C-331/01

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mission 'shall decide on the expenditure to the market in beef and veal 5 (hereinafter be excluded from Community financing... 'Regulation No 805/68'), the regulation in where it finds that expenditure has not force at the time in question (hereinafter been effected in compliance with Commu- 'additional payments'). nity rules'.

Regulation No 1357/96 stipulates to this end:

4. Under Article 5(2)(c), fifth subpara- graph, first sentence, of Regulation No 729/70 'a refusal to finance may not Second recital involve expenditure effected prior to 24 months preceding the Commission's written communication of the results of those checks to the Member State con- cerned'. '... whereas in order to enable rapid pay- ment and to achieve the described econ- omic effect, such resources should generally be made available in the form of payments in addition to the premiums due in respect of animals eligible in the 1995 calendar year...; whereas, however, producers should only be entitled to such additional 5. Pursuant to Article 7, second sentence, in payments to the extent that the number of conjunction with Article 11 of Regulation eligible animals for which they are entitled No 1357/96, the resources for which that to a premium in respect of the 1996 regulation provided could be distributed calendar year is not reduced as compared only once, from 13 July until 15 October with the 1995 calendar year'. 1996. Regulation No 1357/96 set out two methods for the distribution of the resources:

Article 1(3)

'Whereas Member States, in which the structure of production makes a system of payment other than by means of the said ' 1 . Where the number of animals for which increase in premiums more appropriate entitlement to premiums is established in and/or where the need to complete all relation to the 1996 calendar year is less payments by 15 October makes this necess- than that for which a producer received ary, should be authorised, in derogation additional payments under Article 1, the from the above, to distribute the total of part of the additional payment to which he the aid which would otherwise have been was not entitled shall be set off against his payable by way of increases in premiums entitlement to premiums under Regulation and the amount provided for in the Annex (EEC) No 805/68 for the 1996 calendar to producers of bovine animals on the basis year. of objective criteria'.

2. Where a producer does not make an Article 5 application for premiums under Regulation (EEC) No 805/68 in respect of the 1996 calendar year or where the premiums to which he is entitled are insufficient to make the set-off referred to in paragraph 1, he shall be required to repay the additional payments made under Article 1 to which he 'By way of derogation from Articles 1, 2, 3 was not entitled.' and 4, Member States may grant the total amount of aids resulting from the appli- cation of Article 1(1) and (2) and Article 4(a) to producers of bovine animals according to objective criteria, provided that the compensation will not be higher than the loss of income to such producers 7. Second, the Member States could grant and that there is no distortion of compe- the resources in a different way. tition.'

— no later than 15 November 1996 and 31 July 1997 respectively, the total 'As regards the additional aid provided for amounts of aid paid pursuant to in Regulation (EC) No 1357/96, the Article 5 and Article 4(b), and the Member States shall communicate to the number of beneficiaries and animals Commission: concerned.'

(a) where Articles 1 to 4 of that Regulation are applied:

B •—· National law

— no later than 15 November 1996 and 31 July 1997, the number of additional

9. The Orden Ministerial del Ministerio de 6 — OJ 1996 L 189, p. 77. Agricultura, Pesca y Alimentación (Order

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12. In their fax of 8 June 1998 the Spanish authorities referred to Article 1 of the 14. By letter of 29 March 1999, received by the Permanent Representative of the King- 7 — BOE No 228 of 20 September 1996 (21089). dom of Spain to the European Union on

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12 April 1999, the Commission forwarded — order the defendant institution to pay the communication of the findings of the the costs. enquiries. 8

15. On 11 July 2001 the Commission The Commission claims that the Court adopted Decision 2001/557/EC, in which should: it set in respect of the Kingdom of Spain — giving 'system not in conformity with the rules' as the reason— a financial correction of 2% to the expenditure declared under budget headings B01-2133.001 and 002 (ESP 185 046 088.00) pursuant to Regu- — dismiss the application as unfounded, lation No 1357/96 for the 1997 financial year. This financial correction is the subject of the application for annulment at issue, which the Kingdom of Spain lodged by letter of 3 September 2001, registered at the Court of Justice on 6 September 2001. — order the applicant to pay the costs.

16. The Kingdom of Spain claims that the Court should:

V — Legal assessment

20. Opposing the Commission's view that A — First plea in law: compliance with the Member States might have opted for a system for the granting of resources for special payment system only if they — which Regulation No 1357/96 provides unlike Spain — had not intended the pay- ments to be additional to the premiums paid pursuant to Regulation No 805/68, the Spanish Government similarly cites the 1. Arguments of the parties fifth recital of Regulation No 1357/96. It followed from the wording of this recital ('and/or') that the Member States could have based the choice of a special payment system either on the need for a payment 18. The Spanish Government maintains system other than that for increasing the that the distribution of the additional premiums or on the need for distribution payments was in conformity with the rules. before 15 October 1996. In Spain the latter Spain had opted for a payment system ground had been decisive. pursuant to Article 5 of Regulation No 1357/96 (hereinafter 'special payment system'). A special payment system of this kind did not need to include means of recovering payments pursuant to Article 2 of Regulation No 1357/96. They were necessary only where the payment system defined in Articles 1 to 4 of Regulation No 1357/96 (hereinafter 'general payment system') was used. 21. As regards the form which a special payment system should take, Article 5 of Regulation No 1357/96 required in par- ticular that the additional payments be granted 'according to objective criteria', provided that the compensation was not- 19. It followed from the fifth recital of higher than the loss of income to the Regulation No 1357/96 that the Member producer.

2 3 . N o r was the compensation paid to the individual producers and holders higher 25. The Commission takes the view that than the losses incurred: although the the distribution by the Kingdom of Spain of payment system for which the Ministerial the r e s o u r c e s for w h i c h R e g u l a t i o n Order provided was such that it was poss- N o 1357/96 provides was not in conform- ible for producers or holders whose herds ity with the rules. of relevant animals were smaller in 1996 than in 1995 to obtain additional payments for more animals than their herds com- prised, the additional payments amounted to only 2 . 9 % of the market price, which in Spain had fallen by more than 3 2 % from February 1995 until June 1996. As the 26. The distribution of the resources in average herd of relevant animals in Spain accordance with the Ministerial Order had when the additional payments were made been effected in the form of payments in comprised 15 animals and as the loss per addition to the premiums provided for in animal was many times the amount granted Regulation N o 805/68 and at precisely the as additional payments, the compensation level required by Article 1 of Regulation paid to the individuals affected had not, as N o 1357/96. The Kingdom of Spain had a general rule, been higher than the loss thus indicated that it had made additional incurred. payments under the general payment sys- tem. The Spanish authorities had stated precisely this in their communication to the Commission pursuant to Article 1 of Regu- lation N o 1504/96.

concerning recovery set out in Article 2 of 1995 had been available before Regulation Regulation N o 1357/96. No 1357/96 entered into force, and repay- ments due to the fact that herds were smaller in 1996 than in 1995 could not have delayed the granting of the additional payments in the relevant period, since the repayments could in any case have been required only after appropriate data had been presented, i.e. in 1997. 28. However, even if the payment system defined in the Ministerial Order had been a special payment system as provided for in Article 5 of Regulation N o 1357/96, it had not complied with the prescriptions of the regulation in this respect. Neither the requirements for the use of such a system had been satisfied, nor had the payment system for which the Ministerial Order provided met the substantive requirements for a special payment system. 31. However, even if it had been possible for the Kingdom of Spain to opt for a special payment system, the payment sys- tem provided for in the Ministerial Order would not substantively have satisfied the criteria of Regulation No 1357/96.

29. With regard to the various require- ments, the Commission argues that the Member States were not free to decide under Regulation No 1357/96 whether to distribute the resources under the general payment system or under a special payment system.

32. It followed from the fifth recital of that regulation, after all, that a special payment system must in any event provide for a form of payment that differed from the 30. Although the use of a special payment general payment system. It might not, for system could in principle be justified under example, provide for payments in the form Article 5 of Regulation N o 1357/96 by the of additions to the premiums granted under need to ensure payment by 15 October Regulation No 805/68. Provisions concern- 1 9 9 6 , the Spanish G o v e r n m e n t had ing recovery could, moreover, be omitted referred only to particular urgency, for from a special payment system only if it which it had, however, been unable to made no reference whatever to the size of provide any evidence. The required data on herds of eligible animals pursuant to Regu- the size of herds of relevant animals in lation N o 805/68 in 1995; a payment

SPAIN v COMMISSION

(b) The use of a special payment system the conditions under which Member States may use a special payment system.

38. The payment system for which the Ministerial Order provides is therefore, at best, a special payment system within the 42. More detailed information is to be meaning of Article 5 of Regulation found only in the fifth recital: Member No 1357/96. States may use a special payment system if 'the structure of production makes a system of payment other than by means of the said increase in premiums more appropriate and/or where the need to complete all payments by 15 October makes this necess- ary'. 39. The parties disagree as to the con- ditions under which Member States might have provided for a special system for the distribution of resources pursuant to Regu- lation No 1357/96 and as to the substance of this system. 43. As the special payment system provided for in the Ministerial Order takes the form of an increase in the premiums pursuant to Regulation No 805/68, the first require- ment at least has no bearing. The parties therefore disagree as to whether the fifth 40. Only if the requirements for a special recital should be taken to mean that a payment system are satisfied should it be special payment system can be justified considered whether the payment system for solely by the need to complete the pay- which the Ministerial Order provides sat- ments pursuant to Regulation No 1357/96 isfies the substantive requirements of a within a relatively short period, namely special payment system pursuant to from 15 July until 15 October 1996 at the Article 5 of the regulation. The require- latest. ments should therefore be examined first.

46. On this it must first be said that the fifth recital undoubtedly cannot be taken to mean that the requirement set out in the second sentence of Article 7 of Regulation N o 1357/96 (completion of payments by 15 October 1996) is in itself intended to 48. In the present case the Commission has enable the application of the derogation for given 'system not in conformity with the which Article 5 of Regulation N o 1357/96 rules' as the reason for the contested provides, since all the Member States were adjustment. It believes, in other words, subject to this time-limit. It would not that the Kingdom of Spain should have make any sense for the observance of a explained and, if appropriate, proved that deadline applicable to all Member States to it was entitled to use a special payment system. In the present case the Spanish

9 — Case C-298/94 Henke [1996] ECR I-4989, paragraph 15, and Case C-236/97 Codan [1998] ECR I-8679, 10 — See in this context, for example, Case 49/83 Luxembourg v paragraph 26. Commission [1984] ECR 2931, paragraph 30.

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Government should thus have demon­ B — Second plea in law: failure to observe strated why the use of a special payment the exclusion period for expenditure system was necessary in Spain to ensure effected more than 24 months before the that the resources for which Regulation communication of the results of the No 1357/96 provided were distributed enquiries within the prescribed period. Instead, the Spanish Government confined itself to stat­ ing that, as the deadline left only a short period for distribution, particular urgency existed. It did not, on the other hand, explain why distribution could not have been effected in Spain within the prescribed 1. Arguments of the parties period using the general payment system.

53. In response to the Commission's argu- 2000. However, the wording of the provi- ment that the adjustment was related to the sion on the exclusion period cited by the fact that the Spanish authorities had not Spanish Government (Article 4(4), fifth required the repayment of what the Com- s u b p a r a g r a p h , (a), of R e g u l a t i o n mission deemed to have been excess addi- No 1258/1999) is the same as that of tional payments in the 1997 financial year, Article 5(2)(c), fifth subparagraph, first the Spanish Government maintains that the sentence, of the version of Regulation adjustment was related explicitly to expen- No 729/70 applicable at the time in ques- diture under budget heading B01-2133 in tion. The second plea in law should there- the 1996 financial year and not to the fore be examined on the basis of the latter amounts which were not recovered in the provision. 1997 financial year. This budget heading had no longer existed in the 1997 financial year.

SPAIN v COMMISSION

exclusion period, the distribution of the whether or not it was effected within the additional payments or — as the Commis- exclusion period defined in Article 5(2)(c), sion believes — the failure to require the fifth subparagraph, first sentence, of Regu- necessary repayments of resources dis- lation No 729/70 was not clearly recognis- tributed in cases where herds of relevant able. This would be the case, however, if animals were smaller in 1996 than in 1995. the Commission's view was endorsed, In the former case all expenditure would because it would not be possible to deter- have been effected before the exclusion mine with sufficient accuracy when repay- period; in the latter case it might still have ments should have been required. been effected within that period.

58. In my opinion the Commission's pos- 61. 'Expenditure' within the meaning of ition in this respect cannot be endorsed. Article 5(2)(c), fifth subparagraph, first- sentence, of Regulation No 729/70 can therefore mean only the effective distribu- tion of the resources of a Community scheme to assist agriculture.

59. As is evident from the sixth recital of Regulation No 1287/95, which inserted Article 5(2)(c), fifth subparagraph, first sentence, into Regulation No 729/70, the exclusion period is meant to determine 'the maximum period to which the con- (b) Determining the beginning of the exclu- sequences to be drawn from the [Commis- sion period pursuant to Article 5(2)(c), fifth sion's] checks on conformity may be subparagraph, first sentence, of Regulation applied'. No 729/70

64. Article 1 of the implementing regu- lation required the Member States to pro- vide information on the payment systems which they used to distribute the resources for which Regulation N o 1357/96 pro- vided. That information was to have been forwarded by 31 July 1997 where the general payment was used (Article 1(a) of 66. This gives rise to the fundamental the implementing regulation) and 'without question whether the beginning of the delay', but similarly no later than 31 July exclusion period could be irrefutably cal- 1997, where a special payment system was culated from the date of the communi- used (Article 1(b) of the implementing cation of the findings of the enquiries even regulation). In the present case, however, if that date could be influenced by the the information on the payment system Member State concerned. used in Spain was forwarded to the Com- mission (if at all 13) no earlier than 8 June 1998, the date of the Spanish authorities' fax, and so at least 10 months late.

69. Furthermore, in principle at least, it would be possible in the present case, unlike the case cited, to calculate — unequivocally — the beginning of the exclusion period from another date, 16 71. I believe that such a departure should not in principle be impossible if the decisive 15 — The legal situation also differs in this respect from that on date for the communication of the findings which the Opinion of Mr Advocate General Tizzano in the of the enquiries would be delayed by the case of Luxembourg v Commission (cited in footnote 12) is based. In point 45 of that Opinion the Advocate General Member State's failure to fulfil a particular objects to the acceptance of the delays in the communi- obligation to cooperate under Community cation of the findings of the enquiries due to the generally inadequate cooperation of the Member States as an law and and would thus be to the advan- argument against the Member States having confidence in the exclusion period of 24 months. tage of the Member State infringing Com- 16 — The calculation of the exclusion period might begin from a munity law. However, this should apply fictional date for the communication of the findings of the enquiries arrived at mathematically as follows: provided only if it can be shown that the failure to that the Member State had forwarded the information on the payment system used within the prescribed period, the fulfil such a particular obligation to coop- Commission would have bad the necessary information by erate has prevented the Commission from 31 July 1997 at the latest. Calculated from the actual receipt of the information in the present case (no earlier than 8 June 1998), it took the Commission 10 months to communicate the findings of the enquiries. If the Commis- sion's actual processing time in cacti case was calculated 17 — Here too lies the basic difference from the situation in the from the legally latest possible deadline tor the communi- case of Spain v Commission (cited in footnote 12). In that cation of the information by the Member States (i.e. 31 July case the beginning of the exclusion period was to be 1997), the exclusion period in the present case should be determined from tue date on which the Member State calculated back from 31 May 1998. This would mean, concerned had learnt that expenditure did not conform to however, that all expenditure effected i nSpain from 15 July Community law. It is virtually impossible to determine this until 15 October 1996 under Regulation No 1357/96 date, however; see also the Opinion of Mr Advocate would have come within the 24-month period in question General Jacobs in the case of Spain v Commission and would therefore have been open to adjustment. (judgment cited in footnote 12), point 95.

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VI — Conclusion

77. In view of the above considerations it is proposed that the Court should rule as follows:

(1) Commission Decision 2001/557/EC of 11 July 2001 excluding from Community financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) is annulled in so far as that decision provides for an adjustment of ESP 185 046 088.00 in respect of the expenditure incurred by Spain in 1996 on the basis of Regulation (EC) No 1357/96.

(2) The Commission of the European Communities is ordered to pay the costs of the procedure.