Opinion of the Advocate-General
A - Introduction
1 The present case concerns flat-rate reductions in EAGGF (1) financing contested by the applicant. The reductions concern, on the one hand, intervention measures in the beef and veal sector and, on the other, intervention measures in the context of the public storage of cereals. It is advisable to deal with those two points separately.
2 As far as the intervention measures in the beef and veal sector are concerned, the Commission justifies the reduction on the ground by pointing to the fact that, in the context of intervention purchasing, the national authorities had accepted unlawful multiple tenders (group tenders or interconnected tenders). (2) These may be of a speculative nature. If, for example, very large quantities of beef and veal are offered for sale into intervention, it becomes necessary to reduce those quantities by application of a coefficient. (3) Since the tenderers endeavour to continue to sell the whole of their meat into intervention, inflated tenders are lodged for speculative purposes. If a tenderer speculates that a specific reduction coefficient will be laid down, he offers a correspondingly higher quantity for sale into intervention. If it then turns out that the coefficient laid down is not as high as the tenderer assumed, the tenderer must deliver into intervention more meat than he actually has available. If he is unable to perform his contract with the intervention agency as to 85% or 95%, he loses in whole or in part the security deposited in respect of the total amount. (4)
3 If, however, the tenderer splits his original tender into several smaller ones which are made in the name of nominees, the risk of losing the security payment is reduced. If he is unable to deliver the full quantity tendered for, in the case of several smaller tenders he is at least in a position to honour certain of them in such a way that he does not lose the security payment. It is true that in respect of the remaining tenders which he is then no longer in a position to honour the security payment will also be retained. However, that security is not calculated on the total amount of all the tenders instigated by him but only on the smaller amount in each case. The amount of the security lost is thus smaller and is often exceeded by the profit achieved.
4 A clear consequence of this, in the Commission's view, is that the lodging of several tenders favours speculation because the effect of the security deposit is lessened.
5 Speculative tendering for larger quantities, according to the Commission, runs counter to the purpose of intervention, which is, for example by intervention buying-in, to stabilise the market and prevent or mitigate a substantial fall in prices, (5) where market prices fall below a certain level. Regulation No 859/89 (6) introduced a tendering procedure. (7) Under that procedure purchase prices and quantities are established on the basis of tenders received. (8)
6 Speculative tenders which, as demonstrated, are favoured by the lodging of multiple tenders make it difficult, according to the Commission, to operate intervention successfully. Since more meat is offered than is actually on the market, buying-in prices and quantities determined on the basis of tenders received can no longer be established in accordance with the actual market situation. Speculative tenders thus prevent the Commission from obtaining a precise overview of the market situation. For that reason it may almost certainly be presumed that, as a result of the speculative tenders and the multiple tenders favouring them, more meat is bought in by the intervention agencies at higher prices. In that connection it must also be borne in mind that the lodging of several tenders allows speculation as to the price. The buying-in of excessive quantities causes the EAGGF to incur higher costs than is necessary in order to support the market.
7 As far as the intervention measures in the context of the public storage of cereals are concerned, the Commission justifies the reduction prescribed in that sector on the ground that, in the course of inspections, it found deficiencies in the public storage of cereals.
B - Facts and legal provisions
Intervention measures in the beef and veal sector
8 In this connection France seeks the annulment of the Commission decision disallowing, in respect of the French Republic's expenditure for 1992 incurred in the buying-in of beef, the sum of FRF 76 041 440 (hereinafter: `the Decision'). (9) The disallowance of that expenditure is contained in Annex I to the decision. The amount disallowed corresponds to a flat-rate correction of 2% of the 1992 expenditure.
9 In its Summary Report (10) the Commission justifies that reduction on the ground that the conduct of the competent French authority was not compatible with the Community rules and discriminated against participants who had observed the rules.
10 In that report the Commission stated, with regard to multiple tenders, that the documents showed that tenders from different companies often gave the same address, telephone and fax numbers and had sometimes been signed by the same person. The invoices sent by the different undertakings were also consecutively numbered. The French authority must therefore have been aware of the conduct of the tenderers from the beginning. Nevertheless, France carried out no checks in this connection, as it ought to have done.
11 In the applicant's view, however, all the rules concerning intervention were observed. The French authorities had adopted national provisions which guaranteed observance of the provision under which each participant in the invitation to tender may submit one tender only per category and invitation to tender.
12 The provision which underlies this dispute is contained in Article 9 of Regulation No 859/89, paragraph 1 of which provides: `Tenderers may take part in the invitation to tender only if they undertake in writing to comply with all the provisions relating to the tender concerned.' (11)
13 Paragraph 2 provides: `Interested parties may participate in the invitation to tender issued by intervention agencies of the Member States in which this is opened either by lodging a written tender against a receipt or by any other written means of communication accepted by the intervention agency, with advice of receipt; they may submit one tender only per category in response to each invitation to tender.' (12)
14 The distinction between the terms `tenderer' and `interested party' is, in the Commission's view, of significance in this connection. According to the Commission, it follows from the difference in wording that interested parties are not to be equated with tenderers. The term `interested parties' refers not only to those persons who actually took action and lodged tenders. It embraces a much wider class of persons. It is not, therefore, only the individual tenderer, that is to say the person who actually lodges the tender, who is prohibited from lodging more than one tender. The prohibition covers all persons tendering in respect of the same quantity of meat.
15 On the other hand, the applicant is of the opinion that the terms `tenderers' and `interested parties' refer to the same persons. Two different terms were chosen, it maintains, only because of the wish to avoid repeating the word `tenderers'.
16 Specific conditions regarding the validity of tenders are, the applicant submits, apparent only on a reading of Article 11(3) of Commission Regulation (EEC) No 2456/93 of 1 September 1993 laying down detailed rules for the application of Council Regulation (EEC) No 805/68 as regards the general and special intervention measures for beef, (13) which was not yet in force at the material time. That provision is as follows:
`Interested parties may submit only one tender per category in response to each invitation to tender.
The Member States shall ensure that tenderers are independent of each other in the terms of their management, staffing and operations.
Where there are serious indications to the contrary or that tenders are not in line with economic facts, tenders shall be deemed admissible only where the tenderer presents suitable evidence of compliance with the second subparagraph.
Where it is established that a tenderer has submitted more than one tender, all the tenders from that tenderer shall be deemed inadmissible.'
17 The applicant, which, unlike the Commission, is of the opinion that the second sentence of Article 9(2) was fully complied with in the context of the tendering procedure operated by it, in October 1995 referred a request for conciliation to the Conciliation Body. (14) According to the applicant, the Conciliation Body gave the following opinion in its provisional conclusion in the annex to the final report: Although Member States took no initiative to counter the practice of multiple tenders which in fact, from an economic point of view, stem from the same operator, the Commission itself must have been aware of it, but failed to react before 1993. In the circumstances, the Conciliation Body went on, and because of the apparent absence of financial loss to the Fund resulting from this practice, the financial correction of 2% of total expenditure was difficult to justify.
18 The Commission points out in that connection that, in contrast to the national authorities, it did not at first have this information available to it. Since the tenders were forwarded to it anonymously, it became aware of the irregularities only in the context of the checks carried out by it.
Intervention measures in the context of the public storage of cereals
19 In this context, the French Republic seeks a declaration that the Commission decision is void in so far as it disallowed expenditure of FRF 84 061 448 relating to intervention measures in the cereals sector. That amount corresponds to 2% of expenditure in respect of technical, financing and other costs for 1992. The Commission justifies that reduction on the ground of deficiencies in the public storage of cereals.
20 During an inspection carried out in June and July 1993, the Commission found deficiencies in the management of the intervention system. It informed the French national authorities of this and, according to the applicant, gave notice of financial consequences for the 1993 clearance of accounts. In their reply of December 1993, the French authorities set out a list of measures which they would take in order to improve the system for the public storage of cereals.
21 According to the applicant, the Commission then informed it that no overall financial penalties would be imposed, in particular in view of the notified improvements to the management system. At the same time, however, as is not disputed by the applicant, the Commission gave notice that financial corrections would be applied if it transpired that cereals stored in the context of intervention had been replaced by cereals from the open market.
22 During further inspections in June and July 1994 the Commission found that the deficiencies established during the first inspection had not been remedied by the French authorities. It informed the authorities that financial corrections would be adopted with effect from 1992. After a further exchange of correspondence with the Commission, the applicant eventually referred a request for conciliation to the Conciliation Body. According to the applicant, the Conciliation Body, in its final report, reached the conclusion that the financial correction was justified. It was certainly to be regretted that the Commission gave the impression of having changed its original intention. However, the Conciliation Body also points out that the French authorities do not deny that they had to modify their original system in order to comply with the Commission's requirements.
Forms of order sought
23 Following the Commission decision, the French Republic finally brought an action before the Court of Justice of the European Communities and claimed that the Court should:
declare null and void Commission Decision 96/311/EC (15) on the clearance of the accounts presented by the Member States in respect of the expenditure for 1992 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund and in respect of certain expenditure for 1993, in so far as the Commission has disallowed for France for 1992:
- FRF 76 041 440 of eligible expenditure corresponding to intervention measures in the beef and veal sector as regards the submission of tenders under the tendering procedure,
- FRF 84 061 448 of eligible expenditure corresponding to intervention measures concerning the public storage of cereals;
in the alternative, consider those corrections to be disproportionate in amount;
order the defendant to pay the costs.
24 The Commission contended that the Court should:
(1) dismiss the action;
(2) order the French Republic to pay the costs.
C - Opinion
Intervention measures in the beef and veal sector
Meaning and purpose of the second sentence of Article 9(2)
25 First, the applicant claims that the Commission has misconstrued the second sentence of Article 9(2). That provision, it argues, merely requires every natural or legal person applying to the intervention agency as a tenderer to submit one tender only. Regulation No 859/89 is silent on any connections between individual tenderers which may need to be borne in mind. No special conditions concerning the validity of the tenders are laid down. The national authority verified whether each individual undertaking which submitted a tender was a registered legal person. Whether any of the individual undertakings which submitted tenders may have belonged to the same group of undertakings was not verified in France since there was no necessity to do so.
26 Even if such verification had been carried out, Regulation No 859/89 would have given the applicant no legal basis on which to reject such interconnected tenders.
27 The applicant points out that, according to the Court's case-law, the Member States must show that the conditions for the maintenance of financing are fulfilled. Referring to the national control system, it submits that it can be shown that each tenderer constitutes a separate and independent undertaking. The Commission does not dispute that. However, the applicant submits that is not sufficient since it is necessary for successful intervention that the companies be economically independent of one another.
28 In the applicant's submission, the burden of proof in such a case rests with the Commission. The latter, the applicant claims, has not shown that the practice in France led to any disruption of intervention.
29 According to the case-law of the Court, `... only refunds granted and intervention undertaken in accordance with the Community rules within the framework of the common organisation of agricultural markets are to be financed by the EAGGF'. (16) In that connection, it is for the Commission to prove the existence of an infringement of the rules governing the common organisation of the agricultural markets. (17)
30 Moreover, in regard to the requirements which the formulation of provisions must satisfy, the Court has held: `Since a rule whose breach inevitably entails financial consequences must be sufficiently clear and precise, the Commission was not entitled to rely on the terms of subheading ... as a basis for imposing, at the time of the clearance of EAGGF accounts, an interpretation which was not dictated by the normal meaning of the words used.' (18)
31 Accordingly, it must be examined whether the terms in which the second sentence of Article 9(2) of Regulation No 859/89 are couched satisfies those requirements and whether they allow of a construction of the kind placed on them by the Commission. In that connection it would appear appropriate to examine first the manner in which the Commission seeks to interpret the second sentence of Article 9(2). The pleadings mainly speak of `multiple' tenders. Those cannot be tenders submitted by one and the same tenderer under one name, for such tenders are not lawful in France either. Moreover, as is also clear from the pleadings, the Commission does not object to every kind of connection between the individual tenders. For example, it states that, where a person operates two independent slaughterhouses, each may submit a tender. As the Commission stated at the hearing, in its view only tenders relating to the same quantity of meat are unlawful under the second sentence of Article 9(2). Where, therefore, an interested party offers his meat not only himself, but also through the intermediary of nominees, that is in breach of Community provisions and must be prohibited by the authorities of the Member States.
32 The Commission points out that, according to the Court's case-law, a provision is not merely to be construed literally but also in accordance with its meaning and purpose. (19) Accordingly, the Commission contends that the provision at issue in these proceedings would be deprived of its purpose if it were possible to submit several tenders via nominees, thus circumventing the prohibitory provision.
33 The intervention scheme, the Commission contends, is jeopardised, as has been demonstrated, by the practice in regard to intervention buying-in in France. The buying-in of excessive quantities gives rise, it is submitted, to greater costs than are necessary in order to support the market. Moreover, equality of access for all interested parties, which is required under Article 6(6) of Regulation No 805/68 as amended by Regulation No 571/89, is not guaranteed.
34 The last phrase of Article 9(2) of Regulation No 859/89 must therefore, the Commission contends, be interpreted according to its meaning and purpose in such a way that intervention measures are not frustrated. If tenders relate to the same quantity of meat they are in reality only from one single tenderer. Such tenders are therefore unlawful.
35 In the Commission's view, this conclusion follows from the wording. It should be said on this point that a difference in wording as between paragraphs 1 and 2 of Article 9 could certainly point to a difference in meaning. It could be inferred from this that it is not sufficient to check whether the person who actually submits the tender only submits a single one, that is to say whether in each case an independent (legal) person participates in the procedure. Thus the term `interested party' could be understood as including a person interested in selling his meat into intervention. As has been seen, that person does not necessarily have to be the same person as the tenderer, that is to say the person who actually submits the tender. If, for example, the meat is offered via nominees, in that case there is only one interested party but several tenderers. But if one looks at the way in which those two concepts are used in other regulations dealing with intervention measures for beef and veal, it may be seen that the abovementioned distinction is not always adhered to. Thus, for example, the first recital in the preamble to Regulation No 2271/90 (20) states that ... `tenderers should only be allowed to submit a single tender ... for each category in response to each invitation to tender'. Moreover, the German version of Article 11(3) of Regulation No 2456/93, which replaced Article 9 of Regulation No 859/89, uses the terms `Interessent' [interested party] and `Bieter' [tenderer] in connection with the submission of tenders. (21)
36 Thus, no further conclusions may be drawn from the distinction between `tenderer' and `interested party' in Article 9.
37 However, it is more instructive to have regard to the provisions which preceded those at issue in the present proceedings. Thus, in 1990 it was made possible to submit several tenders at different prices. Regulation No 1282/90 (22) amended the last phrase of Article 9(2) to read as follows:
`they may submit more than one tender, at different prices, for each category in response to each invitation to tender'.
38 That provision was, however, repealed shortly afterwards in August 1990. The amending Regulation No 2271/90 stated in the first recital in its preamble: `Experience shows that tenderers should only be allowed to submit a single tender ... for each category in response to each invitation to tender.'
39 In the applicant's view no conclusions may be drawn from those different language versions. The aim of Regulation No 1282/90 was to improve the existing rules and to make it possible for the same tenderer to submit different tenders at different prices. After these rules were repealed, Regulation No 859/89 merely provided that the same tenderer may submit one tender only. No other conditions were laid down. At the same time, however, it is clear that after repeal of the provision in Regulation No 1282/90 the tenderer may no longer submit several tenders in respect of the same quantity of meat. The meaning and purpose of the provision here at issue in the last phrase of Article 9(2) is thus in any case that several tenders may not be submitted in respect of a specific quantity of meat. That provision would become meaningless if it could readily be circumvented by recourse to nominees.
40 The applicant must also have been aware of that fact when it received the tenders. On the one hand, it is true of any rule that it becomes meaningless if it is circumvented, for example, as is maintained here, by virtue of the fact that the same meat is offered by several persons. On the other hand, the applicant was aware of the aim and object of intervention. To that extent it must also have been aware of the fact that it runs counter to the purpose of intervention if multiple tenders are submitted in respect of the meat available on the market.
41 Moreover, the Court has held that even in cases where, viewed objectively, Community law is incorrectly applied as a result of an interpretation adopted in good faith by the national authorities, costs incurred in that connection must, under Articles 2 and 3 of Regulation No 729/70, (23) be borne by the Member States. (24) This strict interpretation of the conditions under which expenditure is to be borne by the EAGGF is necessary in view of the objectives of Regulation No 729/70. Since the management of the common agricultural policy must ensure conditions of equality between traders in the Member States, the national authorities of a Member State may not, by the expedient of a wide interpretation of a given provision, favour traders in that State to the detriment of those in other Member States where a stricter interpretation is applied. (25)
42 Admittedly, the applicant rightly points out that the last phrase of Article 9(2) is silent as to who the individual tenderers are and the manner in which they are to structure their relationships one to another. This, however, is not essential. It follows from the meaning and purpose of the last phrase of Article 9(2) that it is prohibited to offer meat by way of nominees. The applicant cannot rest content with the assertion that it is under no obligation under the terms of Article 9 to examine possible connections between individual tenderers. That goes merely to the question as to the manner in which observance of a prohibitory provision such as that contained in the last phrase of Article 9(2) can be monitored.
43 Accordingly, it is necessary to concur with the Commission's submission that the last phrase of Article 9(2) also prohibits tenders which, whilst coming from different legal persons, are made in respect of the same meat, with the result that the tenders may be assumed to have been submitted by nominees.
44 Accordingly, contrary to the applicant's submission, there is also a basis for such tenders to be rejected, namely the second sentence of Article 9(2).
Monitoring obligation on the part of the Member State
45 In the Commission's view, the reduction made in the context of the clearance of accounts is justified on the ground that the applicant did not ensure compliance with that provision.
46 It is clear that in France tenders are examined only to see whether they originate from different legal persons. No further examination was undertaken. In what follows it will now be considered whether on that basis the applicant may be said to have failed to observe a provision of Community law, since the Commission has mentioned no actual example where tenders were in fact submitted by nominees.
47 However, the Commission is unable to adduce such proof because in this connection the applicant carried out no checks. The only check made was whether the tenders were from independent (legal) persons. Thus, the Commission has no information before it for examining the more detailed circumstances. Admittedly, the Commission may also carry out its own checks. However, under the Court's case-law the management of EAGGF finances is principally in the hands of the national administrative authorities responsible for ensuring that the Community rules are strictly observed. The Court went on to point out: `That system, based on trust, does not involve any systematic supervision by the Commission, which moreover would in practice be impossible for it to carry out ... Only the Member State is in a position to know and determine precisely the information necessary for drawing up EAGGF accounts since the Commission is not close enough to obtain the information it needs from the economic operators.' (26)
48 Thus, since in the context of the clearance of EAGGF accounts the Commission is dependent upon information provided by the Member States, it is not possible for it here to give a specific example of an infringement under the tendering procedures. The Commission is able - and required - merely to show that the applicant failed to examine all the criteria necessary for the purposes of compliance with the relevant provision. That the Commission did, particularly since the applicant itself does not deny that it is impossible, even when undertakings are registered, to prevent legally distinct persons, by virtue of the economic links existing between them, from submitting concerted tenders.
49 In connection with the question whether there is thus shown to be an infringement of Community law by the applicant, a matter also to be considered is whether the applicant was required to carry out any additional checks. In that connection reference should be made to Regulation No 729/70. In the recitals in the preamble to that regulation it is stated, inter alia: `Measures must be taken to prevent ... irregularities.' (27) The eighth recital states: `... Community expenditure must be made subject to close supervision; ... In addition to supervision carried out by Member States on their own initiative, which remains essential, provision should be made for verification by officials of the Commission and for it to have the right to enlist the help of Member States.'
50 Article 8 of the regulation, which reflects those recitals, provides in paragraph 1 thereof:
`The Member States in accordance with national provisions laid down by law, regulation or administrative action shall take the measures necessary to:
- satisfy themselves that transactions financed by the fund are actually carried out and are executed correctly;
- prevent and deal with irregularities;
- recover sums lost as a result of irregularities or negligence.
...'
51 Under the Court's case-law it is for the national authorities to monitor precise compliance with Community provisions. (28) The extent of this obligation on the Member States in regard to the financing of the EAGGF was decided by the Court in its judgment in Exportslachterijen van Oordegem. In that judgment it was held in regard to Article 8(1) of Regulation No 729/70:
`That provision, which expressly lays down in that specific area the obligations imposed on Member States by Article 5 of the Treaty, defines, the Court has said, the principles according to which the Community and the Member States must ensure the implementation of Community decisions on agricultural intervention financed by the Fund and combat fraud and irregularities in relation to those operations (judgment in BayWa, cited above, at paragraph 13).
That article thus imposes on the Member States the general obligation to take the measures necessary to satisfy themselves that the transactions financed by the Fund are actually carried out and are executed correctly, even if the specific Community act does not expressly provide for the adoption of particular supervisory measures (Case C-8/88 Germany v Commission [1990] ECR I-2321, at paragraphs 16 and 17).' (29)
52 It follows that an obligation on the part of Member States to carry out checks may subsist even if such a requirement is not expressly provided for in the relevant provision.
53 Thus, the question arises whether in the specific case now before the Court the applicant was required to carry out further checks, that is to say whether the Member State ought to have or could have done more and, if so, what?
54 As the Commission here stated, the disadvantage for the Fund arises out of the fact that the submission of several tenders by an interested party by means of nominees encourages the submission of speculative tenders. Yet if one has regard to the Commission's procedure against speculative tenders, it might be queried whether the applicant was required to take any further steps.
55 In order to prevent speculative tenders whereby, in anticipation of a specific reduction coefficient, tenders are made in respect of a greater quantity of meat than is available, a security payment was introduced under Article 10(1), (30) in order to ensure that `tenders are bona fide and that the conditions laid down are complied with'. (31) That means that in that connection the Member States are merely obliged to ensure that the appropriate amount of security is deposited. They do not have to check whether the individual tenderer has offered more beef than is in his possession.
56 In the present case, however, there was a further provision to be considered which could not be circumvented. An interested party desirous of selling his meat into intervention could not submit more than one tender. That followed from the underlying rationale of intervention. It is true that that idea was only subsequently given concrete shape in Regulation No 2456/93. (32) However, that does not alter the fact that prior to this there must already have been awareness of that idea.
57 Thus, it is clear that the applicant ought to have carried out further checks in order to establish whether the tenders submitted were in fact from the same tenderer. That is particularly the case in light of the clear indications, already alluded to, of interconnections between individual tenderers. Even if it could not with certainty be concluded from those indications that there was an infringement of the second sentence of Article 9(2), the indications were however of such a nature as to necessitate more precise checks, and that was the sole decisive factor.
58 The applicant has submitted that monitoring of that kind could not be carried out since slaughtering came after the submission of tenders. It was therefore not possible to locate the meat in respect of which tenders were made since it did not yet exist in the form of meat. On the contrary, it was still out at pasture. In that connection, it should be stated that that was not the only way of checking whether the tender was submitted by a nominee. For example, an examination could be carried out as to the interconnection between the individual tenderers and whether it was at all possible for the individual tenderer to offer its own beef. Thus, Regulation No 2456/93 provides that the Member States are to ensure that tenderers are independent of each other in terms of their management, staffing and operations. (33) Even before the entry into force of the 1993 regulation such a check could have been carried out. As has been shown, a monitoring obligation on the part of the Member States may subsist even if it is not expressly provided for in the relevant regulation. In the present case this duty arose out of the rationale underlying intervention long before the provision was enacted in Regulation No 2456/93. The important factor in that connection is that the Member State should check whether in fact tenders are being made in respect of different quantities of meat. The manner in which it carries out those checks is for it to decide. This does not need to be expressly regulated by the Commission. Accordingly, the Commission cannot be said, contrary to the applicant's submission, to be seeking to apply Regulation No 2456/93 retroactively to the facts of the present case.
59 It must therefore be held that the applicant ought to have carried out further checks but failed to do so.
Proof of loss occasioned to the EAGGF - burden of proof
60 It now falls to examine whether a reduction in the context of the clearance of accounts, as applied by the Commission, was justified on the facts. In the applicant's view that is not the case since the Fund suffered no loss.
61 In order to answer that question, regard must be had to the Court's case-law on proof of loss and the burden of proof in the context of the clearance of EAGGF accounts. Thus, the Court has stated that only refunds granted and intervention undertaken in accordance with the Community rules within the framework of the common organisation of agricultural markets are to be financed by the EAGGF. (34) Finally, the Court went on, when the Commission refuses to charge certain expenditure to the EAGGF on the ground that it was incurred as a result of breaches of Community rules for which a Member State can be held responsible, it is for that State to show that the conditions for obtaining the financing refused by the Commission are fulfilled. (35)
62 In that connection, a question arises as to the requirements which the Commission's submission with regard to the occasioning of financial loss must satisfy. Under the Court's case-law, in cases where it cannot be established to what extent a national measure incompatible with Community law has led to an increase in expenditure under a budgetary heading of the EAGGF, the Commission has `no choice' but to disallow all the expenditure in question, and not merely a certain percentage of it. (36)
63 There may be a case of that kind here since, precisely because the necessary checks were not made, the Commission was unable to establish to what extent the applicant's conduct occasioned loss to the EAGGF. It may only be speculated hypothetically what costs would not have been incurred if the applicant had carried out the proper checks.
64 Conversely, in a case in which the Commission called in question the correctness of figures notified by a Member State, the Court held: `The Commission is required not to demonstrate exhaustively that there are irregularities in the data submitted by the Member States but to adduce evidence of serious and reasonable doubt on its part regarding the figures submitted by the national authorities. The reason for this mitigation of the burden of 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 Commission's calculations are incorrect.' (37)
65 That case is, admittedly, not directly comparable with the present case since the Commission is not alleging that the figures communicated to it by the applicant are incorrect. The point is rather that the figures could have been different if the applicant had carried out adequate checks. In this case also, however, the Commission has not merely submitted that the EAGGF suffered loss. Rather it has shown that the applicant infringed Community law and the manner in which it did so. It has set out, furthermore, how that may have favoured speculative bids by tenderers. It has explained, finally, that that may have led to an erroneous appraisal of the market and thus to excessive buying-in of beef, possibly at increased prices. Thus, in any event, it had adduced credible evidence that it was possible for loss to have been incurred by the EAGGF.
66 A more extensive evidentiary obligation cannot be imposed on the Commission since the abovementioned grounds for easing the burden of proof also subsist in this case. Nor can it be ruled out beyond doubt that the applicant's conduct jeopardised the functioning of the common organisation of the market.
67 It is therefore for the applicant - as is apparent from the judgment cited in point 61 - to show that the conduct alleged against it did not lead to an increase in expenditure in the context of the EAGGF. The applicant submits that the 2% reduction cannot be justified on the ground that there was speculation in connection with the intervention buying. It claims that the multiple tenders did not trigger a downward price spiral at the time of the intervention buying. That is not maintained by the Commission either. Rather it has submitted that, on account of the speculation, the meat was bought into intervention at higher prices than was necessary.
68 Moreover, the applicant claims that the risk with speculation is always high and does not depend on whether multiple tenders have been submitted. It points out that the security payment which is required in respect of a given quantity of meat always remains the same regardless of whether one or more tenders have been submitted. That cannot be disputed. What the applicant fails to take into account, however, is that the level of the security payment retained may, as shown above, be reduced in the case of multiple tenders.
69 The applicant further submits that the Commission has never shown that a risk to the Fund actually existed. It has merely put forward considerations of a purely hypothetical and theoretical nature. However, as has been shown, the Commission was neither able nor required to do more.
70 The applicant also claims that the tender prices communicated to the Commission were not excessive. On the contrary, they fell within a broad range between the market price and the maximum price fixed by the Commission. The Commission was therefore perfectly able to assess the market situation. Had that not been the case, it argues, the intervention buying would necessarily have resulted in a rise in the market price. However, that was not the case.
71 As the Commission rightly submits, the function of intervention is to support the market. To that extent it is questionable whether its effects could be so marked - even with increased buying-in - as to result in such a price rise. Moreover, the applicant refers in this context only to the question of the buying-in price. At least as important, if not even more so, is the question whether more meat was bought in than was necessary to support the market. In that regard, irrespective of the price, multiple tenders may give rise to an erroneous appraisal.
72 Nor is it possible to uphold the applicant's argument that the Commission could control buying-in prices and quantities purchased by fixing a reduction coefficient. That possibility certainly exists for the Commission. However, the reduction coefficient is also governed by the quantity of meat tendered. In that respect it cannot prevent an erroneous appraisal but may in some circumstances be the expression of such an erroneous appraisal.
73 The applicant has thus been unable to show that the submission of multiple tenders did not lead to an increased risk to the Fund. It should also be pointed out in this connection that the applicant itself stated at the hearing that the risk of forfeiting the security payment is lower with multiple tenders.
74 Since the Commission has thus at least adduced credible evidence that the applicant's conduct may have occasioned loss to the EAGGF, it is for the applicant to show that this was not the case.
75 To distribute the burden of proof in that manner in the present case also appears reasonable against the background of other judgments of the Court in regard to the clearance of accounts. Thus, in cases where the Community law makes the payment of aid conditional on the observance of certain formalities relating to proof or checks, the Court has held that aid is not granted in conformity with Community law if those preconditions are not observed. The expenditure incurred in connection therewith could not be charged to the EAGGF even if it was clear that there had been no substantive irregularity. (38)
76 Likewise in connection with the observance of formalities, the Court has held: `In view of the essential nature of the formalities which were not complied with and of the fact that it was not possible to check that the time-limit within which the products were to be exported was observed, and in view, therefore, of the probability of losses, or even fraud, to the detriment of the Community budget, the amount disallowed by the Commission, which was limited to 2% of the expenditure involved, cannot be regarded as excessive and disproportionate.' (39) Thus, even the mere likelihood of losses may be used as a criterion for the purposes of the assessment. Such a likelihood subsists in the present case in light of the abovementioned factors and the absence of checks.
77 The sole matter to be determined is therefore whether the applicant is able to show, on the basis of its submissions, that no loss was incurred by the EAGGF.
78 Moreover, the applicant submits that during the relevant period security payments were forfeited in only very few cases. Accordingly, there can have been no extensive speculation in regard to tenders. The Commission's view is that this shows precisely how successful the practice of so-called multiple tenders is in reducing the risk to the individual tenderer.
79 The applicant's argument cannot be accepted without reservation. As the Commission states, the practice of so-called multiple tenders enables the tenderer to speculate with several tenders whereby, in the event of an unsuccessful speculation, the loss is reduced because the security payment is smaller for the smaller quantity.
80 Accordingly, as the Commission has also stated, the practice of so-called multiple tenders need not necessarily lead to a reduction in cases in which the security is forfeited. On the other hand, it does not necessarily follow from the fact that the security was retained only in a few cases that no more meat than necessary was sold to the intervention agency. Those tenderers who submitted an excessive bid and speculated on a higher reduction coefficient could not avoid losing the security even by purchasing the missing quantity of beef on the open market. This is of course also not in keeping with the intervention scheme but is clearly practised, as emerges from the submissions of the parties. Thus, under Article 12(1) of Regulation No 859/89, a tender is to be rejected if the price proposed is higher than the maximum price for the invitation to tender concerned. Therefore, a quantity of meat rejected on that ground could be purchased by a tenderer who has offered a greater quantity of meat than he has at his disposal. The Commission also views this as an infringement of Article 12(2) of Regulation No 859/89, which provides that rights and obligations arising from the invitation to tender are not transferable.
81 Nor can the applicant's submission that the prices in the alleged multiple tenders varied by only a few francs disprove the claim that speculation and possibly also loss to the EAGGF occurred. Speculating by indicating different prices is only one aspect which is complained of by the Commission. However, the main form which the speculation undoubtedly takes is that of excessive bids. The fact that such bids cannot be ruled out and may result in a loss to the Fund cannot be refuted by the applicant's submission.
82 Thus, it is clear that the applicant has been unable to refute the Commission's argument concerning financial loss incurred by the EAGGF.
Possibility of a flat-rate calculation of the financial loss
83 The applicant, however, also challenges the Commission's flat-rate calculation of the financial loss. Since there is no connection between that calculation and a loss, what is concerned here, the applicant submits, is more in the nature of a penalty.
84 In that connection, it should be said that the applicant is incorrectly assuming that no connection with a loss can be established. As demonstrated above, (40) a loss to the EAGGF cannot be ruled out. Moreover, it is sufficient to refer to the Court's case-law in regard to cases in which the Commission does not disallow the total expenditure affected by the infringement but endeavours to establish the financial consequences of the unlawful action by means of calculations. These calculations are based on an assessment of the situation which would have prevailed on the market in question had it not been for the infringement. In such cases, the Court has held, it is for the Member State to show that the conditions for obtaining the financing refused by the Commission are fulfilled. (41) Thus, in this case also, it is for the applicant to show that the Commission's assessment is erroneous. As demonstrated above, it has been unable to do so.
Commission's guidelines (Belle Group Report)
85 Finally, the applicant claims in the alternative that the 2% reduction is disproportionate since no risk of loss to the Fund existed. That claim cannot be upheld because, as has been demonstrated, a financial risk to the Fund certainly did exist.
86 Moreover, the applicant claims that the reduction is also disproportionate in relation to the other Member States. Thus, the Commission itself stated that in France's case the infringements were less serious than in other Member States. It nevertheless provided for a 2% reduction for all the Member States, although in many cases for two years, whereas the reduction in France's case was limited to 1992 only. Under those circumstances, according to the applicant, no correction should have been carried out, particularly as the risk to the Fund was minimal.
87 The Commission rightly refers in this connection to the Court's case-law under which financing of expenditure can be disallowed even as to 100% if the precise financial consequences of a measure contrary to Community law cannot be established. (42)
88 For the purposes of flat-rate correction, the Commission has adopted certain guidelines upon a proposal by an interservice group (Belle Group Report). The group proposed a reduction in flat-rate calculations by three possible percentages:
- 2% where the deficiency 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 regularity of the expenditure, such that it can reasonably be concluded that the risk of loss to the EAGGF was minor;
- 5% where the deficiency relates to important elements of 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;
- 10% where the deficiency relates to the whole of or fundamental elements of the control system or to the operation of controls essential to assuring the regularity of the expenditure, such that it can reasonably be concluded that there was a high risk of widespread loss.
89 Those guidelines also provide that no correction should be made in relation to cases of minor deficiencies in the controls where the risk of loss is assessed as minimal. That applies particularly to cases where the national authorities took effective steps to remedy the deficiencies as soon as they were brought to light, and where the deficiencies arose from difficulties in the interpretation of Community provisions.
90 Even if one could proceed on the basis that the deficiencies in the control system were attributable to the fact that the last phrase of Article 9(2) of Regulation No 859/89 was difficult to interpret, it must be pointed out that the criterion of (only) minor deficiencies mentioned in those guidelines is not satisfied in this case. This is not a case of minor deficiencies in the control system. Rather it is a case where no checks were carried out to ascertain whether multiple tenders were made in respect of the same quantity of meat or indeed whether they were made by nominees. In view of this and of the resulting financial risk, the 2% flat-rate correction chosen by the Commission appears to be proportionate and reasonable.
91 Moreover, the applicant submits that the Commission should not have extended the 2% reduction to the budgetary item relating to depreciation. The failure to observe certain conditions for the submission of tenders had no effect whatsoever on storage conditions. Such a financial correction bears no relation to the financial risk which existed for the Fund.
92 In this connection, the Commission submits that the costs connected with depreciation bear a direct relation to the value of the quantities purchased, amounting to 50 to 55% thereof. It is therefore not clear how losses due to depreciation could be separated from other relevant items. That must be endorsed. The more meat is purchased by intervention - possibly as a consequence of excessive tenders - the more losses arise through its depreciation.
93 The applicant has thus been unable to show that the Commission erred in its assessment of the financial correction to be applied to the clearance of accounts.
94 Accordingly, the objections raised by the applicant against the Commission decision cannot succeed.
Intervention measures concerning public storage of cereals
95 In this connection, the applicant challenges the Commission decision from three points of view. Firstly, it claims that the measures adopted by the French authorities in the sphere of intervention for cereals were sufficient. The Commission, on the other hand, is of the opinion that the Fund was exposed to serious financial risks as a consequence of existing deficiencies in the control system.
96 In support of its submission, the applicant claims that certain of the measures demanded by the Commission are not laid down in the relevant Community provisions.
97 In this connection, reference should be made to Article 6 of Commission Regulation (EEC) No 689/92 of 19 March 1992 fixing the procedure and conditions for the taking-over of cereals by intervention agencies, (43) which states: `The intervention agencies shall, where necessary, adopt additional procedures and conditions for taking over, compatible with this Regulation, to take account of any special conditions existing in the Member State in question; ...'
98 Irrespective of the foregoing, it is nevertheless for Member States, as has already been demonstrated, to carry out all the necessary checks in the context of the EAGGF, even if those checks are not expressly contained in the text of the relevant provisions.
99 Furthermore, the applicant submits that the measures provided for by it were sufficient and that the checks were carried out as prescribed. It is questionable whether that submission is sufficient to refute the Commission's opinion.
100 That is so a fortiori since, as the applicant itself states, according to the Conciliation Body the French authorities do not dispute that they had to modify their original system in order to comply with the Commission's requirements. According to the applicant, however, the improvements notified were not carried out until 1993.
101 According to the Court's case-law, the Commission is obliged on each occasion to give reasons for its decision finding an absence of, or defects in, inspection procedures operated by the Member State in question. (44) In the case cited, the Commission argued, inter alia, that the competent authorities had been unable to provide information either on the frequency of on-the-spot inspections or on the system of communication between the supervisory authorities and local officials. They were also said to have been unable to comment on the failure to draw up written reports. From the Commission's point of view, those factors constituted sufficient reasons for its decision. It was now for the applicant to show that the Commission's findings were inaccurate. It was not sufficient in this regard, the Court went on, for the applicant to contend that administrative checks as well as on-the-spot inspections were in fact carried out, but without producing any evidence for it. Since it had thus failed to show that checks had been carried out, those findings were capable of giving rise to serious doubts as to the existence of an adequate and effective series of supervisory measures and inspection procedures. (45)
102 In this case also, the applicant has basically put forward mere assertions. That cannot suffice in view of the fact that the Commission found that cereals which should have been stored under different systems had been mixed together or substituted for one another. That allegation has not been denied by the applicant. The latter has merely pointed out that cereals which were supposed to be stored in the context of intervention measures were not concerned. Nevertheless, as the Commission rightly argues, it can be inferred from this that the effectiveness of the control system was questionable and that there was the risk that cereals stored under different arrangements were not strictly separated from each other.
103 The applicant has thus been unable to show that the measures adopted by it were sufficient and that there was no breach of Regulation No 729/70. The other submissions made by the applicant relate to the 1993 marketing year which cannot be used by way of comparison since, according to the applicant, the notified improvements to the system were carried out in December 1993.
104 Secondly, the applicant pleads a breach of the principle of legal certainty. It refers in this connection to the Commission's communication indicating that no financial corrections would be made in view, in particular, of the improvements which had been notified by the French authorities. The fact that the Commission did, after all, make a correction for 1992, was a breach of legal certainty.
105 It should be said in this connection that the Commission had based that announcement on the fact that the French authorities for their part had notified improvements. According to the Commission, those improvements were not carried out. (Thus the Commission found that there was substitution and/or mixing of cereals with different storage arrangements.)
106 The applicant argues in this connection that it is also a breach of legal certainty if decisions are based on provisions other than those applicable to intervention measures. However, as has already been demonstrated, it is at least possible to infer from this that there were deficiencies in the control system. The applicant would at least have had to submit that such substitution was allowed in the case of the other storage methods mentioned. This it has failed to do.
107 On the other hand, it should be pointed out that the Commission also made clear in its communication that, if a missing quantity were established as a result of substitution between individual cereal storages arrangements, substantial financial corrections would be made. If such action is then eventually taken, that cannot be a breach of legal certainty.
108 The applicant further submits that the Commission should not have relied on mere rumours regarding substitution between different types of storage. As has already been demonstrated above, the matters put forward by the Commission were sufficient in this connection.
109 Finally, the applicant claims that the Commission has been unable to cite any examples of substitution occurring between cereals under different storage arrangements. In this connection, reference should be made to the Court's case-law. The Court has held that where the Commission has not adduced any evidence relating to individual cases in which the agricultural rules were not complied with, that does not mean that the supervisory system existing in the Member State concerned guarantees the correct application of those rules. Proven individual cases constitute an additional factor which may substantiate the Commission's criticisms regarding the effectiveness of the Member State's supervisory system. (46) Moreover, the applicant itself has denied that such substitutions occurred.
110 Consequently, it is not possible to discern any breach of the principle of legal certainty.
111 Finally, the applicant relies in the alternative on a breach of the principle of proportionality. In its opinion, the 2% reduction should not also have been applied to budget item 10-13, which concerns losses on the sale of stocks. Such losses, it argues, are fully offset by Commission Regulation (EEC) No 3597/90 of 12 December 1990 on the accounting rules for intervention measures involving the buying-in, storage and sale of agricultural products by intervention agencies. (47) To that extent, it argues, the Fund incurred no losses whatever under that budget item.
112 The Commission, on the other hand, submits that the item in question relates to financial consequences of losses in the context of sales. Since it established that there were missing quantities, it argues that this, in combination with the existing control deficiencies, could result in losses to the Fund.
113 Whether there were in fact missing quantities in this case is a matter of dispute between the parties. As has already been demonstrated, however, it may be assumed that there were deficiencies in the control system. That being the case, it is not possible to concur with the applicant when it claims that such losses on sales were immediately offset. That would presuppose extensive controls which, however, did not exist. To that extent losses were liable to occur in the context of budget item 10-13. There is thus no breach of the principle of proportionality.
114 No ground has therefore been disclosed for annulling the Commission decision.
Costs
115 Under the first subparagraph of Article 69(2) of the Rules of Procedure of the Court the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings.
D - Conclusion
116 I therefore propose that the Court should:
(1) dismiss the action;
(2) order the French Republic to pay the costs.
(1) - European Agricultural Guidance and Guarantee Fund.
(2) - This problem is also at least partly in issue in Cases C-209/96 United Kingdom v Commission [1998] ECR I-5655, C-233/96 Denmark v Commission [1998] ECR I-5759, C-238/96 Ireland v Commission [1998] ECR I-5801 and C-242/96 Italy v Commission [1998] ECR I-5863.
(3) - The relevant provision is to be found in Article 11(3) of Commission Regulation (EEC) No 859/89 of 29 March 1989 laying down detailed rules for the application of intervention measures in the beef and veal sector (OJ 1989 L 91, p. 5).
(4) - Article 13(4) of Regulation No 859/89.
(5) - Fourth recital in the preamble to and Article 5 of Regulation (EEC) No 805/68 of the Council of 27 June 1968 on the common organisation of the markets for beef and veal (OJ, English Special Edition 1968 (I), p. 187).
(6) - Cited in footnote 3.
(7) - Third recital and Article 7 et seq. of Regulation No 859/89.
(8) - Second recital in the preamble to Council Regulation (EEC) No 571/89 of 2 March 1989 amending Regulation (EEC) No 805/68 on the common organisation of the market in beef and veal, repealing Regulation (EEC) No 1302/73 and extending Regulation (EEC) No 4132/88 (OJ 1989 L 61, p. 43).
(9) - Commission Decision 96/311/EC of 10 April 1996 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1992 of the Guarantee Section of the European Agricultural Fund and in respect of certain expenditure for 1993 (OJ 1996 L 117, p. 19).
(10) - Document VI/6355/95.
(11) - Emphasis added.
(12) - Emphasis added.
(13) - OJ 1993 L 225, p. 4.
(14) - Established 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 EAGGF Guarantee Section (OJ 1994 L 182, p. 45).
(15) - See footnote 9.
(16) - Judgment in Case C-48/91 Netherlands v Commission [1993] ECR I-5611, at paragraphs 13 and 14, with further references.
(17) - Judgment in Netherlands v Commission (cited in footnote 16, at paragraph 18, with further references); judgment in Case C-281/89 Italy v Commission [1991] ECR I-347, at paragraph 19, with further references; judgment in Case 347/85 United Kingdom v Commission [1988] ECR 1749, at paragraph 16; judgment in Case C-55/91 Italy v Commission [1993] ECR I-4813, at paragraph 13, with further references.
(18) - Judgment in Case 349/85 Denmark v Commission [1988] ECR 169, at paragraph 16.
(19) - Judgments in Case C-283/91 Contarini [1992] ECR I-6359, at paragraph 14, and Joined Cases C-296/93 and C-307/93 France and Ireland v Commission [1996] ECR I-795, at paragraph 21.
(20) - Commission Regulation (EEC) No 2271/90 of 1 August 1990 amending Regulation (EEC) No 859/89 laying down detailed rules for the application of intervention measures in the beef and veal sector (OJ 1990 L 204, p. 45).
(21) - This distinction is also reflected in the English version, which speaks of `interested parties' and `tenderer'.
(22) - Commission Regulation (EEC) No 1282/90 of 15 May 1990 amending Regulation (EEC) No 859/89 laying down detailed rules for the application of intervention measures in the beef and veal sector (OJ 1990 L 126, p. 31).
(23) - Regulation (EEC) No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy (OJ, English Special Edition 1970 (I), p. 218).
(24) - Article 3(1) of Regulation 729/70 provides:
`Intervention intended to stabilise the agricultural markets, undertaken according to Community rules within the framework of the common organisation of the markets, shall be financed under Article 1(2)(b).'
(25) - Judgment in Case 11/76 Netherlands v Commission [1979] ECR 245, at paragraphs 8 and 9.
(26) - Judgment in Netherlands v Commission, cited in footnote 16, at paragraph 11.
(27) - Seventh recital in the preamble to Regulation No 729/70.
(28) - Judgment in Netherlands v Commission, cited in footnote 16, at paragraph 11; judgments in Case C-366/88 France v Commission [1990] ECR I-3571, at paragraph 20; in Case C-8/88 Germany v Commission [1990] ECR I-2321, at paragraph 17; and in Joined Cases 146/81, 192/81 and 193/81 Baywa [1982] ECR 1503, at paragraph 26.
(29) - Judgment in Case C-2/93 Exportslachterijen van Oordegem [1994] ECR I-2283, at paragraphs 17 and 18.
(30) - Article 10 of Regulation No 859/89.
(31) - Third recital in the preamble to Regulation No 859/89.
(32) - Third recital in the preamble to Regulation No 2456/93.
(33) - Second sentence of Article 11(3).
(34) - Judgment in Netherlands v Commission, cited in footnote 16, at paragraph 14, with further references.
(35) - Judgments in Netherlands v Commission, cited in footnote 16, at paragraph 16, and United Kingdom v Commission, cited in footnote 17, at paragraph 14.
(36) - Judgments in Case C-50/94 Greece v Commission [1996] ECR I-3331, at paragraph 26, Joined Cases 15/76 and 16/76 France v Commission [1979] ECR 321, at paragraph 32 et seq., and United Kingdom v Commission, cited in footnote 17, at paragraph 13.
(37) - Judgment in Netherlands v Commission, cited in footnote 16, at paragraph 17.
(38) - Judgment in Case 327/85 Netherlands v Commission [1988] ECR 1065, at paragraph 25.
(39) - Judgment in Case C-49/94 Ireland v Commission [1995] ECR I-2683, at paragraph 22.
(40) - See points 60 to 82.
(41) - Judgment in United Kingdom v Commission, cited in footnote 17, at paragraphs 14 and 15.
(42) - See footnote 36.
(43) - OJ 1992 L 74, p. 18.
(44) - Judgment in Case C-8/88 Germany v Commission [1990] ECR I-2321, at paragraph 23.
(45) - Judgment in Germany v Commission, cited in footnote 44, at paragraph 26 et seq.
(46) - Judgment in Netherlands v Commission, cited in footnote 16, at paragraph 33.
(47) - OJ 1990 L 350, p. 43.
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