Opinion of Mr Advocate General Jacobs
My Lords,
1. Mr Drewes, who owns a small farm in Lower Saxony, applied on 1 March 1978 for a non-marketing premium pursuant to Council Regulation (EEC) No 1078/77 introducing a system of premiums for the non-marketing of milk and milk products and for the conversion of dairy herds (Official Journal 1977, L 131, p. 1). In his application Mr Drewes stated that there were 10 bovine animals on the farm, of which seven were dairy cows. By decision of 4 April 1978 the Bezirksregierung Lüneburg (Lüneburg District Administration), which was responsible at a local level for the administration of the scheme, approved the application. Mr Drewes indicated that he would cease marketing milk and milk products on 1 September 1978 and by decision of 12 October 1978 the District Administration approved the payment to him of DM 4663.63 by way of first instalment of the premium, the balance being payable by two further instalments at the end of the third and fifth years of participation in the scheme.
2. From the case file it appears that Mr Drewes had the seven dairy cows marked and registered, as required under the Community legislation, and that in due course these cows were sold for slaughter and replaced by other animals. In the course of his third year of participation in the scheme, Mr Drewes was asked to sign a declaration of conformity with the scheme rules with a view to payment of the second instalment of the premium. The declaration, signed on 6 November 1980, revealed that at that time he kept five dairy cows of which only two had been duly marked.
3. It appears from the Order for Reference that the reason for this was that when the officials of the Landwirtschaftskammer (Agricultural Board) came to mark the animals, it was not possible to catch three of them in order to attach the identifying tag to their ears. It was understood that the animals would be marked before being sold, but in fact they were still unmarked when sold for slaughter in January and February 1981.
4. By decision of 30 November 1981, the Lüneburg District Administration withdrew its earlier decisions of 4 April and 12 October 1978 and required Mr Drewes to repay the whole of the first instalment of the premium on the ground that he had failed to comply with scheme rules requiring him to mark all the dairy cows kept by him during his participation in the scheme. At first instance, the Verwaltungsgericht (Administrative Court) of Stade overturned the decision of the District Administration, ruling that the marking requirement did not constitute one of the fundamental obligations of the scheme, breach of which would justify total recovery, but rather should be seen as a rule for verifying compliance with the scheme obligations, a partial breach of which could result only in a proportional reduction of the premium. On appeal, the Oberverwaltungsgericht (Higher Administrative Court) of Lower Saxony and Schleswig-Holstein took the opposite view, holding that the marking requirement did form part of the fundamental obligations of the scheme and that it was therefore necessary to recover all the premium paid.
5. The case went on appeal to the Bundesverwaltungsgericht (Federal Administrative Court), which stayed the proceedings and referred the following questions to the Court:
6. With a view to reducing the surplus on the Community market, Council Regulation No 1078/77 (the Council Regulation) introduced a system of premiums for the non-marketing of milk and milk products and for the conversion of dairy herds to meat production. Article 2 of that regulation relates to the non-marketing premium, Article 3 to the conversion premium. Under Article 2(2) of that regulation, grant of the non-marketing premium is conditional upon a written undertaking by the producer not to dispose of milk or milk products from the holding, whether for consideration or free of charge, for a period of five years. In addition, the producer had to undertake not to allow his holding to be used by any third party for dairy farming, or to lease his dairy cattle or to dispose of them except for slaughter or export.
7. Article 11(1) requires Member States to take the measures necessary for the recovery of the premiums already paid in cases where the undertakings provided for have not been fulfilled. Article 7 of the same regulation provides for the adoption in accordance with the management committee procedure inter alia of rules for verifying that undertakings arising from the grant of the premium have been fulfilled (subparagraph (e)).
8. Commission Regulation (EEC) No 1307/77 (Official Journal 1977, L 150, p. 24; the Commission Regulation) lays down detailed rules for the application of the system of premiums. Article 2(2)(b) provides that the competent authority inter alia shall mark and register the holding's dairy herd and issue for the animals concerned the identity cards provided for in Article 7 .... Article 5(1)(b) defines dairy herd as all female domestic bovine animals at least six months old suitable for the production of milk for marketing.
9. Article 7 deals in detail with identity cards. Paragraph 1 provides as follows:
10. Anicie 8 of the Commission Regulation is concerned with breach of scheme requirements and the recovery of premiums. Paragraph 1 provides as follows:
11. The legislation referred to above does not deal in express language with the legal consequences of a partial failure to mark cows in accordance with scheme provisions. In the absence of an express provision, the national court asks whether such a failure must be seen as a breach of an undertaking in terms of Article 11(1) of the Council Regulation, or of an obligation in the meaning of Article 8(1) of the Commission Regulation, with the consequence in either case that the whole premium is forfeit (first and second questions). Alternatively, the national court asks whether the failure to mark should be seen as a failure to provide proof that animals have been used for the prescribed purposes in accordance with Article 8(3) of the Commission Regulation, with the result that entitlement to premium is forfeited only in proportion to the extent of the breach (third question).
12. Article 11(1) of the Council Regulation provides for recovery by Member States of premiums already paid in cases where the undertakings provided for have not been fulfilled. The essential question which arises is whether the term undertakings provided for refers only to the obligations assumed by a farmer, as a condition of the grant of premium, pursuant to Article 2 or 3 of the Council Regulation or includes also any further requirements deriving from Commission implementing rules, notably rules laid down, pursuant to Article 7(e) of that regulation, for verifying that undertakings arising from the grant of premium have been fulfilled.
13. In my view, the wording of Article 11(1) supports a narrow interpretation of the relevant term. The reference to undertakings clearly echoes the references to written undertaking in Article 2(2), to undertaking in Article 3(2) and to the undertakings in Article 4(1) of the Council Regulation. In addition the words provided for, at any rate in the English and French texts, indicate that the relevant obligations have already been constituted, rather than have yet to be constituted under later implementing legislation.
14. The narrow interpretation of Article 11(1) is also in accordance with the structure of the Community legislation, taken as a whole, and with the principle of proportionality developed in the case-law of the Court. As pointed out in the written observations submitted by the Council, the Commission and the French and German Governments, the relevant Community legislation rests on a classic distinction between primary obligations — compliance with which is essential to achieve the objectives of that legislation — and secondary obligations, which are essentially of an administrative nature, and breach of which does not go to the root of the legislation. In that context, the primary obligations are clearly those which form the subject of the farmer's undertakings pursuant to Article 2 or 3 of the Council Regulation, whereas the marking requirement, which does not figure in that regulation, must be seen as a secondary obligation the essential function of which is to monitor compliance with the primary scheme obligations. According to the established case-law of the Court, as stated recently in Case 181/84 E. D. & F. Man (Sugar) Ltd v Intervention Board for Agricultural Produce [1985] ECR 2889, and in Case 21/85 Maas v Bundesanstalt für landwirtschaftliche Marktordnung [1986] ECR 3537, where Community legislation makes a distinction between primary and secondary obligations, it cannot, without breaching the principle of proportionality, penalize failure to comply with a secondary obligation as severely as a failure to comply with a primary obligation. To admit that a breach of the marking requirement is contemplated by Article 11(1) would have precisely that consequence.
15. The suggested view of the scope of Article 11(1) is moreover consistent with the Court's judgment of 22 September 1988 in Case 199/87 Jensen v Ministry of Agriculture [1988] ECR. In that case, ruling inter alia on the interpretation of Article 11(1), the Court held that the undertaking, contained in Article 2 of the Council Regulation, not to market milk or milk products for five years, must be seen as the essential legal justification for the grant of premium, with the result that even a partial failure to comply with that undertaking must result in recovery of all the premium paid (considerations 30 and 31).
16. I am therefore of the view that the first question must be answered in the sense that the first interpretation is to be preferred.
17. Similar considerations prompt a negative reply to the second question. Anicie 8(1) of the Commission Regulation provides for recovery of all sums already paid in cases where the producer fails to establish that he has complied with the obligations laid down in Article 2 or 3 of Regulation (EEC) No 1078/77. The provision refers exclusively to Articles 2 and 3 of the Council Regulation, without mentioning any further requirements to be laid down pursuant to Article 7 of that regulation or indeed any specific provision of the Commission Regulation. Moreover, to admit that Article 8(1) also covers the failure to comply with the marking requirement would once again result in the penalization of the breach of a secondary obligation at the same level of severity as that of a primary obligation.
18. There therefore remains only Article 8(3) of the Commission Regulation as a possible basis for recovery in the event of breach of the marking requirement. There are two possible views of the scope of that provision which depend on different interpretations of the words proof... that the animals have been used for the prescribed purposes in Article 8(3). The first, narrow view is that those words refer back to Article 7(9) of the Commission Regulation, with the result that proportional recovery of the premium is available only in the case where a farmer cannot prove, by production of the duly stamped or certified original of the identity card, that a cow has been slaughtered or exported in accordance with scheme rules. According to the second, wider view, use for the prescribed purposes means not just use for export or slaughter, but more generally use in compliance with the scheme requirements; since the different identification requirements (marking, registration and issue of identification cards) are all concerned with proof of compliance in that general sense, the partial failure to fulfil any of those requirements should result only in proportional recovery in accordance with Article 8(3). I would add that the Jensen judgment does not directly assist us here, since that case, in so far as it is relevant to the present one, was concerned with the consequences of breach of a primary scheme obligation, i. e. the non-marketing undertaking itself.
19. Viewed in isolation, the wording of Article 8(3) and of Article 7 appears at first sight to support the narrow interpretation. While Article 8(3) refers back to Article 7 in general, and not just to Article 7(9), the only purposes actually prescribed in Article 7 are the slaughter or export referred to in paragraph 9. Moreover, Article 8(3) refers to forfeiture of premium in respect of those animals for which ... proof is not furnished: the only reference to furnishing of proof in Article 7 is again in paragraph 9 of that article. In addition, the wording of Article 7(1), which provides for the issue of identity cards for each animal marked and registered in accordance with Article 2(2)(b), appears to indicate that marking and registering must have taken place before Article 7 even becomes relevant. According to this view, breach of the marking requirement cannot therefore be seen as failure to provide proof in accordance with Article 7.
20. However, as soon as Article 8(3) is viewed in the context of the legislation as a whole, it is plain that it cannot bear such a narrow interpretation.
21. It is apparent from Articles 2 and 3 of the Council Regulation that export or slaughter are not the only uses prescribed by the legislation. In fact all the primary scheme obligations contained in those provisions — such as the obligation not to lease dairy cattle or allow the holding to be used for dairy farming — are concerned with the use of cows and restrictions on that use.
22. It is also apparent from the legislation that the different identification requirements — marking, registration and the issue of identity cards — are so closely related that they cannot sensibly be distinguished from one another as regards the consequences of breach of any one of the requirements. The second recital to the Commission Regulation indicates that those requirements have a common function — to provide a means of identification — and a common purpose — to ensure that a check can be kept throughout the period to which the obligations under the scheme relate. Moreover, the wording of Article 7 makes it plain that marking and registration are a precondition for the issue of an identity card, so that failure to mark and register an animal will inevitably result in failure to obtain an identity card. Given that interrelationship and identity of purpose, it would be illogical for the legislation to provide for proportional recovery in the case of failure to provide proof of export or slaughter, but not to make similar provision for cases of failure to comply with other identification requirements.
23. I am therefore of the view that the third question must be answered in the affirmative.
24. In view of the suggested reply to the first and third questions, it is not necessary to reply to the fourth question.
25. Accordingly, in my opinion the questions referred by the Bundesverwaltungsgericht should be answered as follows:
1 Original language. English