C-278/98

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(3) The Commission's final report is incor- (a) in the cereals sector rect in so far as the control measures applied during the period under con- sideration had complied with Commu- nity law.

— in February at the Central Board for Agricultural Products (Hoofd- produktschap Akkerbouwproduk- ten — 'the HPA') and (4) By making the reductions the Commis- sion infringed the principle of legal certainty, since it had undertaken to draw the consequences from the defi- ciencies found only from 1 July 1994. — in April again at the HPA, at Waalhaven customs office (Rotter- dam) and at World Flour, at Zaan- dam customs office and at Wessa- nen Flour, and at Veendam cus- (5) The reduction made is not consistent toms office and at AVEBE B.A. with the guidelines drawn up by the Commission and also infringes the principle of equal treatment.

(b) in the beef and veal sector

(6) Lastly, there is also an infringement of the duty to state reasons.

The Commission had decided not to make that absolutely no corrections would be the proposed checks on a third undertaking proposed for 1992 and that corrections in this sector, since the Netherlands autho- would be reserved for the following years, rities were conducting their own investiga- in particular 1993, if further checks tions into that undertaking. revealed that the Member States had failed to take the required measures. In a letter of 11 January 1994, the Commission had already announced with regard to those requirements that the Member States should implement the measures by 1 July 5. On 12 October 1994, the Commission 1994, since a further delay in implementa- informed the Netherlands authorities of its tion would have financial consequences. By findings from those verifications.5 The letter of 13 April 1994, the Netherlands Netherlands Ministry of Agriculture replied authorities gave notification of the relevant by letter of 28 November 1994. 6 measures. 10

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94/442/EC. 13 The conciliation body sub- Netherlands of approximately NLG 16 mitted its report on 13 February 1997. 14 million for 1994.

10. The Commission had already produced the draft version of its Summary Report for 1993 15 on 31 December 1996, which, as far as the subject-matter of the proceedings is concerned, was based largely on the arguments contained in the conclusions of 28 June 1996. It also already contained the 12. On 6 May 1998 the Commission proposal to correct the clearance of the finally adopted the contested decision. For accounts presented by the Netherlands for Belgium, Germany, France and the Nether- 1994 by approximately NLG 16 million. lands, flat-rate reductions of 10% of On 26 February 1997, the Commission declared expenditure in the cereals sector submitted a first addendum to that report were decided. As regards prefinancing of which inter alia reiterated the opinion of export refunds for beef and veal, reductions the conciliation body and in which it stated of 5% were fixed for France, Germany, that, according to that opinion, no mod- Italy and the Netherlands, and 10% for ification to the proposed measures was Belgium. This meant corrections of more necessary. 16A further addendum followed than NLG 16 million for the Netherlands. on 20 March 1997 in which the Commis- sion referred inter alia to a statement made by the Netherlands. 17

(1) infringed Article 5(2)(c) of Regulation (3) infringed Regulation (EEC) No 565/80 (EEC) No 729/70 20 in so far as it made and Regulation (EEC) No 3665/87, corrections to the expenditure in the since, contrary to the view taken by 1994 financial year on the basis of the Commission, the Netherlands con- verifications relating to the 1992 and trol system was in accordance with the 1993 financial years. In view of the Community rules in force at the time; small number of checks carried out by there was no reason to apply Regula- the Commission in 1994 and the small tion (EC) No 2221/95 by anticipation; number of irregularities found in those checks, the Commission cannot assume, on the basis of the verifications for 1994, that the Netherlands control system as a whole displayed material deficiencies which justified a flat-rate reduction of 10% for the cereals sector (4) infringed the principle of legal cer- and 5% in the beef and veal sector; tainty, since, contrary to its undertak- ing that financial consequences would follow from the deficiencies found only from 1 July 1994, it made corrections for the 1994 financial year and failed to take mitigating circumstances into account; (2) infringed Article 5(2)(c) of Regulation No 729/70, the principle of coopera- tion in good faith stemming from Article 5 of the EC Treaty (now Arti- cle 10 EC) and the principle of audi alteram partem, since it failed to con- (5) infringed the principle of equal treat- duct a dialogue in good faith with the ment, since it departed from its guide- Netherlands authorities concerning the lines without stating the reasons for procedure leading up to the clearance such a departure; of accounts for 1994. The Commission did not allege that the Netherlands'

15. The Kingdom of the Netherlands has 17. The Commission takes the view that therefore brought an action against the the deficiencies that it found in the Nether- Commission and claims that the Court lands control system justified a flat-rate should: reduction of 10% of declared expenditure in the cereals sector and of 5% in the beef and veal sector. Furthermore, it claims that the correction made is proportionate and does not constitute unjustified discrimina- tion. (1) annul the Commission Decision of 6 May 1998 on the clearance of accounts presented by the Member States in respect of the expenditure for 1994 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), in so 18. The parties' other arguments will be far as a sum of NLG 16 378 716.63 examined in my analysis. concerning expenditure incurred by the Netherlands on advance payments of export refunds is excluded from Com- munity financing (reference C(98) 1124 final);

III — Relevant legislation

(2) order the Commission to pay the costs of the proceedings. 19. The general provisions of Community law which are relevant to the present case will be set out together below. The specific provisions will — where necessary — be mentioned together with the individual 16. The Commission claims that the Court pleas in law. should:

(1) dismiss the action brought by the Kingdom of the Netherlands; A — Community financing

(2) order the Kingdom of the Netherlands 20. The basic provisions concerning the to pay the costs. financing of the common agricultural

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25. Therefore, the different procedures for advance payments in principle require, u n d e r A r t i c l e 25 of R e g u l a t i o n 22. Exceptions to that principle are provi- No 3665/87, the exporter to lodge a ded for in particular in Regulation (EEC) declaration of intent (payment declaration) No 565/80. 2 4That regulation lays down with the customs authorities. That payment general rules for paying, in advance of declaration must include all necessary par- ticulars, including the precise quantity of 21 — Cited in footnote 20. 22 — Regulation (EEC) No 805/68 of the Council of 27 June 1968 on the common organisation of the market in beef 25 — For the details of the procedure for advance payment see and veal (OJ, English Special Edition 1968 (I), p. 187). the Opinion of 21 October 1999 in Case C-242/97 23 — Regulation (EEC) No 2727/75 of the Council of 29 Octo- Belgium v Commission [1999] ECR I-3421, point 25 et ber 1975 on the common organisation of the market in seq. cereals (OJ 1975 L 281, p. 1). 26 — Commission Regulation (EEC) No 3665/87 of 27 Novem- 24 — Council Regulation (EEC) No 565/80 of 4 March 1980 on ber 1987 laying down common detailed rules for the the advance payment of export refunds in respect of application of the system of export refunds on agricultural agricultural products (OJ 1980 L 62, p. 5). products (OJ 1987 L 351, p. 1).

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the goods to be exported. Under Article 26 — recover sums lost as a result of irregu- of Regulation No 3665/87, the goods must larities or negligence. be placed under customs control from the date of acceptance of the payment declara- tion until they leave the customs territory of the Community or until they have reached their destination. ...'

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29. First, Article 2 states: the physical checks referred to in Arti- cle 2(a) must:

(a) take the form of spot checks conducted 'Member States shall carry out: frequently and without prior warning;

(b) ...'. (a) physical checks on goods in accordance with Article 3 and Article 3 a, at the time the customs export formalities are completed and before authorisation is given for the goods in question to be 31. The term 'Warenkontrollen' in the exported, on the basis of documents German version implies the direct inspec- submitted in support of the export tion of the goods, which is expressed more declaration, and clearly in the terms 'fysieke controles' in the Dutch and 'controles physiques' in the French version.

(b) scrutiny of the documents in the pay- ment application file in accordance 32. Under Article 5(1) of Regulation with Article 4.' No 2030/90 the physical checks must be carried out during the period between the lodging of the export declaration and authorisation to export the goods.

35. If the Commission detects actual amounts which have been paid out with loss to the EAGGF, it must make correc- tions equal to those amounts. However, it may also make flat-rate corrections if it can (c) 10% of expenditure, where the defi- simply give evidence of a risk of loss. ciency relates to the whole of or fundamental elements of the control system or to the operation of controls essential to assuring the regularity of the expenditure, such that it can rea- sonably be concluded that there was a high risk of widespread loss to the 36. The Commission's Belle Group Report, EAGGF.' which the Member States have accepted, lays down the guidelines for the correc- tions. The Belle Group Report provides

29 — Cited m footnote 20. 37. The guidelines further provide that, 30 —• See below, point 83 et seq. where there is doubt as to the correction

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rate to be applied, the following points may ensure that the funds made available to the be taken into account as mitigating factors: Member States have been used in accor- dance with the Community rules applicable within the framework of the common organisation of the market.

'— whether the national authorities took effective steps to remedy the deficien- cies as soon as they were brought to light;

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41. It is settled case-law that where the sive evidence that its own information and Commission refuses to charge expenditure figures are accurate. 36 As can be seen from to the EAGGF on the ground that it was the abovementioned judgment, the Mem- incurred as a result of breaches of Com- ber State in question cannot rebut the munity rules for which a Member State can Commission's findings by mere assertions, be held responsible, it is required not to but must indicate specific elements by demonstrate exhaustively that the informa- which, for example, the existence of a tion transmitted by the Member States is reliable and operational supervisory system inaccurate, but to adduce evidence of can be proven. (The reason for this mitiga- serious and reasonable doubt on its part tion of the burden of proof on the Com- regarding the figures notified by the mission is that it is the Member State which national authorities. 33 Where, in refusing is best placed to collect and verify the data to bear certain expenditure, the Commis- required for the clearance of EAGGF sion claims that there has been a breach of accounts.) the rules on the common organisation of the agricultural markets, it is obliged to give reasons for its decision and indicate how the absence of, or defects in, inspec- tion procedures operated by the Member State in question were found. 34 These considerations apply mutatis mutandis if the Commission makes a flat-rate correc- tion to the expenditure on the basis of general deficiencies in the control system in a Member State. 35 43. If the Member State is not able to show that they are inaccurate, the Commission's findings can give rise to serious doubts, which give sufficient grounds for a payment reduction, as to the existence of an ade- quate and effective series of supervisory measures and inspection procedures. 37

46. In the Summary Report for the 1993 financial year, to which the Summary Report for the 1994 financial year refers, the Commission stated that the Nether- lands authorities had no knowledge of A — First plea: infringement of Regulation where Wessanen stored cereals for which No 729/70 advance payments were made.

47. The Netherlands claims that this was 45. The Netherlands divides this first plea an isolated case. This practice had been into three parts. The first two allege changed by November 1993. It was not infringement of Article 5(2)(c) of Regula- therefore possible to infer any general tion No 729/70, since, on the one hand, for deficiencies from it. various reasons which are explained in detail, the investigations conducted could not, by and large, justify the corrections and, on the other, the Commission has infringed the principles of cooperation in 48. The Commission submits that for good faith and audi alteram partem. The years, rather than designating the precise third alleges infringement of Regulations storage location, Wessanen had referred No 565/80 and No 3665/87 in that the only in general terms to its 10 warehouses Commission found individual deficiencies which were scattered throughout the Neth- when the Netherlands controls had com- erlands. In 1992 this undertaking received plied with the applicable Community pro- export refunds amounting to NLG 30 visions in this regard. The third part of this million, including NLG 18 million as an plea should be examined first, because it concerns the individual deficiencies found in the controls, which are a condition for 38 — With regard to those regulations see point 22 et seq. the contested corrections. above.

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(iii) Monitoring deficiencies in the port of — spot checks on goods in accordance Rotterdam with Community law;

55. In the port of Rotterdam, the customs instructions required physical checks on — verifications on the basis of stock goods in the course of the advance pay- management, whereby, in order to ment. However, cereal from different make more effective use of warehouse undertakings, which was not all subject to capacities in the cereals sector, it is prefinancing arrangements, was stored permitted to store different consign- there in 333 interconnected silos. It was ments together, and therefore impossible to carry out a physical check on different consignments during storage. The Commission criticised the fact that, rather than using a different — equally effective — control method, the Netherlands had carried out checks only — a subsequent administrative control. subsequently. This had given rise to further risk of abuse.

(i) Checks 'without prior warning' (iv) Checks at AVEBE

61. The Netherlands takes the view that 58. In the reply, the Netherlands claims the meaning of checks 'without prior that the Commission recognised that suffi- warning' under Article 3(1 )(a) of Regula- cient physical checks had been conducted tion No 386/90 was not clarified until the at AVEBE. a d o p t i o n of R e g u l a t i o n (EC) No 2221/95, 41 which was not (yet) applic- able to the 1994 financial year, indicating that even a short notice of the check to the warehouse manager was not permitted. 59. That assertion is not correct. As the Article 5(2) of Regulation No 2221/95 Commission explains, it is clear from the expressly stated for the first time that check report that physical checks were not checks with prior warning are not to be conducted during the advance payment regarded as physical checks within the period, but only when the export declara- meaning of Article 2(1) of Regulation tion was made. No 386/90. It would not be compatible with the prohibition of retroactive effect to require such a narrow interpretation even for 1994. The Netherlands draws a con- ceptual distinction between 'onverwacht', which is used in Regulation No 386/90 and can be translated as 'unexpected', and 'onaangekondigd', which can best be trans- (b) The beef and veal sector lated by 'unannounced', but is not used in either of the regulations.

60. The Netherlands first argues that the 40 — Report of 24 October 1994, Annex IV lo the defence. criticism made by the Commission con- 41 — Commission Regulation (EC) No 2221/95 of 20 Septem- ber 1995 laying down detailed rules for the application of cerns only Winterswijk customs office. Council Regulation (EEC) No 386/90 as regards physical checks carried out at the time of export of agricultural However, the Commission rightly refers to products qualifying for refunds (OJ 1995 L 224, p. 13).

63. The Netherlands also claims that the announcements were made with such short notice that any abuse was ruled out. However, in the case of Rotterdam customs 66. The Netherlands points out that, with office, in the cereals sector, the abovemen- regard to male cattle, the Voedselvoorzie- tioned investigation report refers to a delay ningsinen verkoopbureau (Office for the of between half an hour and one hour. Purchase and Sale of Food Supplies, 'the VIB') conducted a thorough check follow- ing slaughter. The customs offices were therefore able simply to carry out visual checks. In addition, the deficiencies were present only at Winterswijk and in June 64. In the case of Winterswijk customs 1994 the Netherlands had improved its office, the announcement was made in procedures once again. practice in such a way that the warehouse manager informed the customs office by telephone when goods were delivered and in 5% of cases the customs office prohib- ited deposit of the goods in the warehouse until it had made a check. It is unclear how 67. The Commission argues, however, that much time passed before each check. the customs offices did not even carry out the necessary visual checks, but often relied exclusively on the VIB certificates without 42 — Supplementary report of the application of Regulation comparing the contents of the boxes with (EEC) No 386/90 on the monitoring carried out at the those certificates. Furthermore, the Com- time of export of agricultural products receiving refunds or other amounts (OJ 1993 C 218, p. 14, No 2.4). mission points out that the VIB checks did

(iii) Fax-based checks 72. The very reasons for these methods given by the Netherlands show that it reduced the undertakings' risk of having penalties imposed when a check was made. This approach thus impaired the effect of checks. Furthermore, it is clear from Arti- cle 25 of Regulation No 3665/87 that the 69. The Summary Report criticised the fact payment declaration alone forms the basis that the checks at Winterswijk had not of the advance payment. 43 The advance been conducted on the basis of the original payment procedure does not commence payment declaration, but only on the basis until the declaration is submitted. Conse- of a fax. That fax was sent to the customs quently, this complaint made by the Com- office by the warehouse manager when the mission cannot be rejected either. meat was deposited at the warehouse. The actual payment declaration was not sub- mitted until 24 hours later. 43 — See point 25 above.

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(iv) The inaccuracy of the check reports of Regulation No 2030/90. 44 The distinc- tion between the different types of docu- ment does not have any basis in Commu- nity law, irrespective of whether or not this plea in support of the claim was submitted in due time. 73. The Summary Report complained that it could not be discerned from the check reports what had actually been checked and, in particular, whether a complete physical check had taken place. 77. In the reply, the Netherlands clearly abandoned the view, which is contrary to Community law, that detailed check reports had to be produced only after the 74. In the view of the Netherlands, the entry into force of Regulation No 2221/95. obligation to produce detailed reports first Article 2(3) of Regulation No 2030/90 applied under Regulation No 2221/95, expressly requires sufficient documentation which was not yet applicable in 1994. of checks.

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79. Furthermore, that assertion is in any cle 5(2)(c) of Regulation No 729/70. 46 On case inconclusive in so far as the check the one hand, the Commission may not reports in the files inspected should have base corrections for 1994 on verifications made clear that they do not relate to which concern the 1992 and 1993 financial physical checks. In addition, it would then years, whilst on the other those verifica- be incomprehensible why the Netherlands tions would not justify the corrections took the view in the application that the made. However, the Commission first check reports did not have to be so detailed raises the question whether the abovemen- at the time the checks were made. tioned provision is applicable at all.

the basis of Community solidarity must State Belgium, that the correction proce- apply. The Belle Group Report made this dure was applicable.47 explicit and the Commission has accepted these obligations.

87. The question may remain open, how- ever, whether the correction procedure is 85. Regulation No 1287/95 is applicable applicable to the contested corrections. As under Article 2(1) only for the financial can be seen from the arguments below, the year beginning on 16 October 1995, that is substance of Article 5(2)(c) of Regulation to say the 1996 financial year. Accordingly, No 729/70 has no significance for the an infringement of the correction procedure decision in the dispute. The pleas of the introduced by that regulation appears to be Netherlands are based on general principles irrelevant for a decision on the clearance of which are valid irrespective of the rules accounts for the 1994 financial year. How- governing the correction procedure. ever, Article 2(2) states:

'Refusal to grant financing as referred to in (b) The lawfulness of basing corrections on Article 5(2)(c) of Regulation (EEC) the investigations in February, April and No 729/70 may not relate to expenditure May 1994 claimed against a financial year prior to 16 October 1992, but without prejudice to decisions regarding the clearance of the financial years preceding the entry into force of this regulation.' Submissions of the parties

The Commission was not authorised, how- sion's criticism had related specifically to ever, to decide on a correction on such a the physical checks. purely hypothetical basis. In addition, the Summary Report for the 1993 financial year already contained the proposals for the corrections relating to the 1994 finan- cial year. That report was not based on investigations which related to 1994. 92. The Commission stresses that the checks in question took place during the 1994 financial year, which began in Octo- ber 1993 and ended in October 1994. The control practices of the Netherlands in 1994 had also been the subject of these 89. In so far as the corrections for 1994 investigations. It refers to the investigations had been based on investigations which from 11 to 15 April 1994 at Waalhaven took place in 1994, they did not take any (Rotterdam) customs office and from 16 to account of the measures which had been 20 May 1994 at Nijmegen customs office, introduced in the further course of the year which both related expressly to the infor- in response to the Commission's criticism. mation available and the practices of the Furthermore, the Commission used work- Netherlands authorities at that time. Fur- ing documents to provide evidence of the thermore, it is clear from the documents scope of those investigations for the first produced during the investigations that the time in the defence, thereby infringing the individual transactions verified had also rights of the defence of the Netherlands. primarily concerned the 1994 financial year. The Summary Report related expressly to those investigations and not to the report for the 1993 financial year.

incurred in accordance with the applicable investigations in 1994. They also covered rules. 49 On the other hand, the context in the control practices applied at that time by which the Commission finds that a Mem- the Netherlands authorities. Whilst it is ber States has infringed those rules is of regrettable that this was not stated in the secondary importance. heading of the announcements of the investigations, the Netherlands authorities must have realised, because of the point in time and at the latest when the investiga- tions were conducted, that they would also concern the 1994 financial year. The Com- 95. The investigations on the basis of mission was therefore able to use the results which the Commission recognised the of the investigations for its decision con- Netherlands' measures to be adequate in cerning the correction to the clearance of 1996 had related to a different subject, that accounts for the 1994 financial year. is to say not to prefinancing in the cereals and beef and veal sectors, but to physical checks by the customs offices. In addition, the two investigations did not overlap in time, since although the year 1994 was mentioned in connection with the investi- gations in 1996, the investigations had related almost exclusively to 1995 and 98. The Commission did use those investi- 1996. gations for the corrections to the clearance of accounts in 1993 and 1994, but that does not constitute a double penalty imposed in respect of the same deficiencies. Rather, the deficiencies found in the course of the investigations permit conclusions to 96. Lastly, there had been no double use of be drawn as to the control practices of the the same deficiencies either. The deficien- Netherlands authorities in 1993 and 1994. cies related both to 1993 and 1994 and The clearance of accounts for both years would therefore require corrections in both therefore had to be corrected. years.

100. The Netherlands complains that the investigations were not sufficiently repre- sentative to justify conclusions regarding 103. Furthermore, the Commission's guide- deficiencies in the whole system of the lines would restrict the imposition of cor- Netherlands checks on advance payments rections expressly to the part of the Mem- in the cereals and beef and veal sectors. In ber State in which the deficiencies were addition, the investigations would not jus- found, if there were not sufficient grounds tify the inference of significant financial to suggest that such deficiencies concerned risk. the entire territory of the Member State in question. Lastly, in its notification of 28 July 1995, the Commission stated that the Netherlands authorities had given a satisfactory answer to its questions regard- ing Veendam customs office and had under- taken to comply with the recommendations regarding Zaandam customs office. Conse- (i) The representative nature of the investi- quently, there were no deficiencies in the gations case of two of the three customs offices in the cereals sector.

Submissions of the parties 104. The Commission points out that the undertakings which it proposed to investi- 101. The Netherlands points out first of all that the corrections are based not on loss 51—Section 20 of the Conciliation Report of 13 February which has actually been incurred, but on an 1997: 'L'organe de conciliation observe toutefois qu'il n'est pas entièrement établi que ce risque ait été majeur, compte extrapolation of deficiencies in the Nether- tenu du petit nombre de contrôles faits par les services de la Commission et du faible nombre d'irrégularités observées à lands controls supposedly found in spot l'occasion de ces contrôles'.

105. In the beef and veal sector, at the request of the Netherlands authorities, the Commission decided not to investigate one selected undertaking. The remaining two 108. Whether the spot checks are represen- undertakings had received more than 16% tative depends not only on the number of of advance payments in the beef and veal customs offices inspected; it is sufficient if sector in 1994; the third undertaking, in the percentage of the amount or extent of contrast, did not receive any advance prefinancing checked is sufficiently high to payments. enable representative conclusions to be drawn for the overall situation. 52 In the judgment in Case C-242/97 the Court has already stated that investigations which, in respect of undertakings and customs offices, covered 22.8% and 25% of 106. In the case of the HPA and the PVV, advance payments in the beef and veal the Commission evaluated the procedures sector and 32.3% in the cereals sector are and checks which were applicable for all sufficiently representative to permit extra- Netherlands authorities at the beginning of polation. 53 the verifications. Subsequently, it investi- gated selected customs offices — at which the undertakings under investigation sub- mitted the payment declarations — toge- ther with the relevant warehouses and the undertakings. The customs offices were spread over the entire territory of the Netherlands. 109. Therefore, at least the investigations in the cereals sector (57% of the advance payments in 1992) are sufficiently repre- sentative.

107. As regards Zaandam customs office, 52 — Opinion in Case C-242/97 (cited in footnote 25, compliance by the Netherlands authorities point 152). with the recommendations does not show 53 — Cited in footnote 25, paragraph 106.

110. In the beef and veal sector, on the 113. The Commission contends that it had other hand, the situation is not as clear. In merely respected a wish of the Netherlands that sector, only the proportion of the authorities to this effect. It had announced undertakings selected for investigation its intention to investigate that undertaking (39% of the advance payments in 1992) is a long time in advance and had also known. An investigation of those three extended its investigations in respect of undertakings would therefore be suffi- the PVVto that undertaking. However, the ciently representative. The proportion of Netherlands authorities had notified it only the undertakings which were actually upon the conclusion of the investigations at investigated after the Commission had the PVVof the enquiries which had been decided not to investigate one of the running for some considerable time. There- selected undertakings is not known for fore, it had no longer been possible to select 1992, but only for 1994. In that year, the another undertaking. two investigated undertakings received 16% of advance payments, whilst no advance payments were made to the third undertaking. That proportion appears to be only just sufficient to justify conclusions as to the overall situation. 114. The decision by the Commission not to investigate that undertaking was neces- sitated by the obligation to cooperate in good faith with the national authorities — in particular the criminal prosecuting authorities. 54 On the other hand, in this regard the Netherlands authorities failed to fulfil their duty to cooperate in good faith with the Commission. There is no clear (ii) The decision not to investigate one justification for notifying the Commission undertaking in the beef and veal sector of the ongoing enquiries only at the last moment. The Netherlands authorities had been informed since 3 February 1994 that the Commission wished to investigate that undertaking. 55The Netherlands explicitly stresses that this investigation had been 111. In addition, consideration must there- decided on before the Commission had fore still be given to whether the Nether- announced its investigation. 56 Giving noti- lands may rely on the restriction of the fication in due time would have allowed the investigation resulting from the Commis- Commission to select another undertaking sion's decision not to investigate one under- before the P V V visit and to direct the taking. preliminary investigations to that under- taking. On the other hand, in the present case switching the investigation to another undertaking would have required another

— failure to comply with prescribed time- limits; 116. The Commission refers to the large amounts of the advance payments. In addition, the conciliation body merely took the view that it had not been fully estab- lished that there existed a very high risk. The Commission's guidelines stated that — unjustified receipt of advantages under the susceptibility to fraud of the system in the principle of equivalence. question is a determining criterion for the risk to which deficiencies found would give rise. Prefinancing in the beef and veal and

57 — See Case 148/78 Ratti [1979] ECR 1629, paragraph 22, and the Opinion of Advocate General Sir Gordon Slynn in This has also been recognised by the Case 8/81 Becker v Finanzamt Münster-Innenstadt [1982] ECR 5 3 ,80. Netherlands Ministry of Justice.

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117. In the view of the Commission, there conclusions regarding the resulting finan- is a significant risk, in particular because cial risks. 58 It claims that the Netherlands made no arguments on this point.

— the customs authorities did not know where the prefinanced goods were 119. In view of the susceptibility to fraud stored; of the system of advance payments and the deficiencies in checks that were found, the assumption of a significant financial risk to the Community is in principle justified. It is not apparent on what grounds the concilia- tion body based its view that the small — the checks were made on the basis of a number of investigated offices and the fax and in the event of a negative result deficiencies found did not justify such an the correct weight would simply be assumption. As has already been explained, indicated on the declaration without the investigated offices are sufficiently any penalty being imposed; representative. The first part of the first plea must therefore be dismissed.

Analysis

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NETHERLANDS V COMMISSION

124. As far as the duty of cooperation in section of the Commission's criticism, its good faith is concerned, it does not mean substance cannot be verified on the basis of that one side has to accept all the ideas of the documents submitted. The Netherlands the other side. In addition, it does not did not, according to the conciliation require a detailed and explicit reply to each report, refute the essential assertions made argument put forward by the other side at by the Commission in the conciliation each stage of the proceedings. Rather it is procedure. The criticisms made by the permissible, at the advanced stages of the Member States affected by the corrections proceedings in particular, merely to are confined to arguing that the Commis- respond to individual new arguments. sion's verifications were not representative, that the risk of fraud was overestimated and that there was no appropriate legal basis for the checks demanded by the Commission. Even the conciliation body assumed that the checks made by the Member States were not adequate. More- 125. Furthermore, the extensive correspon- over, the Commission's verifications were dence between the Commission and the representative and the deficiencies reported Netherlands authorities, which has been so important and generalised that they produced, indicates that those authorities could not be assumed to be mere excep- were informed early on of the alleged tions to the normal practice of supervision deficiencies found in the control system. It in the Member States. This led to a risk of is obvious from this correspondence that loss for the EAGGF. Admittedly it was not there had been a lively exchange of infor- fully proven that there was always a very mation which, although it had not led the high risk of loss and the Member States had Commission to revise its opinion on the also announced measures to improve the existing shortcomings, does show that the situation. Nevertheless, the steps taken by Commission had examined each individual the Commission were imperative since the point. There is therefore no infringement of same or similar deficiencies had already the principle of cooperation in good faith. been the subject of complaints in previous years.

'It must be observed, first, that so far as the 128. The Netherlands Government points amount of the financial correction is con- out that, in its letter of 11 January 1994 cerned, the Commission may even refuse to and in the Summary Report for 1992, the charge to the EAGGF the whole of the Commission set the Member States a final expenditure in question if it finds that there time-limit of 1 July 1994 to implement the are no adequate control procedures. measures proposed by the Commission. It threatened financial consequences only if that time-limit was not observed. The Commission disregarded that assurance when it imposed penalties for the whole 1994 financial year on the basis of inves- Second... the EAGGF finances only inter- tigations before 1 July 1994. vention undertaken in accordance with the Community rules in the framework of the common organisation of agricultural mar- kets. Since... it is the State which is best placed to collect and check the data required for the clearance of EAGGF accounts, it is the State which is required 129. It should be pointed out in this respect to adduce the most detailed and compre- that the assurance concerned only physical hensive evidence that its figures are accu- checks on exports, whilst the corrections rate and, if appropriate, that the Commis- were made as a result of deficiencies in sion's estimates are incorrect.' 63 controls in the advance payment system. Therefore, that assurance cannot preclude the contested corrections. 63 — Cited in footnote 25, paragraph 122 et seq.

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OPINION OF MR ALBER — CASE C-278/98

did not concur with the Netherlands' justify the inference of a significant risk arguments: of loss;

— failure to take into consideration the — failure to take into consideration miti- improvements made; gating circumstances and the failure by the Commission to act by adopting clarifying rules for checks in the form of Regulation No 2221/95.

— the extension of the corrections to 1994, even though the investigations had concerned 1992 and 1993; 138. In the judgment in Case C-242/97 the Court recently held as follows:

— acceptance of the existence of supposed deficiencies which the Netherlands authorities had contested with detailed 'On this point, the Court has consistently argument; held that, in the particular context of the preparation of decisions relating to the clearance of accounts, the statement of reasons for a decision must be regarded as sufficient if the Member State to which the decision was addressed was sufficiently — failure to observe the assurance of involved in the process by which the 11 January 1994; decision came about and was aware of the reasons for which the Commission took the view that it must not charge the sum in dispute to the EAGGF'. 64

tions made by the Commission. However, refute those arguments in the judicial the present application is clearly based on proceedings. the complaint that, despite the extensive contacts between the Commission and the Netherlands authorities in the present case, no real dialogue took place. Rather, the Commission is alleged simply to have ignored all the arguments put forward by 142. The explanation given by the Nether- the Netherlands. If the Commission did lands also contradicts, at least in part, the actually act in that way, this would con- contents of the case-file. For example, the stitute not only an infringement of the arguments put forward by the Netherlands principle of cooperation in good faith, but are documented, at least in part, in the also an infringement of the duty to state conciliation report. Furthermore, the letter reasons. from the Commission of 28 June 1996 contains a statement on the failure to take into consideration the improvements that had been made in the meantime, even though, according to the explanation given by the Netherlands, the Commission is alleged to have consistently ignored that argument. Documents which could prove 140. However, such an accusation can the serious allegation made by the Nether- refute the appearance of ongoing dialogue lands were not submitted. only if the Netherlands were duly to demonstrate each individual point where it put forward arguments to which the Commission supposedly failed to respond before it adopted the decision. 143. This plea must therefore also be rejected.

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

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