C-375/99

OPINION OF MR GEELHOED — CASE C-375/99

OPINION OF ADVOCATE GENERAL GEELHOED delivered on 6 March 2001 1

Facts 21 April 1970 on the financing of the common agricultural policy.2 Article 3(1) provides that certain measures are to be financed by the EAGGF.

1. In this case, the Spanish Government is seeking the annulment of the decision of the Commission of the European Commu- nities of 28 July 1999, excluding from Community financing certain expenditure effected by the Member States, in so far as 3. Article 5(2) of the regulation, as amen- that decision imposed on the Kingdom of ded by Council Regulation (EC) Spain the financial adjustments referred to No 1287/95 of 22 May 1995, 3 provides in the application. Specifically at issue is a as follows: flat-rate reduction of 5% applied to a series of amounts which the Spanish authorities had declared to the European Agricultural Guidance and Guarantee Fund ('EAGGF') in respect of expenditure in the beef and veal public storage sector. The Commission is asking for the application to be dis- 'The Commission, after consulting the missed. Fund Committee:

(c) shall decide on the expenditure to be The legal framework excluded from the Community finan- cing referred to in Articles 2 and 3 where it finds that expenditure has not been effected in compliance with Com- munity rules. 2. The financing of the Common Agricul- tural Policy is governed by Regulation (EEC) No 729/70 of the Council of 2 — OJ, English Special Edition 1970 (I), p. 218. Now replaced by Council Regulation (EC) No 1258/1999 of 17 May 1999 on the financing of the common agricultural policy (OJ 1999 L 160, p. 103). 3 — OJ 1995 L 125, p. 1. Now Article 7(4) of Regulation (EC) 1 — Original language: Dutch. No 1258/1999.

If no agreement is reached, the Mem- ber State may ask for a procedure to be initiated with a view to mediating 'When, as a result of any enquiry, the between the respective positions within Commission considers that expenditure a period of four months, the results of was not effected according to Community which shall be set out in a report sent rules, it shall communicate to the Member to and examined by the Commission, State concerned its findings, the corrective before a decision to refuse financing is measures to be taken to ensure future taken. compliance, and an evaluation of any expenditure which it may propose to exclude pursuant to Article 5(2)(c) of Reg- ulation No 729/70....' The Commission shall evaluate the amounts to be excluded having regard in particular to the decree of non- compliance found. The Commission shall take into account the nature and gravity of the infringement and the 6. The conciliation procedure referred to in financial loss suffered by the Commu- Article 5 of Regulation No 729/70 is gov- nity. erned by Commission Decision 94/442/EC of 1 July 1994 setting up a conciliation procedure in the context of the clearance of the accounts of the European Agricultural Guidance and Guarantee Fund (EAGGF) ' Guarantee Section. 6That decision set up a Conciliation Body. Article 2(2) of the deci- sion provides:

4. Also relevant to the application of this provision is Article 8(1) of Regulation No 729/70 4 which obliges Member States to adopt the measures necessary to satisfy themselves that transactions financed by 'A request for conciliation is admissible the EAGGF are actually carried out and only where the financial adjustment recom- executed correctly.

Pleas in law and arguments submitted by the parties The prior administrative procedure

9. The Spanish Government founds its 7. As a result of the enquiries made by its application on two pleas in law. First, it services to establish whether Community alleges infringement of its rights of defence provisions regarding the public storage of and of the principle of legal certainty (the beef and veal had been complied with, the first two complaints). Second, it asserts that Commission sent the Spanish authorities a there has been an infringement of the notification pursuant to Article 8 of Reg- principle of equal treatment (the third ulation No 1663/95. The enquiries had complaint).

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SPAIN v COMMISSION'

10. Analysed as a whole, the Spanish sequently, the proposed adjustment Government's complaints can be summed was far higher than that which was up as follows: implied by the actual wording of the notification.

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Body. In its notification of 12 June 1998, attached a series of annexes from which it the Commission expressly invited the King- emerges that, after the response of the dom of Spain to request such intervention. Spanish Government, the amount initially In this regard, the Commission goes on to proposed in respect of the adjustment was point out that a request for conciliation is adjusted. inadmissible only where the amount in question is lower than EUR 0.5 million. In this case, the amount is significantly in excess of that sum. In addition, the limit of EUR 0.5 million is not strictly applied.

The Court of Justice asked the Commission to Commission adds that a Member State specify which expenditure was actually always has the right to prove that the risk taken into consideration under each of the of actual loss to the EAGGF is lower than budget headings. In a document dated the amount of the adjustment proposed. 15 January 2001, the Commission clarified However, the Kingdom of Spain should once more how the financial adjustment rather dispute the significance and the was calculated. In that document, the consequences of the deficiencies recorded Commission again draws attention to the by the Commission rather than the rate of deficiencies found in the purchase and the adjustment. Unlike the United Kingdom storage, but not in the sale, of stored beef and German Governments, the Spanish

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rate of the reduction applied. Finally, the addition, they must prove that the amount Commission also asserts that there is not a of the potential loss is not proportional to marked difference between the effect of the the rate of the reduction imposed. reduction on Spain and on Germany because, in Germany's case, the 2% reduc- tion applies to all expenditure relating to the storage of beef and veal whereas, in Spain's case, the 5% reduction only applies to certain budget headings.

The Commission's policy

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financial consequences. While this new The report provides for three levels of flat- document does not contain any important rate adjustments: amendments to the Belle Group Report criteria, it does add an extra category, namely a 25% reduction in serious cases. The Commission decision contested in these proceedings is based on the guidelines contained in the latter working paper. 'A. 2% of expenditure — where the defi- ciency is 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 regu- larity of the expenditure, such that it can reasonably be concluded that the risk of loss to the EAGGF was minor.

18. Thus, the Belle Group Report and the aforementioned working paper contain guidelines for situations where financial adjustments must be imposed on a Member B. 5% of expenditure — where the defi- State. Provision is made for a flat rate to be ciency relates to important elements of applied in difficult cases: 9 the control system or to the operation of controls which play an important part in the assurance of the regularity of the expenditure, such that it can reasonably be concluded that the risk of loss to the EAGGF was significant.

'As the systems audit approach has become more widely applied, the EAGGF has had C. 10% of expenditure — where the defi- recourse increasingly to an assessment of ciency relates to the whole of or the risk which a systems deficiency pre- fundamental elements of the control sents. By the very nature of ex-post audit- system or to the operation of controls ing, it can rarely be established at the time essential to assuring the regularity of of audit whether a claim was valid when the expenditure, such that it can rea- paid... The loss to the Community funds sonably be concluded that there was a must therefore be determined by an evalua- high risk of widespread loss to the tion of the risk to which they were exposed EAGGF.' by the control deficiency, which may con- cern as much the nature, or quality, of the controls operated as the quantity of con- trols effected....'

22. The Court's approach, therefore, is the following. As follows from, inter alia, United Kingdom v Commission, 13 the 20. The Belle Group Report is the outcome Commission must establish that a Member of a long-standing Commission practice of State has infringed the rules of the common imposing flat-rate adjustments on the agricultural policy by, as for example in refunds to Member States of expenditure these proceedings, having carried out insuf- incurred in applying the Common Agricul- ficient checks on expenditure. Having tural Policy. In the Commission's view, the established that this is the case, the Com- Belle Group Report criteria constitute 'a mission must act. However, it has a wide common basis of agreement in that, if it discretion when it comes to deciding what proves impossible to determine the amount penalties to impose. The Member State of the adjustments precisely, a middle way concerned must demonstrate that the facts is chosen by withholding a flat-rate found by the Commission are incorrect and amount, thus making it possible both to that the institution committed an error as respect Community law and the sound to the inferences to be drawn from them, management of Community resources and for example by applying an excessive fiat- to comply with the understandable wish of the Member States to avoid excessive and disproportionate adjustments.' 10 11 — Case C-243/97 [2000] I X R I-5813. 12 — Case C-242/96 [1998] ECR I-5863. 13 — Case 347/85 [1988] UCU 1749, paragraph 16 of the judgment. This judgment deals in depth with the burden 10 — See Greece v Commission, cited in foornote 8, para- of proof. See also Italyv COMMISSION, cited in footnote 12, graph 24 of the judgment. paragraph 58 of the judgment.

'26. The Court observes that, according to 23. I refer also to Netherlands v Commis- its case-law... , where it proves impos- sion, 15 which clarifies the burden of proof sible to establish with certainty the between the Commission and the Member extent to which a national measure State concerned. At paragraph 17, the which is incompatible with Commu- Court states: 'The Commission is required nity law has caused an increase in the not to demonstrate exhaustively that there expenditure entered under a budgetary are irregularities... but to adduce evidence item of the EAGGF, the Commission of serious and reasonable doubt... The has no choice but to disallow all the reason for this mitigation of the burden of expenditure in question. proof on the Commission is that... it is the State which is best placed to collect and verify the data required for the clearance of EAGGF accounts; consequently, it is for the State to adduce the most detailed and comprehensive evidence that its figures are accurate and, if appropriate, that the 27. When the Commission refuses to Commission's calculations are incorrect.' charge certain expenditure to the The Court has subsequently repeated that EAGGF, on the ground that it was formulation in a number of judgments. 16 incurred as a result of breaches of Community rules imputable to a Mem- ber State, it is for that State to show that the conditions for obtaining the financing refused by the Commission are fulfilled... 24. As I have already indicated, it follows from the settled case-law of the Court that the Commission has a wide discretion when it comes to imposing penalties where Member States have failed adequately to control expenditure in the context of the common agricultural policy. The Commis- 28. If, then, in its function of clearing the sion is entitled to refuse to reimburse any of accounts the Commission, instead of the expenditure in question but it may also refusing the entire expenditure, endea- impose a percentage reduction, as has vours to draw up rules to differentiate happened in this case. It is quite clear that according to the degree of risk posed to the rates of reduction contained in the Belle the EAGGF by different levels of defective supervision, the Member 15 — Case C-48/91 [1993] ECR 1-5611. 16 — See, inter alia, Case C-242/97 Belgium v Commission 14 — Cited in footnote 8, paragraph 26 et seq. of the judgment. [2000] ECR I-3421, paragraph 104 of the judgment.

27. In my opinion, the key to the system — and to the Court's case-law — lies in the (c) the correctness of the criteria used by fact that in this case it is the Member States the Commission to impose the reduc- who are responsible for implementing a tion. In the event that the Belle Group system financed by the Community. Con- Report criteria are used, 18 it must be sequently, the obligation to justify in detail assumed that these are the correct the expenditure effected in this regard falls criteria. However, as the rules in ques- on them. It is also the Member States which tion are not binding, it is my view that are in possession of the information relat- the Member State is entitled to attempt ing to actual expenditure. The Commission to demonstrate that, as far as it is must confine itself to conducting sample concerned, the Belle Group Report checks, for which it also largely depends on criteria are arbitrary or unfair; the information supplied by the Member States. This — fragile — system requires that the Commission should have a wide 17 — Cited in footnote 8. 18 — In these proceedings, in the document dated 23 December discretion to be able to impose penalties 1997. when it detects irregularities. Flat-rate

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SPAIN v COMMISSION

The first complaint Thus, in Netherlands v Commission, 19 the Court stated that the Member State is best placed to collect and verify the information required for the clearance of the accounts of the EAGGF. Consequently, the Court 31. Under its first complaint, the Spanish places the burden of proving the figures on Government claims that the formal written the Member State. Likewise, I feel it is notification of 12 June 1998 did not indi- important to point out that the Court cate the amount of the financial adjust- accepts that the Commission should impose ment. It maintains that, as a consequence of a flat-rate reduction where it is not possible this defect, Spain was unable to request to determine the amount of the loss suf- intervention by the Conciliation Body. fered by the EAGGF. 20 This indicates that there is no requirement for the Commission to quantify the irregularity precisely. Addi- tionally, in more general terms, the policy followed, as it has been analysed by the Court, amounts to requiring the Commis- 32. That complaint relates, first of all, to sion to adduce evidence of a breach of the the question whether the Commission was rules of the common agricultural policy, 21 entitled to send a notification which failed with the implication that the Member to quantify precisely the amount to which States must provide the remaining informa- the percentage reduction was to apply. tion.

36. Second, it must be ascertained whether the Spanish Government's right to due process was infringed as a result of the 37. Finally, the Spanish Government claims notification. I have indicated that, in the that the principle of legal certainty has also notification of 12 June 1998, the Commis- been infringed. In Community law, this sion expressly referred to the opportunity principle means that legislation must be to request intervention by the Conciliation certain and its application foreseeable by Body. I believe that, in the circumstances of whoever is subject to it, in this case the this case, the Spanish Government holds Spanish Government. As the Court stated sole responsibility for not having availed in Denmark v Commission,23 '[T]hat itself of this opportunity. First, had there requirement of legal certainty must be been doubt as to admissibility, the Spanish observed all the more strictly in the case Government could have made a provisional of rules liable to entail financial conse- request for conciliation. Second, the Span- quences, in order that those concerned may ish Government could have dispelled any know precisely the extent of the obligations uncertainty by performing its own calcula- which they impose on them.' On the tions of the amounts under the budget question of breach of the principle of legal headings, since it possessed the information certainty, I will allow myself to be brief. needed for the calculations or, at least, for Bearing in mind the observations I have making a reliable estimate of the amounts. already made, I must conclude that the Third, as the Commission states in the Spanish Government was in a position to defence, it seems that the Conciliation Body be aware of the extent of its obligations and does not rigidly apply the time-limits for rights. admissibility of a request. It must be acknowledged that there is no record of whether the Spanish Government was aware of this Conciliation Body practice. Perhaps there was no reason why it should have been. However, it must be pointed out that it follows from the actual wording of Article 2(2) of the Commission Decision of 1 July 1994, setting up the Conciliation 38. I therefore conclude that the first Body, that the Chairman of the Body has a complaint must be rejected.

40. Specifically, it is concerned with the adjustment imposed in respect of expendi- ture included under heading 2113. The 42. By its third complaint the Spanish Court asked the Commission for a more Government accuses the Commission of detailed explanation with respect to this treating several Member States unequally, matter. I believe that the Commission has thereby infringing the principle of equal clarified sufficiently why the adjustment treatment. A reduction of 2% rather than referred only to the purchase and storage of 5% was imposed on the Federal Republic beef and veal and not to sales. As the of Germany and the United Kingdom, Commission rightly states, at the time of countries where similar deficiencies were the inspection it was not possible to take detected. the sales into account. I also agree with the Commission that, for the purposes of imposing a penalty in respect of deficiencies in the checks made on the purchase and storage of beef and veal, there is no requirement to take the sale price into account. The fact that all the indications are that sales were taken into account for 43. First, I consider that the wide discretion the purposes of heading 2111 is another enjoyed by the Commission for the purpose matter. Since this is common ground of imposing rates of reduction cannot be between the parties, I will confine myself interpreted as meaning that comparable to making one observation for the sake of cases may be treated differently.

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44. In Belgium v Commission,24 the Court irregularities found in Spain must be com- made the following observations regarding pared with those detected in the United the principle of equal treatment: Kingdom and the Federal Republic of Germany and that the penalties imposed must then also be compared.

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other hand, has never submitted compar- of Spain, the 5% reduction applied only to able arguments, even in the case currently certain budget headings. before the Court. Furthermore, I wish to add that, as is clear from the Commission's observations, the effect of the reduction does not vary greatly between Spain and Germany because, in the case of Germany, the 2% reduction applied to all expenditure 48. I conclude that the third complaint effected in the sector, whereas, in the case must also fail.

Conclusion

49. In the light of the foregoing considerations, I propose that the Court should dismiss the application and order the Kingdom of Spain to pay the costs, pursuant to Article 69(2) of the Rules of Procedure.

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