and a 'technical depart- contractor engaged by the Spanish auth- ment of the administration'. 102 It 'shall be orities to set up the register of olive required to execute, itself or using its cultivation, and not as one of the official subsidiaries, solely the work entrusted to departments of the Spanish administration. it by the general administration of the The most obvious effect of that status State, the autonomous communities or the relates to the applicability of the Commu- public bodies subject to them ...'. 103 As the nity rules on public contracts. Commission stated in the defence, and the Spanish Government did not deny, this recent provision confirms the special legal status that that undertaking has held since it was established. 104

(c) The 10% flat-rate correction of eligible expenditure on the ground that the works were awarded without a call for tenders 247. I do not think it is important that the operator in charge of the work has close links to the public administration or that it appears to have some of the characteristics

249. The Spanish Government admits that 101 — Ley de Medidas Fiscales Administrativas y de Orden no call for tenders was organised. It Social (BOE No 313, 31 December 1997). 102 — Annex 10 to the defence. considers that it 'did not fail to apply [the 103 — Ibid. Community] legislation [applicable to pub- 104 — According to the Commission, Royal Decrees 379/77 and lic contracts but that], in its direct selection 1422/85 are the basic statutory provisions relating to Tragsa. of the undertaking concerned, it relied on

250. The issue that the Court will have to settle is whether the Spanish Government could in fact base the direct award of the 252. Although the Spanish Government contract to Tragsa on any of the exceptions cites no specific provision of Community provided for by Directive 77/62, since there law in support of this argument, we can is no argument as to whether this directive assume t h a t it intended to rely on applies. 106 Article 6(1)(g) of Directive 77/62. That article allows contracting authorities not to apply the p r o c e d u r e s laid d o w n in 105 — Point 43.3 of the reply. Article 4(1) and (2) 'when supplies are 106 — As to whether Directive 77/62 was applicable at the declared secret or when their delivery must- relevant time, Annex 15 to the rcplv snows that the Ministry of Agriculture, Fisheries and Pood was given be accompanied by special security meas- authority to commission Tragsa to set up and to update the ROE, in a decision dated 23 October 1987. As to the ures in accordance with the provisions laid persons covered by the directive, we have seen that Tragsa has close links with the Spanish public authorities, down by law, regulation or administrative which might lead us to suppose that the undertaking is a action in force in the Member State con- unit of one of these. In the legal context of the rules on public contracts, the specific character of those links cerned, or when the protection of the basic might justify us questioning what their precise nature is because, in the application of the directives on public interests of that Stale's security so requires'. contracting, there is an exception known as 'in-house providing', which relates to contracts made by a con- tracting authority with certain public organisations that are linked to it (Case C-94/99 ARCH [2000] PCR I-11037, paragraph 21). On this issue, I would refer to the judgment in the Teckal case (Case C-107/98 [1999] PCR I-8121), which offers a better understanding of the limits of this exception. In asking whether one of the conditions for applicability of Directive 77/62 was met — that there should be a contract — the Court satisfied itself that there was indeed an agreement between two separate persons and ruled that 'it is... sufficient if the contract was concluded between, on the one hand, a local authority and, on the other, a person legally distinct from that local authority' (paragraph 50), adding 'the position can be otherwise only in the case where the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments and, at the same tune, that person carries out the essential part of its activities with the controlling local authority or authorities' (ibid.). Apart from the fact that Tragsa is a legal person, it 253. It should be noted that the provisions supplies services not only to the Spanish public auth- orities but also, as the Spanish Government has noted of Article 6 of Directive 77/62, authorising (point 43.3 of the reply) and the Commission has not derogations from the rules to ensure that denied, to private persons. I therefore think that there is no doubt that Directive 77/62 was applicable. the rights afforded by the Treaty in the sector of public supply contracts are effec-

254. Furthermore, the Spanish Govern- ment has not said why it believes that the 256. As regards the other selection criteria confidential nature which it attaches to the cited by the Spanish Government, that is, data communicated for setting up the olive the level of price and the specialisation, cultivation register would be less well technical capacity and reliability of the guaranteed if other companies were undertaking selected, we need only note charged with setting it up, whether they that these criteria are precisely those which were Spanish or from other Member States Directive 77/62 allows contracting auth- of the Community. orities to adopt in awarding contracts. 112 The Community rules applicable thus enabled the Spanish authorities to attain the objectives lawfully sought in com- pliance with the principles of free compe- tition and free movement of goods. 255. In a judgment given in 1989, Com- mission v Italy, 109 the Court gave a ruling on the propriety of the means used by a Member State to ensure observance of the need for confidentiality of data processed by computer systems, as regards freedom of 257. I would add that, as the Commission establishment, freedom to supply services rightly says, the failure to use the Commu- and the Community rules on public nity rules on public contracts and the contracts. I think the burden of that judg- resulting absence of a call for tenders justify ment must be transposed, subject to the the presumption of an unjustified increase necessary changes, to the present circum- in price. stances: as the Court has noted, the con- fidential nature of data can be protected by measures less restrictive of the principles governing the operation of the internal market than that which prevents all com- petition from other economic operators. 110 By way of example, theCourt cited a duty 258. For the reasons set out above, the complaint made by the Spanish Govern- ment against the Commission must be 107 — Case C-71/92 Commission v Spain [1993] ECR I-5923, paragraph 36. 108 — Ibid. 111 — Ibid., paragraphs 11, 15 and 24. 109 — Case C-3/88 [1989] ECR 4035. 112 — See Chapter 1 of Title IV of Directive 77/62, on quality 110 — Ibid., paragraph 11. selection criteria.

260. The financing is given under the procedure for clearing the EAGGF accounts because, under Article 3(3) of the regulation, the procedure to be used is 263. The Summary Report shows that the that specified for the expenditure referred proportion of the budget used for over- to in Articles 2 and 3 of Regulation heads is substantially greater than the level No 729/70. of overheads in other work which the Commission has ordered. The Spanish Government has not established the plausi- bility of the disputed level of the overheads for the project. It does not deny the lack of project-based analytical accounts at Trag- 261. As is noted in the Belle Report, the satec, a subcontractor which manages clearance procedure must be based on 'a about 200 projects. Nor has it communi- reasonable guarantee that the expenditure cated tangible details that might justify the met by the payment bodies on behalf of the overheads concerned. EAGGF, and set out in the annual declar- ations of the Member States, has been incurred in accordance with the Commu- 113— Section 2, second paragraph.

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OPINION OF MR LÉGER — CASE C-349/97

264. Letter 34278 of 18 October 1993, 114 268. The reasons which the Commission in which the Commission notified the puts forward for refusing any such financ- Spanish authorities that the expenditure ing are not entirely clear to me. which they were planning complied with the criteria in Article 3(5) of Regulation N o 154/75, as amended by Regulation N o 1794/79, cannot be regarded as prior authorisation excusing the Spanish Govern- ment from subsequently detailing the expenditure, to show that it had actually been incurred and what its nature was.

2 7 0 . Under t h a t provision, refusal to finance the profit made by the contractor undertaking might be considered only if it were shown that the undertaking is an in-house department of the Spanish public (e) The refusal to finance the profits of a d m i n i s t r a t i o n for t h e p u r p o s e s of Tragsa Article 3(5) of Regulation N o 154/75, as amended by Regulation N o 1794/79. Only in this case does that provision limit the eligible expenditure to the costs incurred 267. According to the conclusions of the for the work and, more particularly, to Summary Report, with which the Commis- certain of those costs. It is therefore too sion concurred, the EAGGF could not restrictive a reading of the Community finance a company profit of 1 0 % of the rules to interpret 'expenditure... incurred value of the contract, as it was not provided under contracts between the competent for by the Community rules. authority of the producer Member State and natural or legal persons entrusted with the relevant work' as being restricted to the 114 — Annex 2 to the reply. costs incurred by such persons, excluding

I-3918

SPAIN v COMMISSION

the profit which is the very purpose of IV — Olive oil consumption aid engaging in their economic activity.

273. The Spanish Government's plea in this 115 — Like production aid, consumption aid for olive oil is respect must therefore be accepted, for lack intended to support the production of olive oil in Community territory. It is intended to allow the target of an unarguable legal basis and appropri- production price, needed for fair remuneration of the producers, to produce a retail price acceptable to the ate justification from the Commission. The consumer. To enable the system of consumption aid to contested decision must therefore be achieve its purpose in this way, the aid is to be granted at the stage closest possible to the consumer, that is, the annulled in this respect. olive oil packaging plant (second recital).

I-3919

OPINION OF MR LÉGER — CASE C-349/97

116 — O J 1985 L 254, p. 5. 117 — O J 1993 L 69, p. 19. 118 — O J 1991 L 63, p. 19.

I - 3920

SPAIN v COMMISSION

That provision was amended in Regulation 281. According to the Commission, vari- No 643/93: in the amended version, ous infringements had been found in the Article 12(6) provides that the penalty application of the system of olive oil imposed on the undertaking is to be consumption aid, and these had resulted between three and eight times the aid in a financial correction in respect of 1992. improperly applied for or, where the quan- Following that correction, the EAGGF tity for which aid has been improperly made a number of recommendations to applied for exceeds the checked quantity the Kingdom of Spain in letter 22798 of for which entitlement to aid has been 13 June 1995. However, a mission by the recognised by at least 20%, the Member EAGGF from 22 to 26 January 1996, to State, in addition to imposing a financial check a p p l i c a t i o n of R e g u l a t i o n penalty, must withdraw approval for a No 4045/89, led to the conclusion that period of from one to three years depending there had been no improvement in checking on the seriousness of the infringement. procedures.

282. The letter of 13 June 1995 shows that the EAGGF inspection officers proposed that financial corrections be applied against 15 undertakings which had received pay- B — Individual financial correction of the ments of olive oil consumption aid, includ- aid paid to two approved oil-packaging undertakings ing the undertakings F. Fernández and N. Sevillano. 119

286. The Spanish Government replies that the EAGGF mission to check activity in 1993 could not relate to recommendations communicated to the AAO in June 1995, adding that only one irregularity was noted, the discrepancy in the correspon- 284. The Spanish Government challenges dence between the physical stock and the the financial correction applied by the stock records for empty packagings. The Commission, saying that a check was amount of oil concerned accounted for only carried out that the physical stock cor- 0.01% of the aid paid to the undertaking responded to the stock records. It notes that for marketing year 1992/93, which cannot the biggest discrepancy found related to the be regarded as an irregularity so serious as empty 25-litre packagings, but that these to justify excluding the undertaking from are not used for olive oil on which aid is the aid system. received, which is why they are not being shown in the records. The other, minimal, discrepancies do not justify an adminis- trative procedure to recover the amounts concerned. At a subsequent inspection visit to the undertaking, the situation was 287. The Commission reiterates that its described as good. complaint concerning the Spanish auth- orities relates to the manner in which the checks were carried out, which was unsatis- factory because the information provided did not confirm that the stock and the packaging had been compared or what the outcome was.

285. The Commission points out that, following the EAGGF inspections at the AAO, particularly serious irregularities were found at 15 undertakings of the 27 checked. Financial corrections were applied to the aids granted during 1992.. At (b) Assessment F. Fernandez and N. Sevillano, the irregu- larities persisted during 1993. In the case of F. Fernández, defects were found in the stock records, where it was not possible to 288. The first subparagraph of Article 7 of check that the stock corresponded to the Regulation No 3089/78 requires the I - 3922

290. The third, fourth and fifth subpara- graphs of the same article provide that, in the course of the inspections referred to in the first subparagraph, Member States are 293. In the present case, the Spanish Gov- to check that the total quantities of oil ernment does not deny that the relevant stored in bulk and packaged and the empty item of the stock record did not detail stock packagings physically present at the under- at the start of each month, which led to a taking and the storage place referred to in request being sent to the undertaking to Article 7 correspond to the data contained communicate that information. After these in the stock records. If any doubt arises as data had been subsequently sent, certain to the accuracy of the information given in anomalies were noted and, although not the application for aid, Member States are very substantial, added further irregular- also to check the accounts of approved ities to those resulting from the shortcom- undertakings. The Member State may also ings in the stock records. Nor does the subject approved undertakings to unan- Spanish Government deny the discrepancy nounced checks of the same type as those in the correspondence between the physical referred to above. stock and the stock records for empty

I - 3923

OPINION OF MR LÉGER — CASE C-349/97

297. The Commission claims that the undertaking N. Sevillano is responsible for 295. According to the letter of 13 June many irregularities; among these, an aid 1995, it cannot be ascertained from the application for a quantity of oil greater documents provided by the AAO whether it than the quantity authorised should have was checked that the physical stock cor- brought automatic withdrawal or suspen- responded to the stock records and, if it sion of the undertaking's approval. The was, what the outcome was. In addition, documents supplied by the Spanish auth- the EAGGF inspecting officers observed orities on this undertaking do not show that the AAO had found that one aid whether a check was made that the physical application related to a quantity of oil stock and the stock records corresponded, greater than the quantity eligible. That or the outcome. The Commission adds infringement justified withdrawal of the that, at the time that the irregularity in approval granted to this undertaking. The the aid application was detected, the EAGGF considers that, in these circum- amendment to Article 12(6) of Regulation stances, aid was wrongly received, so that a No 2677/85 had not come into force. In financial correction of 100% should be these circumstances, it was necessary for applied. approval to be withdrawn immediately and

I - 3924

SPAIN v COMMISSION

unconditionally for a certain period. Lastly, giving entitlement to consumption aid, it is the Commission maintains that the prin- established that the quantity for which the ciple of proportionality has not been aid was wrongly sought is 278 kg. infringed, because of the extreme serious- ness of the irregularities recorded.

300. As regards the application for aid relating to a quantity greater than that 120 — At paragraph 5 2 .

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OPINION OF MR LÉGER — CASE C-349/97

304. Regarding the amended version of the for aid in respect of 278 kg should have led article in Regulation No 643/93, the Court to withdrawal of approval from the under- has held that this merely lays down the taking N. Sevillano, the contested decision criteria which, in the Commission's view, must be annulled on that point. should guide application of the principle of proportionality in the event of the pre- scribed penalties being imposed, as is clear from the fourth recital in the preamble to Regulation No 643/93. 121

I - 3926

SPAIN v COMMISSION

309. The inaccuracies and the gaps in the 313. The cross-checks effected by the AAO stock records of the undertakings inspected are abnormally restricted in depth and should have led the AAO's inspectors to quality: according to the Summary Report, apply Article 12 of Regulation No 2677/85, the AAO concluded from its inspection that which provides that if any doubt arises as the theoretical capacity for pressing and for to the accuracy of the information given in storage at one of the undertakings the aid application Member States must inspected were compatible with the also verify the accounts of approved under- monthly production shown in the stock takings. records if the undertaking had worked for more than eight hours per day. But that point, and the maximum packaging capac- ity, should have been systematically ver- ified and confirmed, in particular by a comparison with the workers' pay sheets.

316. The Spanish Government challenges the correction, pointing out that the Con- ciliation Body had considered that, since the checks were carried out at only two 319. The Spanish Government adds that bottling plants, they did not give a sound the infringements noted by the Commission enough basis for imposing a flat-rate finan- services regarding the generally dilapidated cial correction which, in cash terms, is state of the undertaking Corporación more than twice the amount of the 1992 Industrial Andaluza SA and the 'immacu- correction. late' appearance of the packaging plant are not sound. This undertaking had ceased to operate a year before the time of the inspection. The state of the premises was appropriate for any packaging undertak- ing, with the packaging plant being gen- erally clean by reason of the nature of the activity and the need for frequent cleaning. 317. The Commission therefore reduced the correction from 5% to 2% of the total amount paid.

322. It adds that the checks made by the AAO to verify the accuracy of the data in the applications for consumption aid that were submitted by the packaging under- takings cannot be as extensive as a full 325. At the time of the mission in Spain audit of the accounts of the packaging from 22 to 26 January 1996 in the context undertakings in order to verify each of the of the clearance for 1993, the EAGGF aid applications submitted. inspecting officers had established that no change had been made to the mechanisms of control. Furthermore, two undertakings had been inspected and that had confirmed that the checks conducted by the AAO were ineffective and defective, as shown briefly in the Summary Report. 323. Lastly, the Spanish Government main- tains that the measures taken by the AAO and the procedures used to supplement the system of supervision before 1993 were reported to the Commission. A mission by the Commission from 22 to 26 May 1995 showed the effectiveness of the measures 326. The proposal by the Conciliation reported. It is unacceptable for the Com- Body to reduce the rate of the original mission to refer to a risk to the EAGGF financial correction did not affect what the arising from defects revealed in clearing Commission had established as regards the earlier accounts when a procedure relating shortcomings of the Spanish system of to those alleged defects is still in progress, control, but only the rate itself, which and measures taken on the basis of matters was considered excessive because the basis from a particular year must be considered used by the EAGGF was the inspection of completed and not be repeatedly carried only two bottling undertakings. forward to subsequent years.

and financial corrections must also be correction for such time as they are not based on the information supplied by remedied. It states that the Spanish Govern- national authorities. Furthermore, as the ment has not produced the least evidence to case-law states, the EAGGF system does refute its findings. not include any systematic control by the Commission, which would in any case be physically unable to carry it out. The individual cases are only an additional element to support the Commission's com- plaint that a whole range of surveillance 3 3 1 . The Spanish Government considers and control measures is lacking. that the only tangible evidence relied on by the Commission is the inspection of one packaging undertaking, and that is not enough to show the existence of serious shortcomings in the Spanish system of control. As regards the irregularities which 328. It states further that a financial cor- its own departments did not detect, it adds rection is still justified even where the that the Community rules then applicable undertaking inspected has not received placed limits on the systematic checking of consumption aid during the marketing year accounts. Furthermore, the State's inspec- c o r r e s p o n d i n g t o the financial y e a r tion departments did make such a check checked: it must be remembered that and found irregularities. approval must be withdrawn from such an undertaking and that time always elapses between an aid application and payment of the aid. 332. According to the Commission, there are many different arguments in support of the flat-rate correction at issue: they are not limited to the outcome of the inspection of a single packaging undertaking. But, at that 329. According to the Commission, irregu- undertaking, the AAO was required to larities found in the national system of check the accounts, for it was suspected control constitute a general infringement of that there might be irregularities. the control system and this can be con- firmed in any undertaking that is approved. This is a flat-rate correction and is not applied individually against one undertak- ing.

334. Moreover, under the same case-law, where the Commission complains that a Member State has not set up an effective system of supervision and control, identifi- cation of the individual cases in which it has established failure to comply with the applicable agricultural rules is but one item 337. This is shown by the final report of among others supporting its complaint the Conciliation Body, dated 3 March regarding the effectiveness of the system 1997, 125; which also took this point as the of supervision and control operated by the basis for its finding on the rate of correc- Member State. 123 tion planned by the Commission. 126 EAGGF letter 14826 merely states that none of the improvements hoped for had been contemplated by the Spanish auth- orities and that no change of procedure had been considered after various, serious defi- ciencies had been established during the 1992 clearance. 127 But, apart from the points arising from the inspection of the 335. The Commission decided to follow two undertakings above, the letter raises no the finding of the irregularities in the points that might support the finding. The Spanish system of control, during the same shortcomings are found in the Sum- procedure to clear the accounts for 1992, mary R e p o r t . T h e only deficiencies w i t h r e c o m m e n d a t i o n s i n t e n d e d to improve the controls. If there were no improvements, it was envisaged that a 12Ί — Apparently, the method adopted hy the Commission is to take account of any positive effects Iront those recom­ mendations occurring after June 199S, in order to avoid acting upon the irregularities established during 1991. 12S — Annex 1A io the application. 123 — Case C-8/88 Germany v Commission [1990] ECR I-2321, paragraph 42, and Case C-.Ï74/99 Stnuu v 12d — llud., at point 12. Commission, paragraph 16. 12~ — Section 2, at page H oi tlie ľrencli translation.

338. In those circumstances, it is difficult to use just these two inspections, however convincing they are, as the basis for a flat-rate financial correction. I cannot agree with the Commission or the Conciliation Body that limited inspectioins, without any 342. As regards the individual instances — other corroborating evidence specific to and the Court's case-law attaches definite 1993, are sufficient to establish that a value to these in giving support for the national system of control remains defec- complaint which the Commission makes of tive. the effectiveness of a system of surveillance and control — we should note that these are but one item among others in suppor- ting that complaint. I therefore feel that, although these individual instances do not need to represent an absolutely represen- t a t i v e s a m p l i n g of the u n d e r t a k i n g s inspected for them (in combination with other evidence) to bear out the Commis- 339. The Court's case-law on this is clear. sion's demonstration of the deficiencies of the national system of control, they must none the less be accompanied by such 128 — Point 232 of the defence; the emphasis is the Commis- additional evidence to produce their full sion's. 129 — Ibid., point 237. effect as proof. Without that, they can be

I - 3932

SPAIN v COMMISSION

V — Production aid for dried fodder 346. The second subparagraph of Article 4 of Commission Regulation (EEC) No 1528/78 of 30 June 1978 laying down detailed rules for the application of the system of aid for dried fodder, 133 as amended by Commission Regulation (EEC) A — Legal background No 2334/87 of 31 July 1987, 134sets the

130 — O J 1978 L 142, p. 1. 131 — OJ 1987 I. 377, p. 35. 132 — O J 1987 L 184, p. 6. 345. In Regulation (EEC) No 1117/78 of 133 — OJ 1978 L 179, p. 10. 22 May 1978 the Council established a 134 — O J 1987 1. 210, p. 63.

I - 3933

OPINION OF MR LÉGER — CASE C-349/97

amount of the difference referred to in the dried otherwise and that this trend was second subparagraph of Article 5(2) of harmful to the Community budget because Regulation No 1117/78 at ECU 43/tonne. it increased the proportion of products The production costs for these products qualifying for the higher level of aid. In have moved closer together and this dif- order to avoid any risk of disturbance on ference was progressively reduced to ECU the market in dried fodder, it therefore 25. 135 added a third subparagraph to Article 5(2) of Regulation No 1117/78, under which:

I - 3934

SPAIN v COMMISSION

aid shall be granted only to those process- in Spain alerted EAGGF officers to the need ing plants which: for verification of the application of the relevant Community rules in that Member State: a spectacular increase had been observed in the quantities produced and for which production aid had been sought in recent marketing years, but without a '(a) keep stock accounts which include at similar increase in Spanish livestock, while least details: there had been a rapid disappearance of sun-dried fodder, to the benefit of the artificially dried product, and new, very successful drying undertakings had appeared in recent years. — of the quantities of green, or, if appro- priate, sun-dried fodder which is used; however, if the special situation of a processing plant so requires, the quan- tities may be estimated on the basis of areas sown,

350. The Summary Report says that the national system of control, based exclus- — of the quantities of dried fodder pro- ively or chiefly on the weighing notes issued duced and the amount and quality of by undertakings themselves, did not make the dried fodder leaving the plant; it possible to limit the high risk of irregu- larities found in respect of the quantities declared upon arrival, arising from the use in Spain of contracts based on area. The only check on the operative event for aid, which is the removal of the fodder from the (b) supply, where necessary, other suppor- undertaking, was the existence of the sale ting documents required for checking invoice and the weighing note issued by the their entitlement to aid.' undertaking itself.

1. Arguments of the parties

354. According to the Summary Report, the Spanish authorities should have 356. The Spanish Government disputes the regarded these products as sun-dried and correction; as the Community legislation have paid the corresponding aid, not the has set no minimum percentage for moist- aid specified for artificially dried fodder. It ure when the fodder enters the processing is stated in the Summary Report that the undertaking, the Spanish paying body can- processing undertaking has a financial not impose such a requirement unilaterally. interest in declaring as artificially dried The Commission creates a requirement and fodder that in fact is sun-dried, because the then complains that a Member State has amount of aid is double. The report also not complied with it, in breach of the stresses that climate conditions in Spain are principle of legal certainty. This view cor- particularly favourable to this type of responds to the opinion given by the irregularity. In view of these points, in Conciliation Body.

I - 3936

SPAIN v COMMISSION

2. Assessment

361. To prescribe a minimum moisture 358. We should remember that the Com- content, in order to facilitate the identifi- munity legislation makes a distinction cation of such fraudulent practices by between artificially dried fodder and sun- setting an objective and physically measur- dried fodder. The aid given for the latter is able criterion, is but one way among others equal to that set for artificially dried of combating the risk of improperly awar- products, less an amount which allows for ding aid for the production of dry fodder.

I - 3937

OPINION OF MR LÉGER — CASE C-349/97

362. I feel that, since there is no provision 365. As the Conciliation Body has stressed, under the legislation applicable which it was possible in fact to dispose of some of requires such a threshold to be adopted, the fodder referred to, as it stood or mixed then — as the Conciliation Body has with dried fodder, without it actually being properly acknowledged — merely finding dried artificially. 141 According to the Con- that there is no threshold does not allow us ciliation Body, the risk of fraud is not to conclude that Spanish production con- negligible. 142 sists partly of sun-dried fodder upon which there has been an improper payment of aid that is normally intended for the produc- tion of artificially dried fodder.

I - 3938

SPAIN v COMMISSION

ance of new and successful drying under- VI — Infringement of certain principles of takings in recent years. Community law

A — Arguments of the parties 368. In its written submissions, the Spanish Government has not disputed the points raised by the officers of the EAGGF, such as the crucial importance within the 370. The Spanish Government considers national control system of the use of that the contested decision relies on mis- weighing notes issued by the undertaking taken and subjective considerations, itself or, when products are removed, of breaching the following principles of Com- weighing notes and the invoice issued by munity law: the processing undertaking, the failure to check what commercial documents are actually recorded, the outcome of the on- the-spot checks by the EAGGF officers showing that the fodder had a very low moisture content and the characteristics of sun-dried fodder, and that the scale of — the principle of a fair hearing has been prices in use encouraged the practice of observed in formal terms but not in bringing products that are already near- practice, for the explanations given by dried into the drying plant. the Spanish Government have always been ignored. Notwithstanding the explanations and arguments supplied by the Spanish authorities, the Com- mission has simply dwelt on the same points, neither contradicting nor refut- ing the arguments set out, which effec- tively denies the Spanish Government the right to a fair hearing; 369. On the basis of these points, constitut- ing a body of consistent evidence that, furthermore, is not denied by the applicant government, I propose that the Court reject the plea of infringement of the Community legislation on aid for the production of — the lack of evidence for the complaints dried fodder. Furthermore, I consider that made against the Member State: the the rate of 2% of expenditure is justified, in Commission has based the corrections the light of the criteria set out in the Belle it has imposed either on indications or Report. 145 suspicions or on particulars that the Spanish authorities have refuted or corrected, particularly as regards con- 145 — Paragraph 12 of this Opinion. sumption aid;

372. As regards the principle of a fair hearing and that of good administration to which, the Commission says, the Spanish Government attaches the same subject- — the principle of legality of penalties, matter, these principles have been entirely very seriously breached as regards olive safeguarded because the applicant govern- oil production aid and aid for the ment was allowed to express its point of production of dried fodder. The Span- view. The fundamental right to a hearing ish Government maintains that a finan- does not mean that one has to accept the cial correction may be imposed only party's arguments and allegations, and the where it has been established that the Spanish Government may be confusing the shortcomings in controls are serious right to a hearing with the requirement to and that one might reasonably expect state grounds. On this the Commission serious loss to the Community budget. notes that the Court has always held that The financial correction was used as a the duty to state grounds does not require penalty for facts regarding which it has an explicit response to each of the party's not been provided that they may attract allegations. That case-law also mitigates such a correction, or to compensate for the requirement to state grounds in respect lacunae in the Community rules, and of the procedures for clearing accounts, because it has been accepted that a detailed statement of grounds is not necessary when the relevant Member State, having been closely associated with the process of pre- paring the decision, is aware of the grounds for it.

376. The Spanish Government challenges 380. With the exception of those pleas by the Commission's treatment of the prin- the Spanish Government which I believe ciple of a fair hearing, on which it relies, as give reason for annulling part of the con- being the same as the principle of the tested decision, so demonstrating that the statement of grounds. It takes the view that Commission has produced insufficient evi- the Commission has observed the latter, dence, or none, there is no evidence in the and purely formal, principle but not the application capable of challenging the con- principle of a fair hearing, which has not tested decision where it is supported by the been observed inasmuch as the Spanish dossier which the Commission prepared for Government's allegations have not been taken into account, having been neither 146 — See paragraphs 116 to 118 and 199 t o 203 of this disputed nor refuted. Opinion.

I-3941

OPINION OF MR LÉGER — CASE C-349/97

that purpose. The points discussed in the EAGGF accounts, being aware that, Opinion that support rejection of the according to the Spanish Government, the relevant complaints are based on the case- obligation on the Commission to state law referred to earlier, to establish that the grounds is not at issue here. Spanish Government has produced insuffi- cient evidence or none.

384. I think that the Commission's duty 381. It is sufficient therefore to invite the falls within two bounds here: as the Com- Court to refer to the discussion of this mission rightly states, the right of the matter in the examination of each of the Member State which is the subject of pleas made by the Spanish Government. financial corrections, when the EAGGF accounts are being cleared, to present arguments and evidence to challenge the corrections imposed cannot have the effect of requiring the Commission to accept its arguments; conversely, the Commission must examine them scrupulously for the purpose of verifying the soundness of the 2. The principles of a fair hearing and good future decision in the light of the particu- administration lars adduced.

386. Thus, as I said regarding the plea of lack of evidence, apart from those points which give grounds for annulling the con- 389. The case-law applicable here docs not tested decision, the complaints submitted make the refusal to charge disputed expen- by the Spanish Government must be diture subject to the finding that there have rejected. As a consequence, in respect of been serious shortcomings in the system of the pleas which I propose the Court should control, and that point is confirmed by the reject, it does not seem that the Commis- categories of financial correction that have sion's conduct is open to question. been drawn up by agreement with the Member States in the Belle Report, where the 2% correction is for a 'deficiency... limited to parts of the control system of lesser importance, or to the operation of controls which are not essential to the assurance of the regularity of the expendi- 387. I must therefore propose that this plea ture, such that it can reasonably be con- be rejected. cluded that the risk of loss to the EAGGF was minor'. 149

396. I have also stated my position on observance of the principle of proportional- ity in respect of production aid paid to two RPGs and in respect of consumption aid 4. The principle of proportionality paid to a bottling plant. There is no reason to discuss that further. 152

392. The Spanish Government states that, had its arguments been taken into account, the financial corrections would have been markedly smaller than those which were set. 397. Regarding the other pleas, on aid for the production and the consumption of olive oil or for the production of dried fodder, it must be stated that, because of the i m p o r t a n c e of the r e q u i r e m e n t s breached and the likelihood of loss to or 393. We need only note that, in accordance even fraud against the Community budget, with the case-law cited above, although it is the sums not allowed by the Commission, for the Commission to prove that the ranging from 2 % to 1 0 % of the expendi- Community rules have been infringed, it is ture concerned, according to the circum- for the Member State to demonstrate, if stances, cannot be regarded as excessive or appropriate, that the Commission has disproportionate. made an error as to the financial con- sequences to be inferred from the infringe- ment.

398. The plea of infringement of the prin- 394. The present Opinion has shown in ciple of proportionality must therefore be this instance that, apart from the com- rejected. plaints which I propose should be accepted, the Commission has proved that the King- 151 — For a recent example of the settled case-law, see Case dom of Spain has infringed a number of C-232/96 France v Commission [1998] ECR I-5699. Community rules on agriculture. 152 — Paragraphs 94 to 99 and 301 to 304 of this Opinion.

(2) The remainder of the application is rejected.

(3) The Kingdom of Spain is ordered to pay the costs.

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