Federal Republic of Germany v Commission of the European Communities. [1989] EUECJ C-333/87 (16 November 1989)

Judgment 1 By application lodged at the Court Registry on 26 October 1987, the Federal Republic of Germany brought an action under the first paragraph of Article 173 of the EEC Treaty for a declaration that Commission Decisions 87/468 and 87/469 of 18 August 1987 on the clearance of the accounts presented by the Federal Republic of Germany in respect of the European Agricultural Guidance and Guarantee Fund, Guarantee Section, expenditure for 1984 and 1985 ( Official Journal 1987, L 262, pp . 23 and 35 ) are void in so far as they did not recognize as chargeable to the Community amounts of DM 1 215 824.98 and DM 1 094 472.94 respectively which were paid in respect of the two financial years to farmers by way of special aid for skimmed milk under Commission Regulation No 2793/77 of 15 December 1977 ( Official Journal 1977, L 321, p . 30 ). 2 Regulation No 804/68 of the Council of 27 June 1968 ( Official Journal, English Special Edition 1968 ( I ), p . 176 ) establishing a common organization of the market in milk and milk products provided, in Article 10, for aid for skimmed milk and skimmed-milk powder for use as feedingstuffs . On the basis of those provisions, Regulation No 986/68 of the Council of 15 July 1968 laying down general rules for granting aid for skimmed milk and skimmed-milk powder for use as feed ( Official Journal, English Special Edition 1968 ( I ), p . 260 ) and Regulation No 1105/68 of the Commission of 27 July 1968 on detailed rules for granting such aid ( Official Journal, English Special Edition 1968 ( II ), p . 379 ) were adopted . 3 In order to encourage the disposal of stocks of milk products and having regard to the fact that skimmed milk is usually used as feed for young calves, the Council provided in Regulation No 876/77 of 26 April 1977 ( Official Journal 1977, L 106, p . 24 ), which added a paragraph 4 to Article 2a of Regulation No 986/68, for special aid of a higher amount for skimmed milk used, subject to certain conditions, for feeding animals other than young calves . 4 Commission Regulation No 1089/77 of 25 May 1977 ( Official Journal 1977, L 131, p . 34 ) introduced that aid and laid down detailed rules for its application . That regulation was repealed and replaced by Regulation No 2793/77 of 15 December 1977, as amended on several occasions, on which the dispute between the Federal Republic of Germany and the Commission is based . 5 By the two contested decisions, the Commission refused to recognize as chargeable aid paid by the competent authorities in the Federal Republic of Germany pursuant to Regulation No 2793/77 to producers of farm butter in the Land of Baden-Wuerttemberg who use skimmed milk produced on their farms for feeding their livestock, that is to say young calves and other animals . The Commission considers that the aid in question was granted contrary to the provisions of Regulation No 2793/77 and that therefore financing should be refused pursuant to Articles 3(1 ) and 4(2 ) of Regulation No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy ( Official Journal, English Special Edition 1970 ( I ), p . 218 ). 6 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the course of the procedure and the arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court . 7 Under the combined provisions of Articles 2(1 ) and 2a(4 ) of Regulation No 986/68, as amended in particular by Council Regulations Nos 876/77 and 2624/77, Regulation No 2793/77 draws a distinction, as regards the methods for granting the special aid, between the case where milk processed in a dairy is sold to farms ( Article 2(1)(a ) of Regulation No 986/68, as amended ) and the case where skimmed milk is used as feed on the farm where it was produced ( Article 2(1)(b ) of that regulation ). 8 The rules governing the case where farms purchase dairy-processed milk are laid down essentially in Articles 3 and 4 of Regulation No 2793/77 . It is stipulated therein that the special aid, which is paid to the dairy, is to be granted only in respect of quantities covered by an undertaking on the part of the farmer and provided that a maximum selling price is respected . 9 Article 4(1)(a ) requires farmers generally to undertake to use the skimmed milk exclusively as animal feed and only on their farms . 10 The other undertakings to be given vary depending on whether the farm is a "specialized" farm, a "mixed" farm or a "mixed" farm keeping only calves from its own dairy cows . Basically, according to Article 2 of Regulation No 2793/77 a "specialized" farm is a farm keeping pigs or other animals except young calves and a "mixed" farm keeps both young calves and other animals . 11 In the case of a specialized farm, Article 4(1)(b ) provides that the farmer has to give an undertaking, on the one hand, not to keep young calves or, if he does, to take delivery only of denatured skimmed milk and, on the other, to forward to the dairy, at the option of the Member State concerned, either a statement of the size of his herd before the beginning of each calendar quarter or, before the beginning of each calendar year, a statement of the average herd size to be kept on the farm during each quarter of the year in question, and to declare at once any difference of more than 10% from the figures given for the quarter in question . 12 In the case of a mixed farm, Article 4(1)(c ) provides that the farmer must undertake : first, to forward to the dairy, together with the undertaking referred to in Article 4(1)(a ), a statement of the size of his herd at the time of application for delivery; secondly, to declare to the dairy, before the beginning of each quarter, the maximum number of young calves which will be kept on the farm during the quarter in question, the farmer being free to choose to make this declaration before the beginning of each month; and, thirdly, to take delivery, for each calf so declared, of a minimum quantity of skimmed milk not qualifying for special aid . 13 In the case of mixed farms keeping only calves from their own dairy cows, Member States may decide, under Article 4(2 ), to replace the undertakings listed above for mixed farms by the following three undertakings on the part of the farmer : an undertaking not to keep calves other than those from his own dairy cows; an undertaking to forward to the dairy, at the option of the Member State concerned, either a statement of the size of his herd before the beginning of each calendar quarter or, before the beginning of each calendar year, a statement of the average herd size to be kept on the farm during each quarter of the year in question, as in the case of specialized farms, and to declare at once as appropriate any difference of more than 10% from the figures given for the quarter in question; and lastly an undertaking to take delivery each month of a quantity of skimmed milk not qualifying for special aid equal to at least 15% of the quantity of milk delivered to the dairy during the month in question . 14 Lastly, paragraph 3, which was added to Article 4 by Commission Regulation No 188/83 of 26 January 1983 ( Official Journal 1983, L 25, p . 14 ), provides as follows : "Where a statement made to a dairy of the size of a herd or the maximum number of calves is not forwarded on time but not more than 10 days late, the amount of aid shall be reduced by 10% for the period concerned ". 15 The rules governing the case where farmers use milk produced on their farms directly as feed, referred to in Article 2(1)(b ) of Regulation No 986/68, are laid down in Article 6 of Regulation No 2793/77 . The farmers concerned must, on the one hand, forward to the competent agency in their Member State "an application including a statement of the size of their herd at the beginning of each month in question" and an undertaking immediately to notify any change in this information which might involve a change in the rate of aid and, on the other hand, comply with the undertakings provided for in Article 4(1 ) as regards farmers using dairy-treated milk, which are to apply "by analogy ". 16 However, according to Article 6(2 ), in the case covered by Article 4(2 ) of mixed farms keeping only calves from their own dairy cows, the quantity of skimmed milk not qualifying for aid is to be calculated on the basis of the quantity of butter or cream sold, in accordance with the provisions of Articles 8 and 8a of Regulation No 1105/68, cited above . 17 The Commission bases its refusal, in the two contested decisions, to accept as chargeable to the European Agricultural Guidance and Guarantee Fund amounts paid by way of aid to producers of farm butter running mixed farms in the Land of Baden-Wuerttemberg, on the claim that, contrary to the requirements of Regulation No 2793/77, the farmers in question, following an administrative practice of that Land, did not forward the statement of the size of their herd "at the beginning of each month in question" as required by Article 6(1)(a ) of Regulation No 2793/77, but quarterly, at the end of each aid period, and, in addition, did not declare "before the beginning of each quarter", but only at the end of the quarter, the maximum number of young calves to be kept on the farm, which has to be declared under the second indent of Article 4(1)(c ), to which Article 6(1)(b ) refers . 18 According to the Federal Republic of Germany, a distinction has to be drawn between the statement of herd size and the declaration of the number of young calves which will be kept on the farm during the period in question . 19 As far as the statement of herd size is concerned, this does not have to be forwarded until the application for aid is submitted at the end of the period; moreover, Article 2(1)(b ) of Regulation No 986/68 refers to milk "which has been used" as feed on the farms where it was produced . The German Government argues that the second indent of Article 6(1)(a ) provides for an undertaking immediately to notify any change in the size of the herd because the statement refers expressly to the beginning of the period; the statement forwarded in practice to the German authorities is a corrected statement . If the reference made by Article 6(1)(b ) of Regulation No 2793/77 to the rules of Article 4(1 ) of that regulation might suggest that that information must be given before the beginning of the aid period, those rules make sense in reality only for dairies, which can be granted aid as soon as they make the corresponding deliveries of milk . 20 As regards the declaration of the maximum number of young calves, the obligation to effect that declaration before the beginning of the period of aid is clear in the case of dairies, but has no point in the case of farmers . Consequently, the application "by analogy" of the provisions of Article 4 should cause the administrative practice followed in the Federal Republic of Germany to be recognized as valid . 21 Lastly, the Federal Republic of Germany maintains that the practice in question affords every guarantee against any wrongful use of milk benefiting from special aid in view, first, of the mandatory information provided under Articles 8 and 8a of Regulation No 1105/68 and, secondly, of the checks carried out pursuant to the German rules . 22 As the Court has already held ( judgments of 28 June 1984 in Joined Cases 187 and 190/83 Nordbutter GmbH & Co . KG and Bayerische Milchversorgungs GmbH v Germany (( 1984 )) ECR 2553 and of 8 October 1986 in Case 9/85 Nordbutter GmbH & Co . KG v Germany (( 1986 )) ECR 2831 ), the dual nature of the aid system existing since 1977 lays it open to the risk of abuse . Since there is no mechanism capable of ensuring that skimmed milk benefiting from special aid is not used for feed for young calves, in particular in the case of mixed farms, Regulation No 2793/77 was designed in particular - as can be seen from the second recital in its preamble - to strengthen existing supervisory mechanisms . Moreover, the desire to ensure that milk benefiting from special aid is used for the purpose intended is clear specifically as regards mixed farms from the fourth recital in the preamble to the regulation . 23 It is in the light of that objective that the nature and extent of the obligations imposed on farms covered by Article 2(1)(b ) of Regulation No 986/68 must be assessed . 24 As far as farmers obtaining their skimmed milk from a dairy are concerned, Article 4(1)(c ) of Regulation No 2793/77 provides that, in the case of a mixed farm, the farmer must undertake to declare to the dairy, before the beginning of each quarter, the maximum number of young calves which will be kept on the farm during the quarter in question . Under the same provisions, the farmer may replace this undertaking by an undertaking to make such a declaration before the beginning of each month for the month in question . 25 The Court held in the judgment of 8 October 1986 in Nordbutter GmbH & Co . KG, cited above, that the purpose of that declaration was to determine "the highest number of calves kept on the farm in question at any moment during the quarter" and that "that is the only interpretation which makes it possible for the competent bodies to determine in a relatively easy way whether farmers have abided by their undertakings" ( paragraph 10 ). 26 Those observations concerning the application of the aforementioned provisions of Article 4(1)(c ) of Regulation No 2793/77, dealing with cases where the skimmed milk is produced and processed in a dairy, are also valid where farms use milk produced themselves, since the provisions in question are applicable, by virtue of Article 6(1)(b ) of that regulation, by analogy to special aid to skimmed milk used for feed in the farms where it was produced . 27 Accordingly, the number of calves referred to in Article 4(1)(c ) of Regulation No 2793/77 is an overall figure intended to determine the quantity of skimmed milk not benefiting from special aid . Apart from the combined provisions of Article 4(1)(c ) and Article 6(1)(b ) of the regulation, to which reference has just been made, it is necessary in view of the aforementioned requirements of supervision that this number is provided before the beginning of the aid period . Otherwise, it would be easy to underestimate the declaration made at the end of the period where, for some reason, checks had not been carried out on the farm . 28 As regards the statement of herd size laid down in the first indent of Article 6(1)(a ) of Regulation No 2793/77, since the authors of the regulation considered that, in order to check the correctness of farmers' declarations, it was desirable to have a statement of the size of the herd at the beginning of each month in question, the application for special aid containing this information must necessarily be submitted before the beginning of the period to which the aid relates . Otherwise, the requirement set out in the second indent of Article 6(1)(a ) of the regulation, to the effect that any changes in this information which might involve a change in the rate of aid must be notified immediately, would not be justified and it would be very much more difficult for the competent authorities to carry out effective supervision, combined with and supplementing the supervision carried out on the basis of the declaration of the maximum number of young calves . 29 Lastly, the Federal Republic of Germany invokes Articles 8 and 8a of Regulation No 1105/68; those articles are designed to specify the conditions to be fulfilled by farmers using skimmed milk of their own production as feed for their animals and selling butter or cream, also of their own production, in order to be eligible for aid for skimmed milk, and to lay down the quantity of skimmed milk corresponding to each kilogram of butter or cream sold . Those provisions cannot be used to calculate the quantity of milk eligible for special aid or to ensure sufficient supervision of the aid due . 30 It follows from the foregoing that, by not requiring the farmers concerned to forward the statement of herd size and declare the maximum number of calves before the beginning of the period covered by the aid, the competent authorities in the Federal Republic of Germany infringed the provisions of Regulation No 2793/77 and that, as a result, the expenditure in question was incurred without complying with the provisions of Community law . The Commission was therefore entitled, under Articles 3(1 ) and 4(2 ) of Regulation No 729/70 of the Council of 21 April 1970, to refuse to recognize the expenditure as chargeable to the European Guidance and Guarantee Fund, Guarantee Section, and therefore the action must be dismissed . Costs Under Article 69(2 ) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs . Since the applicant has failed in its submissions, it must be ordered to pay the costs . On those grounds, THE COURT hereby : ( 1 ) Dismisses the application; ( 2 ) Orders the Federal Republic of Germany to pay the costs . © European Communities, 2001 All rights reserved BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII