Opinion of the Advocate-General
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My Lords,
Council Regulation No 441/69 ( Official Journal Special Edition 1969 Vol.*1, p.*91 ) provides for the advance payment of export refunds for certain agricultural products . In the case of products which are admitted to the scheme laid down by the Regulation when they are to be exported in processed form, the refund is paid as soon as the basic product is placed under a customs control guaranteeing that, subject to force majeure, the product will be exported from the Community after processing . This regulation applies, inter alia, to products covered by Council Regulation No 2727/75 on the common market in cereals ( Official Journal 1975, L*281, p.*1 ).
Detailed rules for the operation of this scheme are laid down in Commission Regulation No 1957/69 ( Official Journal Special Edition 1969 Vol.*2, p.*417 ). It is clear from Article 3 ( 2 ) of that Regulation that at the time when the basic product comes under customs control the trader must declare the precise characteristics of the processed products to be exported . Subject to special provisions in case of force majeure ( Article 6 ( 2 )*), Article 6 ( 1 ) requires the trader to lodge a deposit or equivalent security guaranteeing repayment of an amount equal to that of the refund paid increased by 20%, where proof is not furnished within prescribed periods that specified obligations have been complied with . Article 6 also provides :
"3 . The repayment mentioned in paragraph 1 shall be required only in proportion to the quantities of goods or products in respect of which the proofs referred to in paragraph 1 are not furnished ."
"5 . The amount of the refund paid, plus any increase, shall be repaid in accordance with the provisions of this Article if the proofs referred to in paragraph 1 are not furnished within the time limits laid down . In such case, if repayment has been claimed but is not received, the deposit which was lodged shall be forfeited ."
By Commission Regulations Nos 1136/77 and 1441/77 ( respectively Official Journal 1977, L*135, p.*14, and Official Journal 1977, L*161, p.*23 ) the export refund for certain preparations of a kind used in animal feeding falling under CCT subheading 23.07 B1 was fixed at ECU*38.98/t for preparations where the cereal products' content by weight exceeded 65% and at ECU 31.19/t where the content exceeded 50% but did not exceed 65 %.
In this reference for a preliminary ruling pursuant to Article 177 of the EEC Treaty the Bundesfinanzhof of the Federal Republic of Germany states that in 1977 Plange, the respondent in the proceedings before it, supplied sheep feed to Libya . In June and July of that year it applied for and obtained advance payment of export refunds and monetary compensation amounts, on the understanding that the barley and maize put into the customs control procedure was to be used for the production of "mixed cereal feed, containing more than 30% by weight of starch and no milk products, with more than 65% by weight of cereal products ". Plange completed the customs control procedure in due time : on production of the control copy and certificate of sampling the Hauptzollamt released the deposit which had been lodged by Plange .
However, in the spring of 1978, a check carried out by the German customs authorities revealed that the cereal content of some of the feed was only 63.9% by weight . It is common ground between the parties to the national proceedings that this was due to no fault on Plange' s part, although Plange was not able to explain to this Court how the lower cereal content came about . Equally, there is no suggestion that this was a case of force majeure .
Having discovered that Plange had not in fact complied with its undertaking, the Hauptzollamt required Plange to pay DM*1*066*739.05 . It arrived at this figure by ( a ) taking the amount of the advance payment increased by 20% pursuant to Article 6 ( 1 ) of Regulation No 1957/69 and then ( b ) subtracting from this the amount of the export refund applicable by virtue of Commission Regulations No 1136/77 and No 1441/77 to feed containing over 50% but less than 65% cereals .
Plange objected to paying this sum, but without success . It then commenced proceedings against the Hauptzollamt before the Finanzgericht . These were partially successful : the court held that the Hauptzollamt was entitled to require payment of the sums paid in excess, but that the 20% increase was contrary to the principle of proportionality .
The Hauptzollamt then appealed to the Bundesfinanzhof which has addressed the following question to this Court under Article 177 :
" Was the recipient of export refunds in 1978, who had undertaken pursuant to Article 3 ( 2 ) of Regulation ( EEC ) No 1957/69 to export mixed cereal feeding stuff with a cereal content exceeding 65% by weight but who had in fact, owing to circumstances in which no blame attached to him, exported mixed cereal feeding stuff containing between 50 and 65% by weight of cereal, obliged under Article 6 ( 1 ) and ( 5 ) of Regulation No 1957/69, even where the deposit has already been released, to repay the entire advance payment of refund increased by 20%?"
Written submissions have been lodged by the parties to the main proceedings and the Commission .
In its submissions Plange denies that in the export declarations it referred to Article 3 ( 2 ) of Regulation No 1957/69 or that it declared the preparation to have more than 65% of cereal product . It says that it merely declared that this preparation was eligible for refund and was to be exported and that it subsequently gave the necessary details in the time limits laid down . What these are it does not specify . This allegation may have to be further investigated by the national court but it seems to me that the reference must proceed on the basis of the facts stated by the Bundesfinanzhof . If in fact Plange did not undertake to export preparations having a cereal content of more than 65% then obviously different considerations arise to those raised in the reference .
The essential question is thus whether Plange must repay the entire advance payment increased by 20% even where ( i ) the deposit has been released and ( ii ) Plange was not at fault in exporting a preparation having a lower cereal content than that declared .
The Bundesfinanzhof took the view that the position was not affected by the fact that the deposit had been released . Although the power to require repayment in such a situation is not spelled out in the Regulations there is nothing to indicate that such a course is excluded . If there were no such power to recover the recipient of such a refund could unjustly benefit . An analogous situation arose in Case 124/83 Direktoratet for Markedsordningerne v Corman judgment of 5 December 1985, ECR 3777, in which the Court held, inter alia, that "the buyer of the butter who has given an undertaking to comply with the conditions referred to" in the relevant Community legislation "is not discharged from his obligations solely because the processing security was released" in accordance with that legislation . In my view the Bundesfinanzhof came to the right conclusion on this point .
The Bundesfinanzhof then considered whether Article 6 ( 1 ) of Regulation No 1957/69 could validly provide for the recovery of a sum greater than the amount of the refund . In my view, rightly, it concluded that it could, since Article 2 ( 5 ) of Regulation No 441/69 stipulates that an amount "not less than the refund paid" would be reimbursed . It also rightly concluded that such an increase might be applicable in cases other than those where fraud was involved despite the sixth recital in the preamble to Regulation No 441/69 which in my view does no more than explain why a repayment system was needed, without limiting the circumstances in which it may be required .
Leaving aside these matters the question between the parties is whether the increase of 20% ( assuming that to be valid ) is payable on the entire advance payment or only on the difference between that sum and the refunds referable to the preparation of the quality actually exported . The Hauptzollamt says it should be the former, Plange the latter . The Commission in its written proceedings supported the Hauptzollamt in saying that the Regulation is clear that the whole refund plus 20% must be paid and the fact that an export refund was payable in respect of the product actually exported is irrelevant and fortuitous . At the Hearing the Commission seemed, however, to resile from this view .
It is true that in terms Article 6 ( 1 ) of Regulation No 1957/69 requires a guarantee only for "the repayment of an amount equal to that of the refund paid increased by 20%" where the relevant proofs are not furnished . It makes no express provision as to the enforcement of the guarantee in a situation like the present . This is not a case of force majeure within Article 6 ( 2 ) nor is it a case within Article 6 ( 3 ) where the guarantee can only be enforced in respect of those quantities of goods for which the necessary proofs are not provided . On the other hand the fifth recital to the Regulation makes it plain that the object is to prevent persons having credit to which they were not entitled . If, as is accepted here, Plange was entitled to a payment in respect of the goods actually exported at the lower rate then it cannot be said that pro tanto it received a credit to which it was not entitled even if the full amount was paid on the wrong basis . All the conditions in respect of the transaction were satisfied save that the goods fell into one category rather than another; the position might be different if Plange was seeking to set off a claim in respect of a different transaction . Having regard to the object and purpose of the Regulation taken as a whole, I interpret it as only permitting recovery of the difference between the two sums and an increase of 20% ( assuming that figure to be valid ) on that difference . I do not consider that the fact that specific exclusions are made only in respect of the matters covered by paragraphs 2 and 3 of Article 6 precludes that result .
If I had not come to that view as a matter of the proper interpretation of the Regulation, I should have considered that the obligation to pay the whole sum plus 20% on the whole sum infringed the overriding principle of proportionality . To ensure that the objective of ensuring that persons do not receive credit to which they are not entitled is achieved, it is not necessary or justified that they should pay the increase on such part of the sum to which they were in any event entitled in exactly the same transaction . The payment of this increase is not expressed to be a penalty or a fine even if it has the effect of ensuring that traders observe the provisions of the Regulation . Accordingly, in my view, if the proper interpretation of the Regulation is that the increase is payable in respect of the whole sum, even though part was due in respect of the same transaction under a different qualitative heading, the provision is void to the extent that it obliges payment of the increase on more than the difference between the sum paid and the sum properly payable . Again, in my view that result is not precluded by the fact that limited exemptions are contained in paragraphs 2 and 3 of Article 6 .
On either approach Plange is liable to pay only the difference and an increase calculated on the difference .
The question posed does not specifically ask whether 20% is a valid increase . It seems, however, to me to be implicit in the reference that this question is raised and the parties have dealt with it at length . Plange contends that 20% is excessive particularly for a trader in the Federal Republic where, at the time, interest rates were substantially lower .
Two factors seem to me to be of importance . In the first place 20% is not an annual rate but an overall payment . The monies can only be recovered after the time limits for processing under customs control and for furnishing proof of export have expired . Taking Article 3 ( 3 ) and Article 6 together the total period can vary between nine and 18 months . Review of the case and demand for repayment followed by repayment are likely to add a further period, which can be protracted as in the present case, where although the deposit was released between August and September 1977 and repayment demanded on 21 November 1978, repayment was not apparently made until 1982, if indeed it was made fully even then .
Secondly the Court is told that at the relevant time in some Member States, with inflation running at 15%, interest rates for loans ran at around 18% per annum . On that footing 20% was not unreasonable as an overall figure . Nor do I think that it is unreasonable or excessive to take a flat rate for the Community as a whole, a flat rate which is not geared to changing current rates or to the position in particular Member States . The actual rate may be a deterrent for those who might seek to obtain an advance payment without justification; it is not in my view disproportionate or a penalty to provide for repayment of the appropriate sum with an increase of 20% for what is a breach of a primary obligation under the scheme .
The view I have come to is thus different from that of the Hauptzollamt which first increased the refund paid by 20% ( DM*2*535*999.89 + DM*507*198.98 ) and then deducted the refund payable ( DM*1*976*454.82 ) leaving DM*1*066*739.05 to be repaid . The proper approach is to deduct the refund payable from the refund paid ( leaving DM*559*540.07 ) and to add 20%, thus giving a total due of DM*671*448.08 .
Accordingly in my opinion the answer to the question raised is that : If pursuant to Article 3 ( 2 ) of Regulation ( EEC ) No 1957/69 a trader undertook to export mixed cereal feeding stuff falling under the CCT subheading 23.07 B1 with a cereal content exceeding 65% by weight, but, who in fact owing to circumstances to which no blame attached to him, exported mixed cereal feeding stuff containing between 50 and 65% by weight of cereals, he is obliged under Article 6 ( 1 ) and ( 5 ) of that Regulation ( even if the deposit in respect of the export is released ) to repay only the difference between the advance payment actually made and that payable in respect of the goods actually exported under the same transaction, such difference increased by 20 %.
The costs of the Commission are not recoverable . The cost of the parties to the main action fall to be dealt with by the national court .
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