OPINION OF MR ADVOCATE GENERAL
MANCINI
delivered on 18 June 1985 ( *1 )
Mr President,
Members of the Court,
1.
It is well known that within the common organizations of the agricultural markets Community goods may be exported and imported only on presentation of licences, which are issued by the competent national authorities subject to the lodging of a security by the trader. The main purpose of that security is to ensure that the obligation to import or export the product during the period of validity of the licence is in fact complied with. In addition, the system allows the Community authorities to monitor permanently trade with nonmember countries in order to be able to assess its evolution and to take any measures which may become necessary.
The sugar market is no exception; indeed because the production of sugar is, for reasons essentially connected with the weather, subject to frequent variations, the Community authorities exercise a particularly strict control in that market. Their principal objective is to ensure a regular supply of sugar at reasonable prices for the consumer and, at the same time, to prevent speculation when the price varies appreciably on the different markets. As part of that policy, potential surpluses of sugar on the common market are avoided by promoting its export to nonmember countries through the granting of refunds which cover the difference between the price prevailing on the Community market and the normally lower price prevailing on the world market.
The basic rules for the organization of the sugar market are contained in Council Regulation (EEC) No 1785/81 of 30 June 1981, while the procedural rules and the rules for determining the refunds are set out in Commission Regulation (EEC) No 1880/83 of 8 July 1983. In general terms, the system is based on periodical invitations to tender issued by the Commission. It is not necessary to describe the system in detail. It is sufficient to state that the tendering procedure is essentially divided into three stages:
(a)
In the first stage the trader submits an offer to the competent national agency. The application indicates the quantity of sugar which the tenderer wishes to export and the refund which he is prepared to accept on the basis of existing and anticipated prices on the world market. Pursuant to Article 6 (1) of Regulation No 1880/83, when the trader makes his offer he must lodge a security of 9 ECU per 100 kg of sugar to be exported and, in accordance with Article 5 (3) (c) of that regulation, he must declare that if his offer is accepted he will apply for an export licence within a specified period.
(b)
The second stage begins once the operator has been informed that his offer has been accepted. He is then obliged to apply for an export licence within four days. If he fails to apply in time, the entire security is automatically forfeited, except in cases of force majeure. Where there are several offers, the amount of the security which is forfeited corresponds to the quantities of sugar in respect of which the obligation to apply for a licence has not been fulfilled within the prescribed period.
(c)
If the export licence is duly applied for, the third stage begins and the security which was lodged is retained as a guarantee that the export will be effected. The export must be carried out not later than the fifth month following the date of acceptance of the offer. Where the export has not taken place within that period the security is forfeited, unless, again, the trader establishes the existence of force majeure. In addition, the security may be increased if prices on the world market fluctuate beyond certain levels.
2.
On 27 July 1983 E. D. & F. Man (Sugar) Ltd (hereinafter referred to as ‘Man Sugar’), a large British firm of sugar traders, sent by telex to the Intervention Board for Agricultural Produce (hereinafter referred to as ‘the Board’) seven tenders for export and, at the same time, lodged the requisite security of 9 ECU per 100 kg in the form of a bank guarantee. The following day the Board informed Man Sugar that five tenders had been accepted for a total of 30000 tonnes of sugar for export. The applications for the relevant licences should therefore have reached the Board not later than 12 noon on Tuesday, 2 August 1983. In fact the Board received the applications after 3 p.m. on that day: a delay of a few hours, which, as Man Sugar explained to the Court, was due ‘to an unusual and unforeseeable combination of circumstances’. The telexes containing the applications had been prepared in time by the staff of the undertaking, but, that Tuesday, the employee who had always been responsible for sending telexes did not come to work for serious and well-founded personal reasons. The person assigned to replace her, already handicapped by lack of experience in those duties, was faced with even greater difficulties because he was unexpectedly overburdened with work just at the time when the telexes should have been sent. The stress caused by such circumstances and the extreme heat proved too much for the otherwise conscientious employee and he did not send the telexes until the early afternoon.
On 3 August 1983 the Board informed Man Sugar that the licence applications had been submitted late and that the security of UKL 1670370 — equal to the firm's profits for almost three years! — would be forfeited. It was indeed forfeited shortly afterwards.
Man Sugar brought an action against that decision in the Queen's Bench Division of the High Court, contending that the forfeiture of the security was grossly unfair and that the rules providing for such forfeiture were contrary to the principle of proportionality. Mr Justice Glidewell, before whom the case was heard, decided to stay the proceedings and to seek a preliminary ruling on the following question: ‘Whether Article 6 (3) of Commission Regulation (EEC) No 1880/83 is invalid for breach of the principle of proportionality in that it purports to require, except in the event of force majeure, the forfeiture of the entire security in every case where, as a result of an unintentional failure on the part of the applicant, an application for an export licence is not received by the competent intervention agency within the period laid down by the legislation’.
In the procedure before the Court of Justice, Man Sugar, the United Kingdom and the Commission of the European Communities have submitted observations.
3.
Conceding that the circumstances which resulted in the licence applications being submitted late do not amount to force majeure, Man Sugar puts forward two arguments to establish the invalidity of the provision. The first relates to the nature of the obligation to apply for an export licence. According to Man Sugar, that obligation represents an administrative formality of little importance. The penalty prescribed for failure to comply with it cannot therefore be equal to the penalty — forfeiture of the entire security — which is imposed for breach of the obligation to export the goods.
It is that obligation and only that obligation which constitutes the justification for the system of export licences. That is proved by the history of the development of that system. In the early stages of the common agricultural policy the sum to be deposited as security to ensure compliance with the obligation to apply for a licence was one unit of account per hundred kilograms of sugar. After the tenders had been accepted, however, that security was immediately replaced by a new security of four units of account, whose purpose was to ensure that the sugar was actually exported within the period of validity of the licence. Thus, if the price of sugar on the world market fell by more than one unit of account during the week preceding the application for a licence or more than four units of account in the period within which the export should have Deen effected, the exporter could contain his losses either by not applying for the licence in the week following the tender, or, if he had already applied for the licence, by not making use of it. In both cases, the loss was limited to the security.
By Regulation No 3274/80 (which was later replaced by Regulation No 1880/83), the Commission sought to simplify that procedure in two ways. First, it established that the obligation to export arises as soon as the tender is accepted. Secondly, it raised the amount of the security to be lodged on submission of the tender to 9 ECU per hundred kg, subject to the possibility of increasing it if, during the period of validity of the licence, the price on the world market fell by more than 9 ECU. Those reforms were intended to make the tenderer fully responsible for the exportation as soon as his tender had been accepted. As Man Sugar points out, the result achieved by such reforms was undeniably positive; indeed until the present case not a single security had been forfeited.
Man Sugar states further that, since under the new rules the obligation to export or to lodge the entire security arises as soon as the tender is accepted and is not altered by the subsequent application for a licence, the importance of that application is greatly reduced. The reason is clear. In the first place, the application does not serve to ensure that the obligation to export is complied with, since that obligation is guaranteed by the security, which, according to Article 6, must be lodged when the tender is submitted and is not released until after exportation. In addition, the application does not help to prevent speculation by the traders concerned, since the successful tenderer who does not export the goods loses the security and must, in certain cases, pay an additional amount. Finally, the obligation to apply for an export licence adds nothing of importance to the information which is in the Commission's possession at the time of the tender. The application confirms the exporter's name, the obligation to export and the obligation to lodge a security, but it contains only one piece of information which was not provided with the tender: the tenderer states whether he wishes the monetary compensatory amounts to be fixed at the rate prevailing on the date of the application for a licence (in which case the country to which he is exporting must be indicated) or whether he prefers the rate prevailing in the exporting country on the date of exportation. However, that decision is purely commercial and has no effect on the quantity of sugar which will be exported. It is therefore of no importance for the purpose of monitoring the market.
Thus Man Sugar's first argument consists in portraying the obligation to apply for an export licence as little more than a superfluous anachronism. In introducing its second argument, the undertaking concedes, however, that there is still some justification for it. The forfeiture of the entire security for failure to fulfil the obligation to apply for a licence is nevertheless, in its view, incompatible with the principle of proportionality.
In the first place, that forfeiture is not intended to make good any loss suffered by the Community or by the national authority; it is in the nature of a penalty, pure and simple, and moreover an allpurpose one. According to Article 6, it is exacted both for failure to fulfil the principal obligation (to export surplus sugar from the Common Market) and for breach of the ancillary obligation (to apply for the licence). As the Court held in its judgment of 20 February 1979 in Case 122/78 (Buitoni v FORMA, [1979] ECR 677), the principle of proportionality prohibits such a situation. In addition, the penalty is excessive in relation to what must undoubtedly be regarded as a minor infringement; as everyone knows, a Community regulation must make it possible to adapt the penalty to the seriousness of the infringement for which it is imposed (see judgment of 21 June 1979, Case 240/78, Atalanta v Produktschap voor Vee en Vlees, [1979] ECR 2137).
Moreover, the Commission has itself recognized that state of affairs. In July 1984 it proposed that Regulation No 1880/83 should be amended by limiting the amount of the initial security forfeited to 3 ECU per hundred kg in the case of failure to apply for a licence within the prescribed period. That proposal was abandoned following Mr Justice Glidewell's decision to refer the matter to the Court for a preliminary ruling. However, that proves that the obligation to apply for a licence can be satisfactorily guaranteed by less severe penalties, in particular when, as is the present case, the failure to fulfil the obligation was not intentional and the delay in submitting the application was minimal.
4.
The Commission rejects those arguments. It claims in the first place that far from being a mere formality designed to furnish proof that the tenderer intends to fulfil his commitments, the obligation to apply for a licence performs a role of great importance in the present system. The previous system proved to be incapable of guaranteeing the proper management of the export market in sugar. For example, numerous licences, corresponding to considerable quantities of sugar, remained unused towards the end of 1980, which led to losses in export levies and compelled the Community to export the sugar at a higher cost. Indeed, it was to avoid those or similar problems that the new system divided the exporter's obligation into two complementary stages: the licence application and the exportation proper. The first stage is no less important than the second. If, after acceptance of the tender, the trader does not apply for a licence the Commission is immediately aware that the quantity of sugar covered by the tender will not be exported and it is in a position to prevent the damage which would result by taking appropriate administrative and financial measures.
For the same reasons, the Commission argues, it is impossible to distinguish between cases in which the failure to apply for the certificate is deliberate and those in which that failure is due to an error or negligence on the part of the trader. Admittedly, that impossibility may give rise to unfortunate situations. Until the case of Man Sugar, however, no such incident had occurred and a single case, however disturbing, cannot justify invalidating a system which has eliminated abuses of a much more serious nature.
The United Kingdom accepts that the new system has proved itself and has made possible the proper and efficient management of the sugar market. The United Kingdom considers, however, that precisely because its rules are more effective, the extremely short period within which successful tenderers must apply for a licence no longer serves a useful purpose. The increased size of the security and the
strict requirements imposed for its release mean that there can no longer be any doubts about a trader's desire to export the goods in respect of which his tender has been accepted. In those circumstances, to allow him only four days in which to submit the application and to confiscate his security if he fails to comply with that time-limit, perhaps by error or unintentionally, is both pointless and unjust.
Moreover, the United Kingdom considers that it would be entirely possible to ensure that the goods are in fact exported, which is the principal objective of the new rules, by imposing suitable penalties. For example, the problem would be resolved by abolishing the licence application stage altogether. Instead the trader's initial tender could be regarded as a conditional application for an export licence, which would be issued on acceptance of the tender. In that way the security would serve to guarantee only the obligation to export and would be forfeited only where that obligation was not fulfilled. Further rules would then be required for the purpose of fixing the monetary compensatory amounts.
However, there is another possible solution, which would preserve the obligation to apply for the licence whilst taking into account its secondary nature and removing the problems illustrated by the Man Sugar case. Where the trader fails to comply with the time-limit through minor negligence only part of the security need be forfeited. At the same time the national agency would inform the trader that if he does not submit the licence application within a further short period he will also lose the rest of the amount. Such a system would have the advantage of conforming to the practice adopted in various sectors of the common agricultural policy.
5.
At this point it should be noted that Mr Justice Glidewell questions the validity of Article 6 of Regulation No 1880/83 on one specific ground, namely the possible conflict between the penalty imposed for failure to comply with the time-limit for submitting the licence application and the principle of proportionality. Man Sugar and the United Kingdom have, however, taken the opportunity to criticize the present system of issuing export licences and argue that under that system the obligation to apply for a licence no longer has any raison d'être.
I do not share that view. As the Commission has pointed out, the purpose of that system is to ensure that sugar exports from the Community to nonmember countries develop throughout the year in a regular and controlled manner. In other words, the system is intended to avoid the pernicious economic and commercial effects which would result if all the sugar were exported in the period immediately following production. For the proper management of the sector and in the interests of the consumers in the Community it is therefore essential that the Commission knows immediately how much sugar is available for the internal market and how much can be set aside for export. Finally, the Commission must always be in a position to assess prices and the possibilities for releasing the sugar on the world market.
In the light of those requirements, the value of the contested system is quite clear. If
there were no such system, in order to discover how much sugar will not be exported the Commission would have to wait until the expiry of the time-limit for carrying out the exportation, namely the fifth month following acceptance of the tender. The costs of that delay would be borne both by the consumers and the traders, who can only benefit from proper management of the market. It is no accident, moreover, that, as was pointed out by the three parties who submitted observations, until now traders have always complied with Article 6.
However, that does not mean that there are no grounds for challenging the regulation. What is not acceptable in that measure is the way in which it punishes with equal severity those who, although they are in possession of the requisite licence, do not fulfil the obligation to export, and those who, although they intend to export the goods in respect of which the tenders have been accepted, fail, perhaps only by a few hours and through minor negligence, to comply with the time-limit for submitting the licence application. The ‘multipurpose’ nature of the penalty and the inability of the legislature to distinguish between failure to comply with an administrative time-limit and failure to fulfil the obligation which is the fundamental object of the entire procedure are frankly unacceptable even in the light of the control requirements which justify the licence system.
The Commission claims that it is impossible to distinguish between cases in which the failure to apply for a licence is deliberate and those in which the failure results from mere negligence. The second solution proposed by the United Kingdom shows that the Commission's pessimism is not justified. It is indeed possible to imagine a system imposing a graduated scale of penalties — such as the progressive loss of (and possibly increase in) the security; such a system would still dissuade traders from engaging in speculative operations and would secure the necessary conditions for the proper management of the market by the competent authorities.
The provision in question is therefore incompatible with the principle of proportionality because forfeiture is automatic, which makes it impossible to adapt the penalty in accordance with the seriousness of the delay in applying for a licence, and because the security is forfeited both for failure to comply with the time-limit and for the deliberate refusal to export. The Court's declarations regarding the principle of proportionality and the criteria which must govern its application, particularly where it is necessary to assess the suitability of a penalty in relation to the purpose of the rule in which it is provided for, would seem to support that conclusion (see in particular judgments of 20 February 1979, Case 122/78, and 21 June 1979, Case 140/78, to which I have already referred).
6.
In the light of the foregoing considerations, I propose that in reply to the question submitted by Mr Justice Glidewell of the Queen's Bench Division of the High Court by an order of 18 June 1984 the Court should declare Article 6 (3) of Commission Regulation (EEC) No 1880/83 of 8 July 1983 invalid.
( *1 ) Translated from the Italian.
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