C-148/99

1. The United Kingdom is challenging, which prompted it to seek reimbursement pursuant to Article 173 of the EC Treaty in respect of the total surface area planted, (now, after amendment, Article 230 EC), namely 1 903 hectares. The defendant, for Commission Decision 1999/187/EC of its part, contends that the variety in issue 3 February 1999 ('the Decision') 1on the was grown solely with a view to obtaining clearance of the accounts presented by the Community subsidies, and insists that the Member States in respect of the expendi- aid should be limited to an area corre- ture for 1995 of the Guarantee Section of sponding to 100 hectares. the European Agricultural Guidance and Guarantee Fund ('EAGGF'). More specifi- cally, the action seeks annulment of the provision disallowing the disbursement from t h a t fund of t h e sum of GBP 869 283 included in the financial 3. The present dispute, as framed in those assistance paid in advance by the United terms, might appear to call for a judgment Kingdom to British farmers pursuant to of Solomon. Nevertheless, the nature of the C o m m i s s i o n R e g u l a t i o n (EEC) action for annulment and the restricted No 1164/89 of 28 April 1989 laying down parameters of the review which it seeks, detailed rules concerning the aid for fibre combined with the absence of any evidence flax and hemp. 2 of bad faith in the grant of the aid, the deficiencies in the rules adopted by the Commission and the absence of any objec- tive criterion justifying its decision, suggest that it would not be appropriate to follow the example of the king amongst judges by dividing up the subject-matter of the dis- 2. The United Kingdom and the Commis- pute with a view to satisfying both parties. sion disagree as to the number of hectares planted with an experimental variety of fibre flax which qualify for Community aid in the context of a study into its viability for industrial use. The applicant points out that the relevant legislation is silent on this That subject-matter should not therefore be point, and maintains that it acted in good divided in two, in accordance with the first faith in its interpretation and application of decision made by the exuberant Solomon; 3 the rules in force at the material time, nor can the dispute be resolved, as in the

5. Under Article 4(4) and (5), the Council and the Commission are required to adopt rules for the grant of aid, whilst Article 12 establishes the procedure to be followed by ' 1 . A system of aid shall be introduced for the Commission for the purposes, inter alia, flax grown mainly for fibre and for hemp of adopting measures for granting aid. That grown in the Community. procedure includes the consultation of a management committee.

6. In the exercise of their respective powers, the Council has laid down general rules, including, in particular, rules apply- 4 — Holy Bible, 1 Kings, chapter 3, verses 16 to 28 (see the ing to checks on entitlement to aid, 7 and Spanish version taken direct from the original languages, ed. the Commission has adopted Regulation E. Nácar and A. Colunga, Madrid, 1968). See also Car- bonnier, J.: Flexible droit, Paris, 1992, p. 361 et seq. (EEC) No 1164/89 laying down detailed 5 — Council Regulation (EEC) No 1308/70 of 29 June 1970 on implementing rules. the common organisation of the market in flax and hemp (OJ, English Special Edition 1970 (II), p. 411). 6 — And resulting from the successive amendments made, in so far as concerns the present case, by Council Regulations (EEC) Nos 814/76 of 6 April 1976 (OJ 1976 L 94, p. 4), 7 — Council Regulation (EEC) No 619/71 of 22 March 1971 2057/92 of 30 June 1992 (OJ 1992 L 215, p. 16) and laying down general rules for granting aid for flax and hemp 1557/93 of 14 June 1993 (OJ 1993 L 154, p. 26). (OJ, English Special Edition 1971 (I), p. 169).

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— currently under review by Member States' authorities for inclusion in the catalogue of flax varieties intended mainly for the production of fibre.' Thus, accepted varieties must be included in one of the national catalogues of vari- eties officially accepted for certification and marketing (Article 3(1)). Following the expiry of a period of between two and The contents of the second indent had been three years, the seeds and plants of a variety i n t r o d u c e d by R e g u l a t i o n (EEC) accepted in one or more Member States No 174/81. 8 According to the second reci- may freely circulate within the Community tal in the preamble to that regulation, the and the variety in question is to be listed in insertion of that provision was justified the common catalogue published in the inasmuch as the relevant legislation would Official Journal (Articles 15, 16 and 18). otherwise have the effect of disqualifying Where no opposition is raised by any for aid new varieties of flax which were Member State, the variety may be listed being studied by the authorities of the prior to the expiry of that period (under the Member States with a view to entering 'accelerated procedure' provided for in them in the catalogue of varieties, resulting Article 15(5)). in a situation which could discourage the development of new varieties. 9 — Commission Regulation (EC) No 624/97 of 8 April 1997 amending Regulation (EEC) No 1164/89 laying down detailed rules concerning the aid for fibre flax and hemp 8 —Commission Regulation (EEC) No 174/81 of 22 January (OJ 1997 L 95, p. 8). 1981 amending Regulation (EEC) No 771/74 laying down 10 — Council Directive 70/457/EEC of 29 September 1970 on detailed rules for granting aid for flax and hemp (OJ 1981 the common catalogue of varieties of agricultural plant L 20, p. 13). species (OJ, English Special Edition 1966-1972, p. 36).

(b) the minimum requirements for carrying out the examinations. 14. During the 1995 financial year, on the basis of Article 2 of R e g u l a t i o n No 1164/89, the United Kingdom Govern- ment granted aid to growers of the 'Klasse' variety for a total cultivation area of 1 903 12. The latter provision was extended by hectares. Directive 72/180/EEC. " Point 5.6 in Part A of Annex II to that directive lays down the minimum general conditions for exam-

11 — Commission Directive 72/180/EEC of 14 April 1972 15. The Commission carried out two determining the characteristics and minimum conditions inspection visits to the United Kingdom, for examining agricultural varieties (OJ, English Special Edition 1972 (II), p. 404). in September 1995 and January 1996. The

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18. Notwithstanding the contents of that report, the Commission maintained its argument that an area of 100 hectares was ample for experimental testing of a 16. On 18 July 1997 the Commission sent new variety. The United Kingdom autho- to the United Kingdom a formal notice rities, for their part, continued to assert setting out the results of the checks carried that there was no legal basis whatever for out. That communication accepted the the limit proposed by the Commission. possibility of granting aid for research into industrial viability but made it clear that, unless the United Kingdom was able to show that the crop of 'Klasse' flax had been processed, the area allowed by the clear- ance of accounts services for the purposes of granting aid for industrial trials could In those circumstances, the Commission on not exceed 100 hectares. 3 February 1999 adopted the contested Decision refusing to allow the sum of GBP 869 283 on the ground that it appeared to have been improperly paid by the United Kingdom authorities.

17. The United Kingdom Government con- 12 — Commission Decision 94/442/EC of 1 July 1994 setting up sidered that there was no basis in law for a conciliation procedure in the context of the clearance of the accounts of the European Agricultural Guidance and thus limiting the aid and therefore referred Guarantee Fund (EAGGF), Guarantee Section (OJ 1994 L 182, p. 45). the matter, by letter of 4 December 1997, 13—Which does not have binding force (Article 1(2)(a) of to the Conciliation Body. Decision 94/442).

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— the contested Decision is unlawful as 23. It is appropriate, at the outset, partially the Commission is not competent to to rearrange and reformulate the grounds

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of nullity relied on. The allegations put 25. According to the applicant, the United forward by the applicant under four sepa- Kingdom authorities were required, in the rate headings merely comprise, strictly absence of any rule limiting to 100 hectares speaking, two sufficiently differentiated the area in respect of which aid might be grounds of annulment. granted, to grant such aid to all growers of the 'Klasse' variety who lawfully applied for it. Moreover, the total area of 1 903 hectares in respect of which the aid was granted is modest if one takes into account The United Kingdom, relying on the argu- the fact that the cultivation in question was ments contained in the first, second and intended to determine the viability of the fourth indents, maintains that the relevant new variety for industrial use. provisions of the contested Decision are illegal, since the Commission was empow- ered to adopt them only on an adequate substantive legal basis or in accordance with the established formal procedure, and in any case without giving them retroactive 26. The United Kingdom further considers effect. That is the first ground relied on. that, in so far as the Commission has sought to adopt, in the guise of an admin- istrative decision, a legislative measure designed to limit the scope of Regulation No 1164/89, such a measure must ipso The argument that the contested Decision facto be illegal. First, that being the case, is arbitrary and inadequately reasoned is the Commission modified a provision of capable of constituting an autonomous the scheme of aid for flax without follow- second ground. ing the prescribed procedure, under which, inter alia, the corresponding management committee must be consulted (see point 5 above). Second, such a measure constitutes in any event a legislative act having retro- active effect and is contrary to the princi- ples of legal certainty and the protection of (a) The first ground: the contested provi- legitimate expectations. sions are unlawful inasmuch as the Com- mission was not competent to adopt them

solely intended to finance scientific, not respect to transactions not carried out in industrial, trials. In support of its argu- good faith. 15 ments, the defendant relies on Directive 72/180, which lays down certain minimum sowing conditions with a view to obtaining reliable data and provides that two hectares 29. In my view, it is appropriate at the of experimental planting are sufficient for outset to set out the scope of the present that purpose (see point 12 above). action for annulment: its object — which could not be achieved by any other means — is the annulment of the contested Decision in so far as that decision refuses reimbursement of the aid granted for the cultivation of 1 903 hectares of experimen- tal fibre flax and allows such reimburse- ment of aid only in relation to 100 hectares. Consequently, although the Commission Whilst it may appear otiose to reiterate the agreed in principle to extend aid to cultiva- point, the task of the Court of Justice tion carried out for the purposes of indus- within the framework of Article 173 of the trial trials (see point 16 above), it did so as EC Treaty is limited to ruling on the legality a concession to the United Kingdom. Even of the contested measure, to which end it is so, the Commission considers that it was required to examine the matters of fact and not, strictly speaking, obliged to finance aid law which were taken — or should have for the carrying out of viability studies in been taken — into consideration by the the absence of any evidence showing that authority adopting that measure. It is not the crops to which the aid related had been for the Court, therefore, to set itself up as processed. The decision to grant aid in an appellate body in relation to that respect of a maximum of 100 hectares authority or to exercise unlimited jurisdic- should therefore be regarded as a further tion in hearing and determining the case. generous concession. This means that, in contrast to the position with regard to actions under Article 172 of the EC Treaty (now Article 229 EC), the Court is not empowered to modify the decision in issue or to substitute a different act in its place. For those reasons, I do not consider that an action under Article 173 28. Lastly, the defendant suggests that the constitutes an appropriate vehicle for giv- Court of Justice should interpret Regula- ing rulings in the nature of a judgment of tion No 1164/89 in the light of its case-law Solomon. on the prohibition of the abuse of rights, 14 in which it has expressly held that Com- munity legislation is not to be interpreted as allowing subsidies to be granted with Having said that, I would go on to state that I am not convinced that the way in which the Commission has acted in the 14 — Case 33/74 Van Binsbergen v Bedrijfsvereniging Metaal- nijverheid [1974] ECR 1299; Case C-23/93 TV10 v Comissariaat voor de Media [1994] ECR I-4795; Case 229/83 Leclerc and Others v 'Au Blé Verf [1985] ECR 1; 15 — Case 125/76 Cremer v BALM [1977] ECR 1593; Case Case 39/86 Lair v Universität Hannover [1988] 250/80 Töpfer [1981] ECR 2465; and Case C-8/92 ECR 3161; and Case C-206/94 Brennet v Paletta [1996] General Milk Products v Hauptzollamt Hamburg-Jonas ECR I-2357. [19931 ECR I-779.

30. It is necessary precisely to define the frameworktof positive law applicable to the dispute. In my view, the only provision which is specifically applicable is the sec- ond indent of Article 2 of Regulation 32. As to the maximum area for which the No 1164/89, which provides for grants of aid in question could be granted, it must be aid 'for flax grown from the seed varieties... reiterated that the Community legislation currently under review by Member States' lays down no rules in that regard. Thus, in authorities for inclusion in the catalogue of its communication of 18 July 1997 the flax varieties intended mainly for the Commission itself conceded that point, production of fibre.' even though it considered that the area under cultivation should be limited to what is reasonable and proportionate to the objectives pursued. I agree. However, although the Commission accepts that That point is agreed between the parties. Regulation No 1164/89 may serve as the The Commission has argued, as a preli- basis for promoting industrial trials, it has minary point, that the provision in question produced no evidence whatever to show is intended to cover only scientific trials, that the 1 903 hectares planted must be and that it is therefore referable to Direc- regarded as excessive for those purposes. tive 70/457, which is in turn referable to Directive 72/180 (see points 10 to 12 above). However, by the date of its com- munication of 18 July 1997 at the latest, the Commission was prepared to accept 33. It follows that there existed no legisla- that Regulation No 1164/89 could serve as tive provision entitling the Commission to the basis for grants of aid for industrial refuse reimbursement of the aid granted in trials. relation to 1 903 hectares sown for indus- trial trials, on the ground that that aid was excessive.

37. In that regard, I am bound to say that the Commission has not established any connection between the absence of proof 35. I do not share the view that the that the crop was processed and the limit- wording of the second indent necessarily ing of the maximum area eligible for aid to imposes on Member States any increased 100 hectares. The reduction imposed by responsibility with regard to the carrying that institution might have appeared justi- out of trials. It seems to me that the fied if a calculation had been carried out in wording on which the Commission places relation to the area actually planted for such emphasis should instead be inter- experimental purposes. preted as meaning varieties subjected to review by the Member States' authorities. Any other construction would mean the exclusion from the benefit of aid of any trials not directly carried out by those authorities, which would produce a parti- However, in its written communication of cularly strange result within the framework 18 July 1997 the Commission merely of the EAGGE pointed out that the United Kingdom authorities had produced no evidence whatever to show that genuine tests had been carried out, refusing reimbursement of any expenditure on the variety in question relating to an area in excess of 100 hectares on the ground that that area was in its view I do accept that the Commission may, on the maximum needed to carry out the tests the basis of the second indent, require a on the new variety. Member State to verify that crops benefit- ing from aid have been planted with a view to the carrying out of genuine tests as to viability. The Member State concerned may, for its part, refuse to grant the aid or, as the case may be, demand to be repaid At no juncture did the defendant explain if it finds that the flax was grown not for the basis for that assessment. experimental purposes but solely in order wrongfully to benefit from the rules for the promotion of such cultivation. 16

44. The Commission points out, first of all, that the extent of the duty to state reasons depends not only on the wording of the 41. The United Kingdom Government Decision but also on the context in which it maintains that, in limiting to 100 hectares was adopted and, in particular, the related the area eligible for aid, the contested Decision lacks any scientific or technical justification. 17 — Case C-281/89 Italy v Commission [1991] ECR I-347.

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documents on the basis of which it was an industrial trial'; in the second, by adopted. The Court of Justice has consis- contrast, that area is stated to be the tently held that the statement of reasons for maximum needed in order to carry out a decision must be regarded as sufficient if the tests referred to in Directive 72/180, the Member State to which it was that is to say, scientific tests. addressed was closely involved in the process by which the decision came about and was aware of the reasons which led to its adoption. 18

In the rejoinder, on the other hand, the 45. The Commission goes on to state that, notion of industrial trials no longer features in the present case, it informed the United in the Commission's arguments, and 100 Kingdom authorities fully of its view that hectares, instead of being the maximum the sowings could not be regarded as area allowed for those purposes, is stated to experimental and did not fulfil the require- represent merely an unusually generous m e n t s of Article 2 of Regulation concession on the part of the defendant. No 1164/89; that view was set out, in particular, in the reports annexed to its letter of 26 July 1996 and in the Decision.

51. In those circumstances, the Commis- sion cannot be said to have fulfilled its 50. It follows from the foregoing that the obligation to provide a proper statement of criterion referred to in the Formal Notice of reasons for its decision to reduce the aid to 18 July 1997 merely constitutes one of be financed by the EAGGF to a sum several different criteria put forward by corresponding to 100 hectares. the Commission.

52. The second plea must therefore also be At the hearing, the Commission sought to upheld. attach particular significance to the fact that the United Kingdom had not produced any evidence showing that the crop had been processed. However, that justification contradicts the other arguments put for- ward by the Community institution and is inconsistent, in particular, with its willing- Costs ness to allow aid for a limited area corresponding to 100 hectares of cultivated flax. If, as the Commission claims, that lack of evidence of processing constituted the 53. On the basis that the grounds put decisive reason for the refusal, then it forward by the United Kingdom should be necessarily follows that, had the United upheld, it is appropriate to order the Kingdom produced evidence showing that Commission, in accordance with the first the crop had been processed and that the subparagraph of Article 69(2) of the Rules trials had been carried out, the aid would of Procedure, to pay the costs of the have been approved in its entirety. This proceedings.

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Conclusion

54. In accordance with the foregoing, I propose that the Court should: