Judgment of the Court (Sixth Chamber) 11 November 1986

In Case 254/85 REFERENCE to the Court under Article 177 of the EEC Treaty by the Supreme Court of Ireland for a preliminary ruling in the proceedings pending before that court between

THE COURT (Sixth Chamber) composed of: C. Kakouris, President of the Chamber, T. F. O'Higgins, T. Koopmans, O. Due and K. Bahlmann, Judges, Advocate General: G. F. Mancini Registrar: K. Riechenberg, acting as Administrator

after considering the observations submitted on behalf of Irish Grain Board (Trading) Limited, the plaintiff in the main proceedings, in the written procedure by J. Blaney SC, J. Cooke SC, and Daniel O'Keeffe SC, instructed by fm. Fry & Sons, Solicitors, and in the oral procedure by M. Cooke The Irish Minister for Agriculture, the defendant in the main proceedings, in the written procedure by L. J. Dockery, Chief State Solicitor, Dublin, acting as Agent, assisted by J. L. Murray SC, and J. O'Reilly, Barrister-at-Law, and in the oral procedure by Mr Murray and Mr O'Reilly The Commission of the European Communities, by D. G. Lawrence, a member of its Legal Department, acting as Agent,

having regard to the Report for the Hearing and further to the hearing on 7 May 1986,

after hearing the Opinion of the Advocate General delivered at the sitting on 8 July 1986,

gives the following

JUDGMENT

First question

Second question

Third and fourth questions

Costs

1. By order of 25 June 1985, which was received at the Court on 16 August 1985, the Supreme Court of Ireland referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty four questions concerning the interpretation in particular of Regulation No 974/71 of the Council of 12 May 1971 on certain measures of conjunctural policy to be taken in agriculture following the temporary widening of the margins of fluctuation for the currencies of certain Member States (Official Journal, English Special Edition 1971 (I), p. 257) and of Regulation No 1380/75 of the Commission of 29 May 1975 laying down detailed rules for the application of monetary compensatory amounts (Official Journal 1975, L 139, p. 37), with a view to determining whether the plaintiff in the main proceedings is entitled to payment of monetary compensatory amounts on imports into the United Kingdom of grain whose actual release into the United Kingdom economy has not been established, and, if so, under which conditions.

2. Those questions arose in a dispute between Irish Grain Board (Trading) Limited (in liquidation), the plaintiff in the main proceedings, and the Minister for Agriculture, acting as the Irish intervention agency, concerning grain which the plaintiff sold to five purchasers in Northern Ireland.

3. The documents before the Court show that the consignments in question were transported from Ireland to Northern Ireland by carriers acting on behalf of the purchasers, whilst the documentation submitted to the intervention agency for the payment of monetary compensatory amounts was prepared by the plaintiff. The documentation included, in particular, T 5 control copies which stated that the grain was intended for home use in Northern Ireland.

4. According to an agreement concluded between Ireland and the United Kingdom under Article 2 a of Regulation No 974/71, it was for the Irish intervention agency to pay the monetary compensatory amounts which were to be granted by the United Kingdom on importation into that country. Since the intervention agency had serious grounds for suspecting that the grain had been clandestinely re-imported into Ireland for re-exportation to the United Kingdom, it requested the Northern Irish customs authorities to carry out an investigation on its behalf. Since those authorities were unable to satisfy themselves that the grain had in fact entered Northern Ireland for home use within that territory, the intervention agency refused to pay the monetary compensatory amounts claimed.

5. The plaintiff brought an action to recover those monetary compensatory amounts from the intervention agency before the High Court of Ireland. That court held that the Northern Irish purchasers, or at least some of them, were guilty of fraudulent carousel trading and of irregularities in connection with the grain sold and exported by the plaintiff. The High Court held, however, that the plaintiff was in no way guilty of or privy to those irregularities and had not forfeited its entitlement to the payment of monetary compensatory amounts by reason of the misconduct of the purchasers over whom it had no control.

6. The intervention agency appealed against that decision to the Supreme Court of Ireland which referred the following questions to the Court of Justice for a preliminary ruling:

7. For the observations submitted to the Court reference is made to the Report for the Hearing.

8. Article 11 (2) of Regulation No 1380/75 provides that payment by the exporting Member State of the monetary compensatory amount which should be granted by the importing Member State is to be conditional upon the production of proof that customs import formalities have been completed and that the duties and charges having equivalent effect payable in the importing Member State have been charged. That provision also states that such proof is to be furnished by production of the T 5 control copy which must specify that the product in question is intended for entry for home use in the importing Member State.

9. According to Article 16 of that regulation, payment of the monetary compensatory amounts must be made within two months from the date of deposit of sufficient supporting documents except, inter alia, where administrative inquiries have been commenced owing to doubts concerning the accuracy of the evidence produced.

10. Those provisions must be interpreted in the light of the purpose of the system of monetary compensatory amounts which is to counteract the difficulties which might arise for the proper working of the common organizations of the market as a result of currency instability and — as matters now stand — divergences between the representative rates used in the common agricultural policy and the conversion rates on the market. In order to achieve that purpose, the function of monetary compensatory amounts is to compensate for any difference between those two rates both in the importing Member State and in the exporting Member State and thus to correct the divergence between price levels in national currency in those two Member States.

11. It follows that the monetary compensatory amount granted on importation cannot fulfil its function unless the imported product actually enters the importing Member State for home use and is thus subjected to the price conditions prevailing on the market in that country. If, however, the product is diverted by fraudulent means from its intended purpose as specified on the T 5 control copy and is clandestinely re-exported, that is to say without payment of the monetary compensatory amount which is payable by virtue of the latter operation and which would have the effect of cancelling out the benefit of the monetary compensatory amount granted on importation, that amount loses its justification.

12. It is of no importance in that regard that the fraudulent activities were carried on by the importer since under an agreement concluded pursuant to Article 2 a of Regulation No 974/71 the monetary compensatory amount on imports must be paid not by the importing Member State but by the exporting Member State for the benefit of exporters acting in good faith. It should be added that it is open to the exporter to ensure by contractual means that purchasers do not fraudulently divert the product from the intended purpose specified by the exporter himself on the T 5 control copy.

13. The answer to the first question submitted to the Court must therefore be that the provisions of Community law governing the payment of monetary compensatory amounts, in particular Articles 11 and 16 of Regulation No 1380/75, must be interpreted as meaning that the exporting Member State which has to pay the monetary compensatory amounts that must be granted by the importing Member State is entitled to refuse payment where the product in question has not entered the importing Member State for home use owing to fraud on the part of the purchasers of the said product, even where the customs formalities have been completed, appropriate T 5 forms have been issued and the exporter or person concerned within the meaning of the regulations in question at all times acted in good faith in relation to the said transaction.

14. In its second question the Supreme Court asks essentially whether, notwithstanding the submission of the appropriate T 5 control copies, the exporting Member State is entitled to refuse to pay to an exporter acting in good faith the monetary compensatory amount which must be granted on importation into another Member State unless and until the exporter furnishes proof that the product in question has actually entered the importing Member State for home use.

15. In that regard it should be noted that, although the rules of Community law do not contain any provision expressly requiring formal proof of that kind, Article 16 of Regulation No 1380/75 provides, as stated above, for an exception to the general rule as to the time allowed for payment in cases where administrative inquiries have been commenced owing to doubts concerning the accuracy of the evidence produced.

16. It must be emphasized in the first place that it is for the administration to conduct that inquiry with the greatest possible diligence in order to dispel the doubts which exist, and secondly that the exporter is required to cooperate in the inquiry by transmitting all such information as he is able to furnish. It is only where such an inquiry has failed to establish the use to which the product in question has been put that the matter of the burden of proof arises.

17. According to Article 11 of Regulation No 1380/75, the T 5 control copy constitutes proof that customs import formalities have been completed and that the duties and charges having equivalent effect payable in the importing Member State have been charged. Although that document must contain a declaration by the claimant specifying that the product is intended for entry for home use in the importing Member State, it does not contain any statement by the authorities of the importing Member State certifying that the intended purpose has actually been achieved. In fact that event occurs after the date on which those authorities place the certificate on the document at the time of the completion of the customs import formalities. In that respect the provision in question differs from rules which also require the end use of the imported product to be mentioned in the certificate placed on the control copy.

18. It follows that the problem of furnishing proof of actual entry for home use is not resolved by the provision requiring production of a T 5 control copy which has been duly completed and certified by the authorities of the importing Member State.

19. As stated above, the exporter may, in his own interest, ensure that purchasers do not divert the product by fraudulent means from its intended purpose as specified by the exporter himself in the T 5 control copy. The exporter is therefore in the best position to furnish proof relating to the actual entry of the product for home use. If, owing to grave suspicions based on objective grounds, the administration has commenced inquiries in order to establish whether the product has been diverted by fraudulent means from its intended purpose as specified in the control copy and if those inquiries, notwithstanding all the endeavours which the administration is required to make, have failed to dispel those suspicions, the administration is entitled to demand, as a condition for payment, the production of proof of actual entry for home use.

20. The answer to the second question submitted to the Court must therefore be that where the administration of the exporting Member State, pursuant to Article 16 of Regulation No 1380/75 and owing to grave suspicions based on objective grounds, has commenced inquiries in order to establish whether the product has been diverted by fraudulent means from its intended purpose as specified in the control copy, the exporter is required to cooperate in the inquiry by transmitting all such information as he is able to furnish. If, notwithstanding all the endeavours which the administration is required to make, the inquiries have failed to dispel those suspicions, the exporting Member State is entitled to refuse payment of the monetary compensatory amounts which the importing Member State is required to grant, unless proof is furnished that the product has actually entered the latter State for home use.

21. In view of the answers given to the first two questions, it is no longer necessary to consider the third and fourth questions which are based on the premise that, in the aforementioned circumstances, the exporter is entitled to monetary compensatory amounts without furnishing proof of actual entry for home use.

22. The costs incurred by the Commission of the European Communities, which has 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 (Sixth Chamber), in answer to the questions referred to it by the Supreme Court of Ireland, by order of 25 June 1985, hereby rules:

(1) The provisions of Community law governing the payment of monetary compensatory amounts, in particular Articles 11 and 16 of Regulation No 1380/75 of 29 May 1975 laying down detailed rules for the application of monetary compensatory amounts, must be interpreted as meaning that the exporting Member State which has to pay the monetary compensatory amounts that must be granted by the importing Member State is entitled to refuse payment where the product in question has not entered the importing Member State for home use owing to fraud on the part of the purchasers of the said product, even where the customs formalities have been completed, appropriate T 5 forms have been issued and the exporter or person concerned within the meaning of the regulations in question at all times acted in good faith in relation to the said transaction.

(2) Where the administration of the exporting Member State, pursuant to Article 16 of the aforesaid regulation owing to grave suspicions based on objective grounds, has commenced inquiries in order to establish whether the product has been diverted by fraudulent means from its intended purpose as specified in the control copy, the exporter is required to cooperate in the inquiry by transmitting all such information as he is able to furnish. If, notwithstanding all the endeavours which the administration is required to make, the inquiries have failed to dispel those suspicions, the exporting Member State is entitled to refuse payment of the monetary compensatory amounts which the importing Member State is required to grant, unless proof is furnished that the product has actually entered the latter State for home use.

1 Language of the Case: English.