146/81
Grade B
mapped from publisher markup. A grade says how a document's structure was obtained, not how reliable the law is.
Not the law itself: Judgment
Address https://gelex.eu/eli/EU/judgment/61981J0146@1982-05-06/en
In Joined Cases 146, 192 and 193/81 REFERENCE to the Court under Article 177 of the EEC Treaty by the Verwaltungsgericht [Administrative Court] Frankfun am Main for a preliminary ruling in the proceedings pending before that court between BayWa AG, Munich (Federal Republic of Germany), Raiffeisenbank Unterspiesheim und Umgebung e.G., Unterspiesheim (Federal Republic of Germany), and Raiffeisenbank Bütthard e.G., Biitthard (Federal Republic of Germany) — Case 146/81 — Raiffeisen Hauptgenossenschaft e.G., Hanover (Federal Republic of Germany) — Cases 192 and 193/81 — plaintiffs, and Bundesanstalt für landwirtschaftliche Marktordnung [Federal Office for the Organization of Agricultural Markets], Frankfun am Main (Federal Republic of Germany), defendant, and Rhenus AG, Mannheim (Federal Republic of Germany), party called by the court in the main action which gave rise to Case 146/81, on the interpretation of: Articles 4 (2) and 2(1) of Regulation (EEC) No 172/67 of the Council of 27 June 1967 (Official Journal, English Special Edition 1967, p. 139), Articles 4 (3) and 5 of Regulation (EEC) No 1403/69 of the Commission of 18 July 1969 (Official Journal, English Special Edition 1969, p. 345) and Article 8 of Regulation (EEC) No 729/70 of the Council of 21 April 1970 (Official Journal, English Special Edition 1970 (I), p. 218), THE COURT (Second Chamber) composed of: O. Due, President of Chamber, A. Chloros and F. Grévisse, Judges, Advocate General: F. Capotorti Registrar: H. A. Rühi, Principal Administrator gives the following
JUDGMENT
Facts and Issues The facts of the case, the course of the procedure and the obsen'ations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC may be summarized as follows:
In the course of 1969, 1970 an 1971, the plaintiff undertakings, BayWa, Raiffeisenbank Unterspiesheim and Raiffeisenbank Biitthard denatured cereals (or had them denatured by another company, Rhenus) in respect of which the Bundesanstalt für landwirtschaftliche Marktordnung [hereinafter referred to as the Federal Office] after carrying out inspections during the course of the denaturing, paid denaturing premiums pursuant to Regulation No 172/67 of the Council on general rules governing the denaturing of wheat and rye of bread-making quality and to Regulation No 1403/69 of the Commission laying down detailed rules for the application of the provisions concerning denaturing of common wheat and rye of bread-making quality. The Raiffeisen Hauptgenossenschaft was granted denaturing premiums on 14 Mav and 27 Julv 1970. 21 September 1973 and 8 Februar) 1974. The denaturing was effected either by the use of the colouring agent Patented Blue V or by the addition of fish oil or cod-liver oil. The latter process was used in particular for the operations carried out by or on behalf of Raiffeisen Hauptgenossenschaft. The findings of the court making the reference indicate that the denaturing operations were conducted wholly or partially in the presence of the defendant's inspectors. The inspection reports do not show whether the inspectors also checked the incorporation of the denaturing product. The reports do not contain any objections. The plaintiffs in the main action observed at the hearing that those findings were, in their opinion, incomplete. In the plaintiffs' own words, the inspection reports refer to the precise quantity and characteristics of the common wheat, the precise quantity and type of denaturing product used and the method of denaturing employed and it is only ... in certain reports drawn up by the Einfuhr und Vorratsstelle [Importation and Storage Agency] that ... the weight of denaturing product is not specifically indicated. They add, moreover, that ... in the case of the inspections carried out after 1 August 1970, the precise quantities of denaturing product actually held in stock by the plaintiffs were checked before and after each denaturing operation and were expressly attested .... In the plaintiffs' view, proof of their contentions lies in the inspection reports annexed either to the obsenations submitted to the Court or to the statements submitted in the main action before the Verwaltungsgericht Frankfurt am Main. In 1975 and 1976, that is to say several years after the denaturing operations had taken place, the Federal Office carried out audits of the accounting records of the undertakings which had received the premiums. On completion of those audits, it took the view that the accounting records examined revealed that the undertakings had not purchased denaturing products in sufficient quantities to have been able to apply the standard methods established either by Community law or, pursuant to the latter, by national law, setting out the detailed rules for the denaturing of cereals. The accuracy of the audits carried out by the Federal Office was challenged by the undertakings on the ground that in view of the time which had elapsed between the contested denaturing operations and the audits (on average five years) the records which had been kept showed only the general accounts of the undertakings and could not clearly reveal the quantities of denaturing agents used for each operation. Furthermore, some of the undertakings contended that since they had not carried out the denaturing operations themselves they had been unable to keep accounting records; such records could have been kept only by the denaturing undertakings acting on their behalf. However, although the inspections carried out during the denaturing operations established that the cereals had actually been rendered unsuitable for human consumption, the Federal Office demanded, solely in the light of the audits, the repayment of the denaturing premiums which it had granted. The demand for repayment was the subject of an extrajudicial objection by the plaintiff undertakings. The objection was however rejected, and BayWa, Raiffeisenbank Unterspiesheim, Raiffeisenbank Bütthard and Raiffeisen Hauptgenossenschaft then instituted proceedings before the Verwaltungsgericht Frankfun am Main. Rhenus, which had carried out denaturing on account of the plaintiffs, was called by the court as an additional parry to the proceedings. The three orders made by the court are couched in the same terms. In the first place, the Verwaltungsgericht (First Chamber) considers that the right to a denaturing premium does not arise merely as a result of the fact that the cereals have been rendered unsuitable for human consumption but is subject to compliance with the standard method set out in the annex to Regulation No 1403/69 of the Commission. However, the conflicting decision of the Hessischer Verwaltungsgerichtshof [Higher Administrative Court, Hessen] of 18 February 1980 (Az. VIII — OE 20/79) has cast doubt on the soundness of that interpretation. Secondly, the court making the reference considers that a decision granting denaturing premiums may be revoked at any time if the results of the inspections carried out during denaturing are subsequently proved inaccurate in the light of a subsequent audit. That interpretation is based on the need to guard against fraudulent operations and the provision of imprecise or incomplete data by undertakings with a view to securing decisions to grant premiums from the intervention agencies. However, the Verwaltungsgericht questions whether that analysis is compatible with the text of Regulation No 1403/69, in particular with Article 4 thereof, which lays down that the granting of a denaturing premium shall be subject to supervision ... of the process of denaturing of common wheat. In particular, the judgment of the Court of Justice of 14 January 1981 in Case 819/79 Germany v Commission [1981] ECR 21 may be interpreted as meaning that Community law precludes repayment of the premium where the supervision of the denaturing has been satisfactor). Finally, the court making the reference questions the extent of the discretion left by Community law to national intervention agencies to decide whether to recover denaturing premiums which have been unduly granted. In particular, the question is whether the Federal Office, pursuant to the Verwaltungsverfahrensgesetz [German Law of 25 May 1976 on administrative procedure] (Bundesgesetzblatt I, p. 1253), should, before revoking the decision granting the premiums and demanding their repayment, first have determined the extent of the plaintiffs' expectation that that decision would remain in force, or whether on the contrary the Federal Office was obliged under Community law to require in all circumstances the repayment of the unduly paid premiums. The effect of the latter interpretation would be to exclude German law from the scope of the administrative procedure which, under Article 48 (1) of the Law of 1976, requires the administrative authority to hear the views of the persons concerned by the measure whose revocation was proposed. On those grounds, the Verwaltungsgericht Frankfun am Main, by orders of 30 April 1981 drawn up in identical terms and received at the Court Registry on 9 and 25 June 1981. stayed the proceedings and, before delivering judgment, referred the following questions to the Court of Justice for a preliminary ruling: In accordance with Article 20 of the Protocol on the Statute of the Court of Justice, written observations were submitted by the following: BayWa AG; the agricultural credit cooperatives Raiffeisenbank Unterspiesheim und Umgebung e.G., and Raiffeisenbank Biitthard e.G., all three represented by Dr. Helmut Fischer, senior legal adviser to BayWa AG; the cooperative Raiffeisen Hauptgenossenschaft e.G., represented in the proceedings by Fritz Modest and Partners, Rechtsanwälte, Hamburg; the Government of the Federal Republic of Germany, represented by Dr Martin Seidel, Ministerialrat at the Federal Ministry for the Economy, assisted by Jochim Sedemund, Rechtsanwalt, Cologne, acting as Agents; and the Commission of the European Communities, represented by Meinhard Hilf, a member of its Legal Department, acting as Agent. By order of 15 July 1981, the Court decided to join the three cases for the purposes of the procedure and the judgment. On hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry. By order of 20 January 1982, the Court decided, pursuant to Article 95 (2) of the Rules of Procedure, to assign the case to the Second Chamber.
sec_1
sec_1
sec_1 I —
Facts and procedure
(a) Has a denaturing premium granted on the basis of Article 4 (2) of Regulation (EEC) No 172/67 of the Council of 27 June 1967 (Official Journal, English Special Edition 1967, p. 139) been allocated unlawfully only when the denaturing operation has failed to achieve the purpose specified in Article 2(1) of the regulation or when the standard method laid down in Annex I to Regulation (EEC) No 1403/69 of the Commission (Official Journal, English Special Edition 1969 (II), p. 345) has not been adhered to?
(b) Can recovery of the denaturing premium be based on the results of an audit of the accounting records carried out on completion of the denaturing process or does it follow from Articles 4 (3) and 5 of Regulation No 1403/69 that the results of ex post facto audits are to be disregarded? If ex post facto checks are taken into account, how important are they in relation to the exercise of supervision provided for in Article 4 (3) of Regulation No 1403/69
(c) Does Article 8 of Regulation (EEC) No 729/70 of the Council ot' 21 April 1970 (Official Journal. Enphih Special Edition 1970 (I), p 21m require Member States in even case to recover unlawfully granted denaturing premiums or does the reputation allow Member States to leave individual cases of recoven to the discretion of the competent authorities, in accordance with national legal provisions?
sec_2 II —
Observations submitted in pursuance of Article 20 of the Protocol on the Statute of the Court of Justice of the EEC
The provisions relating to the grant of premiums for the denaturing of cereals and to the supervision of such operations, reference to which is made in the file on the case, may be summarized as follows:
sec_1 A —
Legislative background described by the observations submitted to the Court
sec_1 I —
Provisions relating to the acquisition of a right to the premium
sec_1
1. Community provisions
(a) Premiums for the denaturing of common wheat and rye of bread-making quality were introduced bv Regulation (EEC) No 172/67 of the Council of 27 June 1967 in connection with Regulation (EEC) No 120/67 of the Council of 13 June 1967 (Official Journal, English Special Edition 1967, p. 33) on the common organization of the market in cereals. The main provisions of Regulation (EEC) No 172/67 are worded as follows: First recital ... methods of denaturing should be effective enough to prevent the denatured cereal being placed again on the market for human consumption in its original state or as a processed product; ... it is therefore advisable to lay down technical methods offering minimum safeguards in that respect and to provide that in no case could the methods actually employed by Member States result in a lesser degree of denaturing. Article 2(1) The methods employed for denaturing must ensure that denatured wheat and rye can no longer be used for human consumption. (2) These methods must be at least as effective as a standard method to be determined. Anide 4 (2) of the regulation lays down that the grant of the premium is to be subject to compliance with the requirements of Article 2.
(b) In application of the same regulation, Regulation (EEC) No 1403/69 of the Commission provides: Third recital ... experience shows that it is advisable to maintain, as a standard method, the method of denaturing previously used and, in the case of denaturing by colouring, to ensure uniform application of this method throughout the Community. Article 1 The standard method of denaturing common wheat and rye of bread-making quality provided for in Article 2 (2) of Regulation (EEC) No 172/67 shall be as described in Annex I. In the case of denaturing by colouring, the standard method only shall be used. In the case of denaturing otherwise than by colouring, the means used must be at least as reliable as the standard method. In the original version of that regulation, the standard method consisted of denaturing by colouring. Annex I, referred to in Article 1 of Regulation No 1403/69, defines the colouring matter (Patented Blue V), the quantities to be used and the directions for use. Regulation (EEC) No 1092/70 of the Commission of 10 June 1970 (Official Journal, English Special Edition 1970 (II), p. 354) lays down a second standard method of denaturing by the addition of fish oil or fish-liver oil. That standard method is set out in a new Annex II to Regulation No 1403/69.
According to the information supplied to the Court by the Government of the Federal Republic of Germany which has not been challenged by the panies, the legal position in the Federal Republic of Germany is governed by the Durchführungsgesetz EWG Getreide, Reis, Zucker, Schweinefleisch, Eier und Geflügelfleisch sowie Verarbeitungserzeugnisse aus Obst und Gemüse mit Zusatz von Zucker (EEC Implementing Law on wheat, rice, sugar, pigmeat, eggs and poultry as well as products processed from fruit and vegetables with the addition of sugar) of 30 June 1967 (BGBl. p. 617) as amended by the Law of 30 July 1968 (BGBl. I, p. 874) bringing into force the common organization of markets in the cereal sector etc. and its implementing provisions adopted by the Minister for Agriculture which include the regulations of 8 August 1968 (Banz No 148) and 19 November 1971 (BGBl. I, p. 1831) relating to the grant of denaturing premiums in respect of common wheat. Those texts and the directives adopted annually for their implementation by the director of the Federal intervention agency contain, inter alia, provisions relating to methods of denaturing. In the opinion of the Government of the Federal Republic of Germany the Community regulations left it to the Member States to adopt rules under national law, in respect of denaturing, subject to the condition laid down by Article 2 (2) of Regulation (EEC) No 172/67/EEC that the methods selected must be at least as effective as a standard method — which was subsequently determined bv Regulation No 1403/69. Thus, even before the adoption of Regulation No 1092/70 of the Commission (see paragraph 1 (b) above), a method of denaturing cereals by the addition of fish oil had been permitted by and defined in rules made by the Federal Republic of Germany. It is not disputed that that method offered a guarantee at least as reliable as that afforded by the Community's standard method, denaturing by colouring, which was initially the only method provided for by Regulation Ńo 1403/69.
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2. National provisions
sec_2 II —
Provisions relating to the supervision of denaturing
sec_1
1. Community provisions
(a) Article 7 of Regulation No 172/67 of the Council is drafted as follows: To qualify for the premium, denaturing should be effected in agreement with the intervention agency and under its supervision.
(b) Pursuant to that provision, Article 4 (3) of Regulation No 1403/69 provides that: The granting of a denaturing premium shall be subject to supervision by the intervention agency of the process of denaturing of common wheat, or of its admixture, unaltered, with compound feedingstuffs falling within heading No 23.07 of the Common Customs Tariff. [See Customs Cooperation Council, Explanatory Notes to the Brussels Nomenclature, Volume I, Section IV, heading No 23.07, p. 159.] The duration of the denaturing process shall noi exceed one day per 40 metric tonnes of cereals processed.
(c) In general terms. Regulation No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy lays down in Article 8(1): 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. The Member States shall inform the Commission of the measures taken for those purposes and in particular of the state of the administrative and judicial procedures.
(d) With the same object in view, though much later so that no reliance may be placed on it for the solution of the present dispute, Council Directive 77/435/EEC of 27 June 1977 (Official Journal L 172, p. 17) on scrutiny by Member States of transactions forming pan of the system of financing by the Guarantee Section of the European Agricultural Guidance and Guarantee Fund entrusts those States with the task of exercising surveillance, in particular, scrutinizing the accounts of undertakings involved in guarantee transactions under the Fund. To that end. it is designed to harmonize the conditions and the scope of such surveillance as is borne out bv the second and fourth recitals in the preamble to the directive as follows: Second recital ... scrutiny of the commercial documents of undertakings receiving or making payments can be a very effective means of surveillance of transactions forming part of the system of financing by the Guarantee Section of the EAGGF and should therefore be applied throughout the Community; ... this scrutiny supplements other inspections already carried out by the Member States, particularly the direct inspection of transactions while they are being carried out and the scrutiny of book records of stock provided for in certain cases; ... furthermore, national provisions relating to scrutiny which are more extensive than those provided for in this directive are not affected by this directive. Fourth recital ... it is for Member States to determine the frequency and scope of such scrutiny, particularly in the light of the nature of the transactions carried out under their responsibility and of the breakdown of the undertakings receiving or making payments according to their financial importance in the system of financing bv the Guarantee Section of the EAGGF.
Pursuant to those provisions, leaving aside the directive of 27 June 1977 which is inapplicable, the legislature of the Federal Republic of Germany has adopted, in connection with the supervision of the manner in which denaturing is carried out, certain provisions (paragraph 10 of the Regulation of 8 August 1968 and paragraph 12 of the Regulation of 12 November 1970), which provide for the exercise of control in two stages: direct supervision of the operation and ex post facto scrutiny of documents. With thai end in view, undertakings are required to compile documents specifying the quantity, origin, characteristics, storage and intended use of the cereals as well as records of the quantities of denaturing agent employed for each operation. Those documents are to be kept for seven years. The legislature of the Federal Republic of Germany has, moreover, adopted provisions on the recovery of premiums unduly paid: the first sentence of paragraph 13 (1) of the Regulation of 12 November 1970 and paragraph 6(1) of the Federal Office's directives for the 1969/70 marketing year impose an obligation on the intervention agency to recover any unduly paid sums by excluding any right to exercise a discretion within the meaning of paragraph 48 (1) of the Law of 25 May 1976 on administrative procedure.
sec_2
2. National provisions
sec_2 B —
Observations of the plaintiffs in the main action
1
(a) The plaintiff undertakings Bay Wo, Raiffeisenbank Unterspiesheim and Raiffeisenbank Biitthard commenced by submitting observations on the third question of the national court which, in their opinion, must be answered in the negative. The wording of Article 8 of Regulation No 729/70 is unequivocal and entrusts the Member States with the task of taking, in accordance with the provisions of national law, the measures and proceedings necessary to recover sums unduly paid. That interpretation is supported by the judgments of the Court in Joined Cases 178 to 180/73 Belgium and Luxembourg v Mertens [1974] ECR 383 and in Joined Cases 119 and 126/79 Lippische Hauptgenossenschaft v Bahn [1980] ECR 1863. In the view of the plaintiffs in the main action, it follows that the Federal Office should have demanded repayment of the sums alleged to have been unduly granted in accordance with the procedural and substantive rules laid down by German administrative law in the Verwaltungsverfahrengesetz of 25 May 1976. Accordingly, the Federal Office should first have set about withdrawing the decision granting the contested premiums by observing the procedure laid down by the first sentence of Paragraph 48 (1) of the aforesaid law. The central feature of that provision is that the administration must, in connection with the exercise of the discretion resulting from its obligations when it balances the public interest against the private interest of the person affected by the measure, hear the party concerned before it takes a decision withdrawing the unlawful measure. The right of those affected to be heard before the adoption of an administrative measure has moreover been recognized as a general principle of Community law in a large number of cases decided by the Court. The Federal Office could have evaded its duty to comply with the provisions of national administrative law only if it had been compelled either by the Community legislature or by authorization under national law, to withdraw its decisions granting premiums. That is not so in the present case: Regulation No 729/70 contains a reference to national law and the German implementing provisions relating to the denaturing of agricultural products (EEC Implementing Law of 30 June 1967, as amended by the Law of 30 July 1968) and the Regulation on denaturing of 19 November 1971 to which reference has already been made permit no derogations from the general principles of administrative law concerning the withdrawal of unlawful administrative measures which give rise to rights. As regards the risk that different treatment may be accorded to undertakings in comparable situations as a result of the application of different national laws relating to the recovery of sums unduly paid, the plaintiffs in the main action contend that academic writers do not support the view that the German legal system countenances, to a significant extent, more favourable treatment than that reserved by other national legal systems to other traders. In principle, moreover, equal treatment of undertakings is achieved, in spite of the differences between national laws, as a result of the exercise by the national administrative authorities of their discretionary power in the public interest. In any event, the principles laid down by the legislature of the Federal Republic of Germany have been the subject of a recommendation of 11 March 1980 by the Committee of Ministers of the Council of Europe and its application to German citizens cannot be ruled out merely because the other Member States have not as yet complied with the principles recognized by that recommendation. On those grounds, the plaintiffs in the main action conclude that the third question submitted by the national court must be answered in the negative.
(b) As regards the second question submitted by the national court concerning the repayment of the premiums granted on the basis of the results of a subsequent audit of the accounts, the plaintiffs' contentions are as set out below. It is necessary to draw a distinction between the checks carried out prior to the decision granting the premium and those effected subsequently. In its judgment in Case 3/73 Hessische Mehlindustrie v Einfuhr- und Vorratsstelle Getreide [1973] ECR 745, the Court held that the legislature of the Community had left the Member States the power to regulate the detailed rules of supervision. However, it is apparent from the wording of the first sentence of Article 4 (3) and from Article 5 of Regulation No 1403/69 of the Commission as well as from that of Article 7 of Regulation No 172/67 of the Council that the acquisition of the right to the premium is subject to inspection by the intervention agency of the denaturing operations, which necessarily implies supervision prior to the decision to grant the premium. In that connection, the judgment of the Court in Case 3/73 is to be interpreted as meaning that the Member States are free to choose the detailed rules of supervision (constant supervision, or spot checks, supervision during the operation itself or on its completion and so on) but not to alter the condition laid down by Community law for the acquisition of the right to the premium (namely that the denaturing must actually be carried out before the premium is granted). If an inspection carried out after the decision granting the premium were permitted, under national law, to call that decision in question, that would amount to a significant amendment of the scope of the Community provisions by making the retention of the premium subject to a condition imposed by national law alone, which would prejudice the uniform application of Community law. Furthermore, the plaintiffs point out that the two checks (during the denaturing and following the adoption of the decision granting the premium) are not qualitatively comparable and cannot give rise to the same effects. It is impossible to agree that the results of supervision carried out by means of an inspection on the spot during the operation and constituting primary proof may be called in question by means of an audit carried out several years later and constituting no more than secondary proof. Before the inspection reports stating that denaturing has been carried out and serving as a legal basis for the decision granting premiums may be rejected, the evidence must show beyond all doubt that a serious irregularity has occurred. In any event, the absence of accounting records several years after the carrying-out of an operation recognized as being lawful at the material time is insufficient to call in question the result of supervision effected by independent inspectors during the operation itself or to permit the conclusion to be drawn that an irregularity existed ab initio necessarily casting doubt on the validity of the initial decision granting the premium. On those grounds, the plaintiffs conclude that the second question submitted by the national court must be answered as follows: The inspections carried out and the inspection reports supported by documentan evidence under Article 7 of Regulation (EEC) No 72/67 and Article 3 of Regulation (EEC) No 1403/69 lead as a matter of principle to a presumption that denaturing has been properly performed. The denaturing premium paid as a result cannot be made the subject of a claim for repayment based on a subsequent audit by an administrative authority of the Member State except after all other methods of proof have been exhausted and the content of the inspection repon must take precedence in the event of any doubt.
(c) As regards the first question relating to compliance with the standard method laid down in Annex I to Regulation No 1403/69, the plaintiffs in the main action distinguish between the grant and the withdrawal of the denaturing premium. As regards the grant of the premium, the plaintiffs are of the opinion that the standard method is binding in so far as its use may constitute a precondition for the acquisition of a right to the premium provided for by the Community legislature. As far as the withdrawal of the premium is concerned, however, the question whether or not the standard method has been complied with during denaturing no longer has the same importance. If the use of the cereals has proved contrary to the objectives of the premium, the undertaking may not, in the plaintiffs' opinion, rely upon the principles of the protection of acquired rights and of its expectation that the decision granting the premium will be maintained. If, however, it were to appear that the error committed during the denaturing process was only a minor one and that the cereals have indeed been withdrawn form the market in foodstuffs fit for human consumption, the administrative authority is not required to attach the same importance to noncompliance with the standard method but should determine, in accordance with the national laws governing formal and substantive conditions giving rise to the right to demand repayment (cf. answer to the third question), whether the protection of the public interest necessitates disregarding the right of private individuals to rely on the continued validity of the decision granting the premiums. For those reasons the plaintiffs conclude that failure to comply with the standard method need not necessarily result in the withdrawal of the decision granting the premium if the objective of the denaturing process has been attained.
2
(a) The plaintiff company Raiffeisen Hauptgenossenschaft recalls in the first place the legal and factual circumstances which led to the initiation of preceedings before the national coun and explains that the reference to the Court of Justice in the joined cases under consideration should be seen against the background of a large number of disputes brought since 1977 before the Verwaltungsgericht Frankfurt am Main and the Hessischer Verwaltungsgerichtshof. According to this plaintiff, those preceedings were all concerned with demands for the repayment of premiums granted in respect of the denaturing of wheat carried out at the end of the 1960s and the beginning of the 1970s. The relevant German authorities have in certain cases recognized that the complaints lodged by the plaintiff are justified and have revoked their demands for the repayment of the premium. The Hessischer Verwaltungsgerichtshof for its part has resolved some of the issues of law raised in the questions referred to the Court. The judgment delivered by that Vewaltungsgerichtshof was the subject of an appeal on a point of law to the Bundesverwaltungsgericht [Federal Administrative Court]. The plaintiffs observations subsequently focus on examining the questions raised by the Verwaltungsgericht Frankfurt am Main.
(b) As a preliminary remark, the plaintiff points out that the Court has laid down, in particular in Joined Cases 119 and 126/79 Lippische Hauptgenossenschaft v Bahn [1980] ECR 1863 and 265/78 Ferwerda v Produktschap voor Vee en Vlees [1980] ECR 617, that disputes on the repayment of sums collected on behalf of the Community are governed by national law by virtue of Article 8 of Regulation No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy. However, the Court of Justice has held that there are two restrictions on the applicability in principle of national law to those disputes : first, there must be no difference in the application of Community law according to whether the disputes have arisen as a result of the application of Community law or are, on the contrary, similar but exclusively national in character; secondly, the effect of applying national law must not be to render impossible in practice the exercise of rights conferred by Community law. Since the answers to the questions submitted by the national court are based on principles of the case-law of the Court of Justice, it is necessary to distinguish those which are applicable in areas covered by national law from those which are governed by Community law.
(c) In examining the first question which deals with the binding nature of the standard method set out in Annex I to Regulation No 1403/69 of the Commission, the plaintiff in the main action points out that rules have been adopted under Community law in respect of the method of denaturing only in order to specify, in Article 2 of Regulation No 172/67 of the Council, that the methods employed for denaturing must ensure that the cereals are rendered unsuitable for human consumption. In keeping with that approach, referred to in the third paragraph of Article 1 of Regulation No 1403/69 of the Commission, the standard method laid down in Annex I to that regulation constitutes only a model which in no way excludes any other method which the intervention agencies of the Member States are entitled to authorize. If the one standard method originally laid down by the provisions of Regulation No 1403/69, that is to say denaturing by colouring, is not used for denaturing cereals but, as in the present case, another process is employed, involving the addition of fish oil or cod-liver oil. the only question is whether, in accordance with the aforementioned provisions of Article 2 of Regulation No 172/67 the denatured cereals can no longer be used for human consumption and whether the process selected offers, for the achievement of that purpose, a guarantee that the means employed are at least as reliable as the standard method, that is to say denaturing by colouring. Thus, compliance with the standard method provided for in Annex I to Regulation No 1403/69 of the Commission is obviously not a precondition for the grant of the premium since that method is concerned only with colouring by the use of Patented Blue V.
(d) As regards the second question which relates to the validity of audits carried out ex post facto and, according to the plaintiff, to the evidence admitted in connection with demands for the repayment of premiums, the plaintiff submits as follows. The case-law of the Court establishes that by virtue of Article 8 of Regulation No 729/70 of the Council, the question of the recover of Community aids unduly granted is in principle governed by national law subject to the two conditions set by the plaintiff in the remark prefacing its answer to the questions. The general principles of evidence in German law compel the court to give judgment on the basis of its unfettered opinion, formed in the course of the entire proceedings. However, since the case-law of the Court of Justice requires that the application of national provisions shall not render impossible in practice the exercise of rights conferred by Community law, the national court is also obliged to observe the rules of Community law relating to the method of denaturing. In the present case, it is apparent from the layout of the provisions in question as well as from the wording of Article 5 of Regulation No 1403/69 that the intention of the Community legislature is to bring the principal weight of the controls to bear on inspections of operations on the spot. The importance of supervision on the spot whilst denaturing operations are in progress has moreover been recognized by the Court in Case 819/79 of 14 January 1981 [1981] ECR 21 concerning the conditions for granting premiums in respect of the denaturing of skimmedmilk powder governed by Regulation No 990/72 of the Commission of 15 May 1972 (Official Journal, English Special Edition 1972 (II), p. 428). That regulation provides for a system of controls which is essentially identical to the system provided for by Regulation No 1403/69. The Court's solution is therefore applicable to the present case. Consequently, even if national law confers on the national court a discretion in relation to the evidence produced before it, the court must none the less acknowledge the dominant role of the system of proof established by Community law, that is to say inspections on the spot. The opposite solution would jeopardize the uniform application of Community law by making the grant and retention of premiums paid thereunder subject to divergent systems of proof according to the Member States in which undertakings in comparable situations operate. The plaintiff observes in that connection that although under Community law the Member States may adopt measures of control other than those prescribed by Community law, the latter nowhere makes provision for a system of control on the basis of ex post facto audits of accounting records. The results of the checks carried out by the Member States on their own initiative cannot therefore have the same importance for a national court as the results of the controls prescribed by the Community legislature as being necessary for the implementation of a measure which it has enacted itself. For that reason the plaintiff takes the view that the answer to the second question submitted by the national court should be that the significance to be ascribed to an audit carried out subsequently to the completion of a denaturing operation is a question of evidence which must be decided in accordance with national law. However, since Community law provides solely for an inspection of the denaturing operations which is to be carried out on the premises by the intervention agency, the results of that check must take precedence over other controls unilaterally prescribed by the Member States.
(e) In reply to the third question concerning the discretion conferred by German law on the intervention agency where it proposes to demand repayment of Community aids unduly granted, the plaintiff cites the actual terms in which Article 8 (1) of Regulation No 729/70 of the Council is couched. It is possible to state on the basis of that provision that, in that area, Community law refers back to the law of the Member States. Thus Community law leaves the matter to the national laws of the Member States and contains no provisions relating to the conditions for repayment of aids unduly granted; similarly, it in no way provides that an aid unduly granted must necessarily, notwithstanding the applicable national provisions safeguarding the principles of legal certainty or the protection of legitimate expectation, be repaid. The relevant provisions of German law to which Community law refers in the matter of the recovery of sums unduly paid require the Federal Office in this case to comply with the procedure for the withdrawal of illegal administrative measures provided for by the first sentence of paragraph 48 (1) of the Verwaltungsverfahrensgesetz of 25 May 1976. In particular, that provision lays down that the Federal Office may withdraw a decision granting premiums only after examining all the factual circumstances of the case and exercising the discretion which devolves upon it by virtue of the general principles of German administrative law consolidated by the Law of 1976. The Federal Office may evade that procedure only if its implementation were to conflict with one of the two restrictions arising from the case-law of the Court on the application of the provisions of national law. In the opinion of the plaintiff in the main action, however, that is not the case. To begin with, the application of Article 48 of the Law of 25 May 1976 to the present dispute complies with the obligation defined by the Court that no distinction must be drawn between disputes under Community law and similar ones under national law. It is apparent from the decisions of the German administrative courts (in particular, the judgment of the Hessischer Verwaliungsgerichtshof of 9 March 1981) that disputes resulting from the application of the German regulations of 1968 and 1971 relating to premiums for the denaturing of cereals are governed by the same administrative procedure, provided for bv Article 48 of the Law of 25 May 1976. Secondly, the application of German administrative law to a dispute between an undertaking and the Federal Office is not such as to render impossible in practice the exercise of rights conferred by Community law. The second condition defined by the Court in its decided cases has therefore been satisfied. The main objective of the Community rules on the denaturing of wheat is to ensure that the denatured cereals are withdrawn from the market in foodstuffs fit for human consumption. Once that objective is achieved, the problem of the repayment of the premium is of secondary importance. The plaintiff in the main action points out that the first sentence of Article 8 (2) of Regulation No 729/70 of the Council makes clear that it was by no means the intention of the Community legislature to recover in all cases the full amount of aids unduly granted in consequence of irregularities or negligence. According to that provision, the Community is to bear the financial consequences of irregularities or negligence with the exception of the consequences of irregularities or negligence attributable to administrative authorities or other bodies of the Member States (first sentence of Article 8 (2) of Regulation No 729/72). The fact that the intervention agency exercises a discretion before the adoption of any decision to withdraw the measure granting the premiums cannot therefore render impossible the implementation of Community rules. The application of the principle of the exercise of discretion, as defined and imposed on administrative authorities by German law, has as its purpose to compel the administrative authority called upon to amend or to revoke a measure, to adapt the decision which it intends to adopt to each individual case, by taking all the circumstances into account following a comparative examination of all the interests involved: those of the State in the withdrawal of the contested measure on the one hand and those of the citizen in the protection of his expectation that the legal situation resulting from the measure will continue to exist on the other. With that end in view, the authority exercising a discretion must respect the fundamental rights embodied in the Constitution and the principles of equality, proportionality and the protection of legitimate expectation. The citizen is afforded similar guarantees by the other national legal systems of the Community. A study in comparative law carried out by the plaintiff in the main action shows that the principles of the protection of the citizen's legitimate expectation and the exercise of a certain discretion by an administrative authority when it proposes to amend or withdraw an administrative measure exist, though the forms which they take may sometimes differ, in British, French, Italian and Netherlands administrative law. Thus, the application of German administrative law is in conformity with the general principles of the other Member States and does not conflict with the principles of Community law. In that connection, the Court of Justice has recognized in a large number of decisions (Case 95/75 Effem v Hauptzollamt Lüneburg [1976] ECR 361; Case 29/75 Kaußof v Commission [1976] ECR 431; Case 122/78 Buitoni v Forma [1979] ECR 677 and Case 240/78 Atalanta v Produktschap voor Vee en Vlees [1979] ECR 2137) that Community law takes into account the principles which guided the legislature of the Federal Republic of Germany when it drafted the Law of 25 May 1976, namely those of legal certainty, the protection of legitimate expectation and proportionality. In particular, the Court, in its aforesaid judgment in Joined Cases 119 and 126/79 recognized that Community law does not restrict the freedom of the national authorities competent in the matter to apply, when recovering benefits which have been mistakenly granted under Community rules and in the absence of any specific rule concerning limitation periods, such limitation periods as may be drawn from the application of general principles recognized in the law of the country concerned. In the present case, the German administrative authority is entitled to take into account, in order to determine whether it is necessary to demand repayment of the premiums paid, the fact that the objective of denaturing has been achieved and that a long period has elapsed between the date on which it had to decide on the obligation as to repayment and the date on which the premiums were granted, regard being had to the results of inspections which were moreover positive and failed to reveal any irregularities on the part of the recipient of the premiums. The plaintiff in the main action therefore concludes that the answer to the third question should be that when the national administration withdraws measures by which it granted denaturing premiums, it is to act in accordance with its national law. The Federal intervention agency was required, in the present case, to exercise the discretion which devolves upon it under German administrative law and take into account the principles of legal certainty, proportionality and the protection of legitimate expectation.
sec_3 C —
Observations of the Commission
1. As regards the first question concerning the binding nature of the standard method laid down in Annex I to Regulation No 1403/69, the Commission observes that it is apparent from both Regulation No 172/67 (first recital and Article 2 (2)) and the provisions of Regulation No 1403/69 (third recital, Article 1 and Article 4 (3)) that the Community legislature intended, by prescribing that method of denaturing by colouring, to pursue two objectives, the first being to provide a minimum guarantee as regards denaturing and the second to ensure uniformity in the methods and costs of denaturing so that the premium, granted in a single lump sum, covers the reimbursement of identical costs incurred by the denaturing undertakings. To recognize the exception to the method laid down would increase the risks of fraud, complicate the administration of control operations and involve the possibility that undertakings might gain a financial advantage by using a lesser quantity of colouring agent than that specified in the standard method and reimbursed in a lump sum by way of the premium. Furthermore, in its judgment in Case 18/76 Germany v Commission [1979] ECR 343 the Court recognized the need for strict compliance with the formalities governing proof, which are clearly and definitively laid down, when compliance therewith constitutes a precondition for the grant of financial benefits in respect of agriculture. The Commission therefore submits that compliance with the standard method constitutes a precondition for the grant of the premium, and must in all circumstances be complied with, failing which the premium is to be regarded as unduly granted. The fact that the objective of denaturing, which is to ensure that the cereals are used as animal feed, has been achieved cannot eliminate the binding nature of the condition for granting the premium, namely the application of the standard method.
2. On the second question relating to the acceptability of ex post facto audits, the Commission's opinion is as follows: Article 4 (3) of Regulation No 1403/69 sets out the features of the supervision which precedes any decision granting premiums, with a view to providing a minimum and uniform guarantee for the Community in the various Member States. However, the Community legislature has entrusted the Member States with the practical organization of the detailed rules governing such checks. The introduction, sought by the Community legislature, of that minimum guarantee does not, however, exclude all other checks prescribed by the Member Sutes under their own legislation. Moreover, the Court has confirmed that approach in its judgment in Case 3/73 [1973] ECR 745. The Court's judgment in Case 819/79 of 14 January 1981 Germany v Commission [1981] ECR 21, which seems to have raised misgivings in the mind of the national court, is not itself concerned with a situation in which additional checks are carried out by the Member States but with a situation in which a Member State had undermined the uniform application of Community law by substituting a different national check for a check prescribed by Community law. With regard to the principles involved, no provision of Community law prohibits additional national checks. On the contrary, it is standard practice for the Community legislature, in order to prevent abuses, to refer expressly to the possibility of the Member States' carrying out checks ex post facto. The Commission cites several provisions which reflect that intention on the part of the Council and the Commission. Thus Article 2 (2) of Commission Regulation (EEC) No 1687/76 of 30 June 1976 laying down common detailed rules for verifying the use and/or destination of products from intervention (Official Journal L 190, 14 July 1976), referred to by the Verwaltungsgericht Frankfurt am Main, provides that the Member States are to take all measures necessary to effect the controls referred to in paragraph 1 and that undertakings are under an obligation to keep accounting records to enable the comptent authorities of the Member State to carry out such checks. Those special provisions referred to by the Commission are in conformity with the first sentence of Article 9 (2) of Regulation No 729/70, according to which any inspections carried out by the Community are without prejudice to the supervision effected by the Member States in accordance with their national provisions. In the Commission's opinion, the conclusion to be drawn is that of all the controls which the Member States are required to carry out, audits of the accounting records are the most appropriate when the product to be inspected may no longer be examined directly. Whether or not ex post facto checks are to be taken into account does not, as the Verwaltungsgericht appears to believe, depend on aggravating circumstances which were not in existence when inspections were carried out on the spot during denaturing. The admissibility of additional national checks is based on the overriding objective of preventing or punishing all abuses arising from grants of financial benefits out of Community funds. In pursuing that prime objective, the Member States are required, by virtue of the obligation to cooperate resulting from the first paragraph of Article 5 of the EEC Treaty, to take action, if necessary on the basis of ex post facto checks in all cases in which premiums have been unduly paid. If the uniform checks preceding the decision to grant the premium subsequently prove to be unsatisfactory (or were deemed satisfactory as a result of the provision of inaccurate information or fraudulent manoeuvres) it must be possible for the results of those checks to be called in question by other checks carried out subsequently.
3. As regards the third question concerning the discretion of the Member States to recover denaturing premiums, the Commission considers that the discretion provided for by the German Law of 25 May 1976 is restricted by Community law and that it may not be exercised by the Federal Office. The Commission bases that interpretation on the actual wording of Article 8 of Regulation No 729/80, the effect of which is to require the Member States to recover sums lost as a result of irregularities. Although, according to the Commission, the Court of Justice recognizes the legal obstacles, such as the principle of legal certainty, periods of limitation or absolute time-limits, which exist in national laws, the discretion with regard to withdrawal of premiums conferred on the German administrative authority is not in the nature of such an obstacle. The exercise of that discretion might render impossible in practice the exercise of the right of recovery. At any rate, it is in that light that the Commission understands the decisions of the Court in Cases 118/76 Balkan-Import-Export v Hauptzollamt Berlin-Packhof [1977] ECR 1177 and 265/78 Ferwerda v Producktschap voor Vee en Weef [1980] ECR 617. The Commission takes the view that it would be incompatible with the uniform application of Article 8 of Regulation No 729/70 for the Member States to decide to recover or to refrain from recovering sums unduly granted, on the basis of different opinions and considerations founded on economic criteria or on an examination of the actual position of an undertaking, the assessment of which necessarily varies from one Member State to another. If national bodies were to apply national provisions empowering them to exercise a discretion as to the expediencv of ordering recoven-, the principle of equal treatment of undertakings in identical or similar situations would be disregarded, which might lead to distortions of competition. Finally, the Commission points out that when the Community legislature drafted provisions comparable to Regulation No 729/70 such as Council Regulation (EEC) No 1697/79 of 24 Julv 1979 (Official Journal L 197, 3 August 1979) on the post-clearance recovery of import duties, it expressly excluded the exercise of any discretion in relation to the levying of post-clearance customs duties. The Commission therefore concludes that Article 8 of Regulation No 729/70 imposes an obligation on the authorities of the Member States to demand repayment of denaturing premiums unduly granted without their having any opportunity to exercise any discretion.
After recalling the facts of the case, the Government of the Federal Republic of Germany draws attention to the elements of national and Community legislation which are applicable in the Federal Republic to denaturing operations and then suggests an answer to the questions submitted by the national court.
sec_4 D —
Observations of the Government of the Federal Republic of Germany
1. The legal position in Germany is governed by the Law of 3C June Í967 (BGBl., p. 617), to which reference has alreadv been made, as amended bv the Law óf 13 July 1968 (BGBl. I, p.874) bringing into force the common organization of markets inter alia in the cereals sector, and its implementing provisions adopted by the Minister for Agriculture which include the Regulations of 8 August 1968 (Banz No 148) and 19 November 1971 (BGBl. I, p. 1831) relating to the grant of denaturing premiums in respect of common wheat. Those provisions and the directives adopted annually for their implementation by the director of the Federal intervention agency contain, inter alia, provisions relating to: In the opinion of the Government of the Federal Republic of Germany, that set of provisions rules out the application of the Law of 25 May 1976 on administrative procedures, in particular, paragraph 48 (1) thereof relating to the procedure for the withdrawal of administrative measures. The Government states that, in its view, Community law fetters the discretion of the intervention agencies in all the areas in which the agricultural law of the Community is operative. Furthermore, in some cases Federal law also fetters the discretion of the administration, for example in fiscal matters. Consequently, the procedure provided for by paragraph 48 of the Law of 1976 cannot be applied in that area, in accordance with Article 1 of the same law, which lays down in substance that the general principles consolidated by it are of only secondary importance in relation to the specific provisions of Federal law. The Federal Government recognizes that that interpretation is not unanimously accepted and, in particular, that it has been the subject of divergent decisions by the German courts. However, it makes clear that those decisions have not yet become res judicata and that in any event those problems have no bearing on the answer to be given by the Court of Justice to the question referred to it by the national court. Foremost amongst the provisions of Community law on the grant and repayment of premiums for the denaturing of cereals are those referred to above, contained in Regulation No 729/70 of the Council, Article 8 of which leaves it to the Member Sutes under national law to prevent and deal with irregularities and recover sums lost as a result of irregularities or negligence.
1.
(a) methods of denaturing;
(b) the controls;
(c) recovery of premiums unduly paid.
2. As regards the first question relating to compliance with the standard method, the German Government considers that the significance and purpose of the establishment at Community level of a standard method necessarily imply that compliance therewith is to be regarded as a precondition for the grant of premiums. That interpretation is based on both the wording of the provisions in question and the need for Community law to be uniformly applied in the Member States. The effect of acknowledging that the standard method is not of a binding nature would be to waive the guarantee of an effective administrative control and to allow undertakings which have not used the precise quantities of denaturing agent which have been prescribed to obtain an unjustified financial advantage which ultimately undermines the principle of competition on equal terms. The principles of the protection of legitimate expectation and proportionality no doubt have their place in Community law as the Court has emphasized in its decided case. However, in the opinion of the Federal Government, they are not applicable in this case. With regard to the binding nature of a standard method laid down by national law in connection with the powers devolving upon the Member States under Article 8 of Regulation No 729/70, the Federal Government considers that compliance with such a method also constitutes a precondition for the grant of the premium provided that the national authorities have fulfilled, in laying it down, the obligations imposed on them by Community law, that is to say: they must not have exceeded their discretionary power when adopting the measure; they must have established a method which offers the same guarantee as that provided in respect of another process by Community law, and they must have proceeded with the same care and attention as they exercise in implementing corresponding national laws, in order to prevent any weakening of the effectiveness of Community law (paragraph 8 of the decision of the Court in Joined Cases 119 and 126/79). The Federal Government considers that in this case those conditions were fulfilled. Proof of that, it contends, lies in the fact that the method of denaturing involving the addition of fish oil laid down by the German authorities was incorporated by the Community legislature in Regulation No 1092/70. It follows that compliance with the standard method laid down by the Federal Office must be regarded as a precondition for the grant of the premium in the same way as compliance with the process of denaturing by colouring prescribed by Community law. On those grounds, the Federal Government is of the opinion that the first question referred to the Court must be answered in the negative, irrespective of whether the standard method was directly laid down by Community law or provided for by national law in pursuance of principles established by the Community legislature.
3. As regards the second question concerning ex post facto audits as a basis for demanding repayment, the German Government considers that neither Community law nor the case-law of the Court precludes audits of accounting records subsequently effected from calling in question the results of actual inspections carried out during denaturing. The various applicable provisions of Community law, in particular Article 8 of Regulation No 729/70 and the case-law of the Court leave to the Member States the power to introduce further checks in addition to those already laid down as minimum uniform rules by Community law on condition that the Member States have regard to the purpose of the Communityprovisions in question. In that respect it is wrong to take the view that in its judgment in Case 819/79 ([1981] ECR 21) the Court denied the Member States the power to adopt additional measures of control. The intention of the Court in that case was to make it clear that a Member State lacked the power to provide for a check in substitution for one laid down by a provision of Community law. On the contrary, the Community legislature has in more general terms unequivocally expressed the wish thai the Member States should reinforce the controls provided for by Community law. In particular. Article 2 (2) of Commission Regulation (EEC) No 1687/76 of 30 June 1976 laying down common detailed rules for verifying the use and/or destination of products from intervention expressly invites the Member States to carry out checks ex post facto by imposing an obligation on undertakings to keep accounting records for such purposes. Similarly, Directive 77/435/EEC of 27 June 1977, the second recital of which is quite clear in that respect, the Council recognized the effectiveness and usefulness of audits ex post facto to supplement other checks on the use of Community funds and, in particular, the actual inspection of operations. Since the stated objective of Community rules on agriculture is that only those operations which may be clearly established as being lawful may qualify for intervention, the interesu of the Community demand that the checks should be as thorough as possible so as to reveal whether the undertakings have infringed the law. In such a case, undertakings may not rely on the fact that the outcome of the inspections on the spot was satisfactory in order to claim that they are entitled to retain the premium paid on completion of the denaturing operations. On those grounds, the Federal Government is of the opinion that a check ex post facto may call in question the results of an inspection on the spot and that the irregularities thus revealed by that check are capable of calling in question the grounds on which the initial payment of the premium was based.
4. In reply to the third question, the Federal Government takes the view that Community law imposes on the Member States a strict obligation which excludes any discretion to demand repayment of premiums wrongly paid. Community law on agricultural intervention is based on the principle that whoever fails to fulfil the conditions for the grant of denaturing premiums must be regarded as having received an undue advantage and must therefore repay the sums in question. With that end in view, Article 8 of Regulation No 729/70 of the Council and, in general terms, Article 5 of the EEC Treaty require the Member States to introduce into their internal legal systems provisions creating an absolute right of recovery in favour of the intervention agencies. Moreover, that obligation stems from the need to achieve uniformity in the application of Community law in the Member States and to ensure equal treatment and competition on equal terms in the case of undertakings in comparable situations in the various Member Sutes. The Court has moreover confirmed that interpretation in a series of decisions, the salient features of which may be summarized as follows: first, an aid which from an objective point of view has been wrongly granted may not be charged to the European Agricultural Guidance and Guarantee Fund and must therefore be charged to the national budget of the Member Sute which has omitted to seek its recovery (Case 819/79 of 14 January 1981); secondly, Community law imposes an obligation on the Member Sute to demand repayment of any premium the grant of which appears to have been unjustified (Joined Cases 119 and 126/79 and Case 18/76 Germany v Commission [1979] ECR 343). The Federal Government points out, however, that although Community law fetters the discretion of the national authorities in relation to the appropriateness of demanding repayment of premiums wrongly granted, Community law does not prevent certain provisions of national law from regulating the formal and procedural conditions governing the demand for repayment or, where appropriate, from being taken into account for the purpose of determining whether the demand for repayment is justified. Amongst those provisions of national law, the Government of the Federal Republic of Germany considers in particular that general principles of law and fundamental rights, including the principles of proportionality, legal certainty and the protection of legitimate expectation, are capable of restricting, in certain special cases, the application of the principle that there is a strict obligation to recover sums unduly paid. In conclusion, the Government of the Federal Republic of Germany is of the opinion that the answer to the third question referred to the Court by the Verwaltungsgericht Frankfurt am Main must be that Article 8 of Regulation No 729/70 of the Council does not leave the competent authorities of the Member States any opportunity to exercise a discretion in deciding whether or not premiums unduly paid are to be recovered.
At the silting on 18 February 1982, oral argument and answers to the questions put by the Court were presented by the following: Dr Helmut Fischer, senior legal adviser to the company BayWa for that company and for the agricultural credit cooperatives Raiffeisenbank Umerspiesheim und Umgebung e. G. and Raiffeisenbank Bütthard e. G.; Mr Gündisch of Fritz Modest and Partners, Rechtsanwälte, Hamburg, for the cooperative Raiffeisen Hauptgenossenschaft; Jochim Sedemund, Rechtsanwalt, Cologne, for the Government of the Federal Republic of Germany; and Meinhard Hilf, a member of the Legal Department, for the Commission of the European Communities. On that occasion, BayWa, Raiffeisenbank Unterspiesheim and Raiffeisenbank Bütthard proceeded to explain the answer which they proposed should be given to the second question raised by the Verwaltungsgericht Frankfun am Main as follows: The supervision procedure provided for by Article 3 of Regulation (EEC) No 1403/69 also contains substantive rules relating to proof in connection with lawful grants of denaturing premiums or demands for the repayment of denaturing premiums wrongly granted. In order to ensure the uniform application of European law, the Member States are not entitled to strengthen or to detract from those rules. The existence of documentary proof of the purchase of denaturing products at the time of denaturing is not a fundamental condition for the grant of the denaturing premium. The inspection report drawn up by the intervention agency establishing that the supervision procedure has been complied with lawfully and in its entirety mav be invalidated by a subsequent audit of the accounting records under the law of the Member State concerned only if the intervention agency which assumed responsibility for supervision at the outset was compelled, in the light of facts which emerged as a result of the audit of the accounts, to refuse to certify that denaturing had been conducted lawfully and in its entirety. The Advocate General delivered his opinion at the sitting on 18 March 1982.
sec_3 III —
Oral procedure
Decision
sec_2
1 By three orders drafted in identical terms on 30 April 1981, received at the Court Registry on 9 and 25 June 1981, the Verwaltungsgericht [Administrative Court] Frankfurt am Main referred three questions to the Court of Justice under Article 177 of the EEC Treaty, for a preliminary ruling on the interpretation of Articles 4 (2) and 2(1) of Regulation No 172/67 of the Council of 27 June 1967 on general rules governing the denaturing of wheat and rye of bread-making quality (Official Journal, English Special Edition 1967, p. 319), Annex I to Regulation (EEC) No 1403/69 of the Commission of 18 July 1969 laying down detailed rules for the application of the provisions concerning denaturing of common wheat and rye of bread-making quality (Official Journal, English Special Edition 1969 (II), p. 345), Articles 4 (3) and 5 of that regulation and Article 8 of Regulation (EEC) No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy (Official Journal, English Special Edition 1970 (I), p. 218), in connection with proceedings instituted for the annulment of the decisions adopted by the Bundesanstalt für landwirtschaftliche Marktordnung [Federal Office for the Organization of Agricultural Markets, hereinafter referred to as the Federal Office] demanding repayment of denaturing premiums unduly granted.
2 Between 1969 and 1974, the plaintiffs in the main actions, four agricultural cooperatives in the Federal Republic of Germany, carried out, either by themselves or through others, operations involving the denaturing of cereals of bread-making quality as provided for by Regulations Nos 172/67 and 1403/69, in the presence for all or part of the operations of inspectors delegated by the Federal Office. The reports drawn up by those inspectors do not contain any objections. However, after audits of the accounting records were carried out, the Federal Office took the view that the denaturing operations had not been conducted in accordance with the mandatory provisions which it considered to be applicable. It demanded repayment of the denaturing premiums paid. An objection lodged by the plaintiffs in the main action against those decisions to recover the premiums was rejected and the plaintiffs thereupon instituted proceedings before the Verwaltungsgericht.
3 In the course of the proceedings, the Verwaltungsgericht referred to the Court of Justice three questions for a preliminar) ruling which were drafted as follows:
3
(a) Has a denaturing premium granted on the basis of Article 4 (2) of Regulation (EEC) No 172/67 of the Council of 27 June 1967 (Official Journal, English Special Edition 1967, p. 139) been allocated unlawfully only when the denaturing operation has failed to achieve the purpose specified in Article 2 (1) of the regulation or when the standard method laid down in Annex I to Regulation (EEC) No 1403/69 of the Commission (Official Journal, English Special Edition 1969 (II), p. 345) has not been adhered to?
(b) Can recovery of the denaturing premium be based on the results of an audit of the accounting rr :ords carried out on completion of the denaturing process or does it folbw from Articles 4 (3) and 3 of Regulation No 1403/69 that the results of ex post facto audits are to be disregarded? If ex post facto checks are taken into account, how important are they in relation to the exercise of supervision provided for in Article 4 (3) of Regulation No 1403/69?
(c) Does Article 8 of Regulation (EEC) No 729/70 of the Council of 21 April 1970 (Official Journal, English Special Edition 1970 (I), p. 218) require Member States in every case to recover unlawfully granted denaturing premiums or does the regulation allow Member States to leave individual cases of recovery to the discretion of the competent authorities, in accordance with national legal provisions?
4 Those questions call for the following answers.
First question
sec_1
5 Article 4 (2) of Regulation No 172/67 provides that the denaturing premium is to be granted at the request of the interested party if certain requirements laid down by the same regulation and, in particular, those contained in Article 2 are satisfied. Article 2 (1) of the regulation provides that: The methods employed for denaturing must ensure that denatured wheat and rye can no longer be used for human consumption and Article 2 (2) that: These methods must be at least as effective as a standard method to be determined. The standard method thus referred to was defined in Annex I to Regulation No 1403/69 which provides for denaturing by the use of a colouring agent known as Patented Blue V and defines its characteristics and indications for use. Finally, the second paragraph of Article 1 of the regulation provides that: In the case of denaturing by colouring, the standard method only shall be used.
6 In its first question, the Verwaltungsgericht seeks a ruling from the Court on whether a premium for the denaturing of cereals has been unlawfully granted if the denatured wheat and rye may still be used for human consumption or if the rules of the standard method determined by Annex I to Regulation No 1403/69 have not been adhered to.
7 The plaintiffs in the main action contend that although the standard method may not have been strictly adhered to during the denaturing operations carried out on their behalf, the objective laid down by the Communitylegislation, that is to say the denaturing of cereals and their withdrawal from the market for human consumption, has been achieved. Accordingly, there was no intent to defraud in their conduct, as is apparent from the positive results of the supervision exercised during the operation. According to the plaintiffs in the main action, strict compliance with the standard method does not constitute a condition for the creation of a right to the premium. The premium must be paid as soon as the cereals can no longer be used for human consumption, irrespective of the means used to achieve that end.
8 The Commission and the Government of the Federal Republic of Germany maintain, however, that the wording of Regulations Nos 172/67 and 1403/69 and the need to apply Community law in a uniform manner show that compliance with the Community standard method or with the methods which may replace it under national law on the conditions laid down by Article 2 (2) of Regulation No 172/67 is mandatory.
9 It is clear from the very wording of the second paragraph of Article 1 of Regulation No 1403/69, which has already been quoted, that in the case of denaturing by colouring, only the standard method defined by Community law may be used.
10 Those provisions are mandatory in nature. Their nature is, moreover, in conformity with the principle consistently referred to in the case-law of the Court to the effect that provisions of Community law and, in particular, of Council or Commission regulations which create a right to benefits financed by Community funds must be given a strict interpretation. Furthermore, to disregard the provisions of the second paragraph of Article 1 of Regulation No 1403/69 would create a twofold risk: in the first place, an appraisal of the question whether the methods adopted for the denaturing of the wheat or rye have rendered the cereals unfit for human consumption might vary from one Member State to another and even within each Member State, and secondly, the equality of status of undertakings claiming the grant of a denaturing premium from the Community funds administered by the European Agricultural Guidance and Guarantee Fund (hereinafter referred to as the Fund) might be compromised.
11 In those circumstances, the answer to the first question raised by the Court making the reference should be that a denaturing premium granted on the basis of Article 4 (2) of Regulation No 172/67 must, if the standard method laid down in Annex I to Regulation No 1403/69 of the Commission is selected, be regarded as wrongly paid if the rules for the use of that method have not been complied with.
12 Certain information contained in the file on the case leads to the assumption that denaturing by colouring was not the only method used. Accordingly, it is appropriate to determine what effect the use of other methods of denaturing has on the right to the premium.
13 Regulation (EEC) No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy lays down in Article 8 the principles according to which the Community and the Member States must organize the implementation of Community decisions on agricultural intervention financed by the Fund and combat fraud and irregularities in relation to those operations. With that end in view, Article 8 (1) provided that: The Member States in accordance with national provisions laid do* n by law, regulation or administrative action shall take the measures necessario satisfy themselves that transactions financed by the Fund are actually carried out and are executed correctly, prevent and deal with irregularities [and] recover sums lost as a result of irregularities or negligence.
14 It is apparent from the combined provisions of Regulation No 729/70 and Article 2 of Regulation No 172/67 that the Member States are authorized-to establish, under national law, methods of denaturing other than the standard method of denaturing by colouring on condition that, as stipulated by the provisions of Article 2(2) of Regulation No 172/67 and of the third paragraph of Article 1 of Regulation No 1403/69, the means adopted to carry out denaturing by a method other than colouring are at least as reliable as the standard method.
15 For the reasons set out above, which require strict compliance with the standard method of denaturing by colouring where that method is selected, the rules governing the other methods of denaturing which may, if they fulfil the aforesaid conditions, be prescribed by national law, must also, where those methods are used, be complied with in full if the denaturing operation is to confer entitlement to the premium.
Second question
sec_2
16 Article 7 of Regulation No 172/67 provides that: To qualify for the premium, denaturing should be effected in agreement with the intervention agency and under its supervision. For the purposes of the application of that provision, Regulation No 1403/69 provides in Article 4 (3) that: The granting of a denaturing premium shall be subject to supervision by the intervention agency of the process of denaturing of common wheat, or of its admixture, unaltered, with compound feedingstuffs ... Finally, Article 5 of Regulation No 1403/69 specifies that: The denaturing premium shall be paid only if the conditions laid down in Article 4 (3) are fulfilled.
17 In its second question, the Verwaltungsgericht asks the Court whether those provisions contemplate the possibility of withdrawing the denaturing premium in the light of the results yielded by audits of the accounting records subsequent to the denaturing operations and, if so, how significant such checks are in relation to the supervision prescribed by the relevant provisions of Regulations Nos 172/67 and 1403/69.
18 the plaintiffs in the main action maintain that an audit ex post facto, carried out pursuant to the provisions of national law, cannot have the same force as supervision on the spot by inspectors of the Federal Office, which in their opinion is the form of supervision provided for by Community law. They consider that the probative value of supervision on the spot is greater than that of an abstract check subsequent to the denaturing operations. Furthermore, they rely on the principle of equal treatment between undertakings to justify the precedence of supervision on the spot, which alone is laid down by Community law.
19 The Commission and the Government of the Federal Republic of Germany maintain however that Article 8 (1) of Regulation No 729/70 of the Council permits the Member States to prescribe checks ex post facto in order to supplement the supervision provided for by Article 4 (3) of Regulation No 1403/69 and that national checks are no less important than the supervision prescribed by Community law.
20 As the Court has already established in its judgment of 11 July 1973 in Case 3/73 Hessische Mehlindustrie v Einfuhr- und Vorratsstelle for Getreide [1973] ECR 745, the aforementioned provisions of Regulations Nos 172/67 and 1403/69 merely indicate that supervision is indispensable without specifying in what manner and by what method the national intervention agencies are to fulfil their obligation to exercise supervision. In that case, the Court emphasized that different methods of supervision such as sampling, audit or re Ognition of denaturing undertakings may, individually or in combination, bt equally effective even though none of them constitutes an absolute guarantee. Finally, as the Court has observed, the Community legislature has refrained from enacting provisions regulating the procedure for supervision in detail, leaving to the Member States the power to regulate the detailed rules for supervision under their own legal system and on their own responsibility but choosing the most appropriate solution.
21 That distribution of powers is consistent with the general approach on which the common organization of agricultural markets is based according to which the grant of the denaturing premiums provided for by the aforesaid regulations is subject to common rules, uniformly applicable throughout the Community, whereas the machinery for intervention is operated by the national intervention agencies which are, accordingly, responsible for performing all the functions of supervision needed to ensure that denaturing premiums are allocated only on the conditions prescribed by Community law and that any breaches by traders of the rules of Community law are duly penalized.
22 In its present state, Community law contains no specific provisions relating to the exercise of supervision by the competent national authorities. The only requirement which must be laid down in that regard from the point of view of the Community is that the national authorities are to act in this field with the same degree of care as they exercise in implementing their national legislation, so as to prevent any erosion of the effectiveness of Community law.
23 Those findings in connection with the legislation relating to premiums for the denaturing of cereals coincide, moreover, with the more general provisions, cited above, of Article 8 (1) of Regulation No 729/70 of the Council, which themselves correspond to the obligation imposed on the Member States by Article 5 of the EEC Treaty.
24 Community law, which in its present state does not lay down detailed rules governing supervision of the regularity of operations for the denaturing of cereals, does not define either the relative significance to be attributed to each of the sets of rules determined and used by the national authorities.
25 Accordingly, the answer to the second question raised by the court making the reference must be that Community law in its present state does not restrict to a specific method the supervision, by the competent authorities of the Member States, of the regularity of denaturing operations conferring entitlement to payment of the premium. Supervision may inter alia take the form of an audit of the accounting records. It is for the competent national authorities to determine, subject to review by the national courts, what probative value it is appropriate to attribute to the results of the various types of supervision to which denaturing operations are subject.
Third question
sec_3
26 Under the aforesaid provisions of Article 8(1) of Regulation No 729/70 of the Council, the Member States are to take, in accordance with national provisions laid down by law, regulation or administrative action, the measures needed to prevent and deal with irregularities affecting transactions financed by the Fund and to recover sums lost as a result of irregularities or negligence.
27 In its third question, as clarified by the grounds stated for its decision, the Verwaltungsgericht asks the Court whether those provisions require the Member States to demand in all circumstances repayment of denaturing premiums unlawfully granted or whether Article 8 of Regulation No 729/70 transforms that observation into an option and makes it possible for the laws of the Member States to leave individual cases to the discretion of the competent national authorities.
28 In reply to that question, the plaintiffs in the main action state that national law may, where necessary, leave to the competent authorities the exercise of a discretion to determine whether or not it is appropriate to demand repayment of premiums unduly paid. The position adopted by the Commission and the Federal Republic of Germany is contrary to that of the four agricultural cooperatives.
29 It is clear from the aforesaid provisions of Article 8 of Regulation No 729/70 that the Member States are entrusted with the task of bringing prosecutions and instituting proceedings where it is necessary for the operation of the Community machinery for agricultural intervention and, in particular, that they are responsible for recovery of premiums from the Fund which have been unduly paid. In those circumstances, where the implementation of a Community regulation is a matter for the national authorities subject to review by the national courts, implementation must comply with the procedural and formal rules prescribed by the national law of the Member State concerned. However, as the Court has already emphasized in a number of consistent decisions, recourse to rules of national law is possible only in so far as it is necessary for the implementation of provisions of Community law and in so far as the application of those rules of national law does not jeopardize the scope and effectiveness of that Community law.
30 In particular, it is appropriate to point out that the very wording of Article 8(1) of Regulation No 729/70 concerning the recovery by the Member States of sums lost as a result of irregularities, expressly requires the national authorities responsible for operating Community machinery for agricultural intervention to recover sums unduly or irregularly paid; and such authorities, acting on behalf of the Community, may not, on such occasions, exercise a discretion as to the expediency of demanding repayment of Community funds unduly or irregularly granted. The opposite interpretation would lead to an erosion both of the principle of equal treatment between undertakings from different Member States and of the application of Community law which must, so far as possible, remain uniform throughout the Community.
31 Accordingly, the answer to the third question raised by the court making the reference must be that Article 8 (1) of Regulation No 729/70 of the Council requires and does not merely empower the Member States to demand repayment of Community denaturing premiums unduly or irregularly granted, and it is not possible to leave the question of repayment in each individual case to the discretion of the competent national authorities.
Costs
sec_4
32 The costs incurred by the Commission of the European Communities and by the Government of the Federal Republic of Germany, which have submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the proceedings pending before the national court, the decision on costs is a matter for that court.
On those grounds, THE COURT (Second Chamber) in answer to the questions submitted to it by the Verwaltungsgericht Frankfun am Main, by orders of 30 April 1981, hereby rules:
1. A denaturing premium granted on the basis of Article 4 (2) of Regulation No 172/67 must, if the standard method laid down in Annex I to Regulation No 1403/69 of the Commission is selected, be regarded as wrongly paid if the rules for that method have not been complied with.
2. Community law in its present state does not restrict to a specific method the supervision, by the competent authorities of the Member States, of the regularity of denaturing operations conferring entitlement to payment of the premium. Supervision may inter alia take the form of an audit of the accounting records. It is for the competent national authorities to determine, subject to review by the national courts, what probative value it is appropriate to attribute to the results of the various types of supervision to which denaturing operations are subject.
3. Article 8(1) of Regulation No 729/70 of the Council requires and does not merely empower the Member States to demand repayment of Community denaturing premiums unduly or irregularly granted, and it is not possible to leave the question of repayment in each individual case to the discretion of the competent national authorities.
Due Chloros Grévisse Delivered in open court in Luxembourg on 6 May 1982. J. A. Pompe Deputy Registrar O. Due President of the Second Chamber