Repon for the Hearing delivered in Case 77/88

I — Facts

1. Legal background

A system of production aid for products obtained from fruit and vegetables harvested in the Community was introduced by Council Regulation No 516/77 of 14 March 1977 on the common organization of the market in products processed from fruit and vegetables (Official Journal 1977, L 73, p. 1), amended by Council Regulation No 1152/78 of 30 May 1978 (Official Journal 1978, L 144, p. 1). That system is based on contracts binding producers or recognized groups or associations thereof on the one hand and processors or groups or associations thereof on the other hand. Those contracts must specify the quantities of raw material to which they relate, the schedule for deliveries to processors and the price to be paid to producers (Article 3a of Regulation No 516/77). Council Regulation No 1639/79 of 24 July 1979 (Official Journal 1979, L 192, p. 3) extended the system of production aid to cherries preserved in syrup with effect from the 1980/81 marketing year.

With effect from 1 March 1986, Regulation No 516/77 was replaced by Council Regulation No 426/86 of 24 February 1986 (Official Journal 1986, L 49, p. 1), which reformulated the basic provisions concerning the common organization of the market in products processed from fruit and vegetables. Under Article 3 of that Regulation, production aid is to be granted to processors who have paid producers for their raw materials a price not less than the minimum price under contracts between the processors and producers or recognized producers' groups or associations thereof.

In the particular case of the premium for processing fresh tomatoes, Commission Regulation No 722/88 of 18 March 1988 laying down the detailed rules for the application of Article 3(1 a) of Regulation No 426/86 as regards the granting of aid for processed tomato products (Official Journal 1988, L 74, p. 49) provides that producers' group means:

Regulation No 1035/72 of the Council of 18 May 1972 on the common organization of the market in fruit and vegetables (Official Journal, English Special Edition 1972 (II), p. 437) contains the basic provisions in respect of producers' organizations which are to be responsible for the stabilization of the market in the fruit and vegetable sector. Article 13 thereof provides:

Council Regulation No 3284/83 of 14 November 1983 (Official Journal 1983, L 325, p. 1) amends Article 13 of Regulation No 1035/72 by adding to the above conditions the requirement that the producers' organization must be recognized by the Member State concerned and providing that such recognition is to be granted if there is sufficient evidence as regards the duration and effectiveness of the organization's activities. According to the preamble to Regulation No 3284/83, the purpose of that amendment was to ensure that producers' organizations comply with the conditions laid down and that the period in respect of which aid is granted is more accurately and suitably determined. Article 12 of Regulation No 3284/83 lays down special rules for producers' organizations to which recognition had not yet been granted but which, before the Regulation entered into force, had acquired entitlement to aid. Regulation No 3284/83 came into force on 1 June 1984.

Finally, Council Regulation No 1360/78 of 19 June 1978 on producer groups and associations thereof (Official Journal 1978, L 166, p. 1) provides in Article 5 that producers' groups are to consist of producers. Article 5(2) adds:

Since the purpose of Regulation No 1360/78 is to encourage the formation of producers' groups in order to remedy structural deficiencies affecting the supply and marketing of agricultural products, it applies only to certain areas of the Community, among which the Federal Republic of Germany is not included. Furthermore, the Regulation does not apply to products such as fruit and vegetables falling under a common organization of the market which includes sectoral provisions on producers' groups.

2. Background to the main proceedings

In 1983 and 1984 the plaintiff in the main proceedings, Stute Nahrungsmittelwerke GmbH & Co. KG (hereinafter referred to as Stute), concluded contracts with the company Rudolf Bargstedt Hamburg Obsterzeugerorganisation GmbH (hereinafter referred to as Bargstedt) in respect of deliveries of cherries for processing into cherries preserved in syrup. Stute was entitled to production aid in respect of the processing operation if the cherries were bought from a producers' group recognized under Regulation No 516/77.

The Bundesamt für Ernährung und Forstwirtschaft, the German intervention organization for the purposes of Regulation No 516/77 and the defendant in the main proceedings, considered that Bargstedt should not be recognized as a producers' organization under that Regulation. In the Bundesamts view, Bargstedt was controlled by Rudolf Bargstedt, the main shareholder, who was a wholesaler and not a producer of fruit and vegetables. At the time when the processing contract was concluded Mr Bargstedt held 68 votes out of a total of 103 under the company's statutes.

Stute brought an action seeking the annulment of that decision before the Verwaltungsgericht Frankfurt am Main. It claimed that the Free Hanseatic City of Hamburg had, as the competent authority, recognized Bargstedt as a producers' organization for intervention purposes under Regulation No 1035/72. Furthermore, in Stute's view, Bargstedt's status as a producers' organization could not be challenged on the basis of the principal shareholder's position. The producers' rights of control in the company were sufficient for it to qualify as a producers' organization. The principal shareholder, Mr Bargstedt, was not entitled under the company's statutes to take decisions alone. Management control was in the hands of an advisory board (Beirat) composed exclusively of producers.

By an order of 1 March 1988 the Verwaltungsgericht Frankfurt am Main stayed the proceedings and, pursuant to Article 177 of the EEC Treaty, referred the following questions to the Court for a preliminary ruling:

3. Remarks of the national court

The Verwaltungsgericht asks how the expression recognized producers' group in Article 3a of Regulation No 516/77 and the parallel provisions of Regulations Nos 988/84 and 426/86 should be interpreted. It points out that the concept is not defined in Regulation No 516/77 and the requirement that producers' organizations must have been granted recognition was inserted into Regulation No 1035/72 only when it was amended by Regulation No 3284/83. Moreover, Regulation No 1360/78, which provides for recognition, is not applicable to Germany.

The national court also asks whether, even if Bargstedt does not meet the requirements which a recognized group must fulfil, aid should nevertheless be granted to it because it has been recognized by the Land Hamburg, in view of the specific purpose of the aid, that is to say, to support producers financially in order to avoid a collapse in prices.

II — Procedure

The order referring questions to the Court was received at the Court Registry on 9 March 1988.

Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted by:

Upon hearing the Report of the Judge-Rapporteur and the views of the Advocate General the Court decided to refer the case to the Fourth Chamber and to open the oral procedure without any preparatory inquiry.

III — Summary of the written observations submitted to the Court

(a) Concept of recognized group; minimum requirements (first and second questions)

All the observations submitted point out that Article 13 of Regulation No 1035/72 lays down the minimum requirements which must be satisfied by producers' organizations within the meaning of Regulation No 516/77.

According to Stute the answer to the first two questions may be sought in the system applicable to fruit and vegetables. First of all, Regulation No 1360/78, while laying down rules on producer groups and associations thereof, in fact sets up a special system applicable to certain less-developed regions of the Community and to certain agricultural products other than fruit and vegetables. Regulation No 516/77 concerns products processed from fruit and vegetables, that is to say the second stage of production, but Article 3a, which provides for the purchase of raw materials, applies to producers of fruit and vegetables and is thus aimed at the first stage of production. Such producers are those referred to in Regulation No 1035/72.

Article 13 of Regulation No 1035/72 provides merely that producers' organizations are established on the producers' own initiative. Because the main objective of such an organization is the sale of the product, it may, however, be to its advantage to have a distributor among its membership. In respect of producers' groups as referred to in the combined provisions of Regulations Nos 1035/72 and 516/77, it is sufficient if the producers enjoy powers of control and rights of veto. There is no rule from which it can be concluded that producers must always hold a majority shareholding.

The German Government considers that Article 3a of Regulation No 516/77, which was applicable during the period in question, did not provide for formal recognition by the competent authority. Although no definition is given, Article 13 of Regulation No 1035/72 nevertheless outlines the minimum requirements to be fulfilled by a producers' organization within the meaning of Regulation No 516/77.

On the basis of a telex from the Commission dated 14 January 1983, the Bundesamt für Ernährung und Forstwirtschaft was of the opinion that membership of non-producers in a producers' group was permissible provided that the producers were able to control the organization. When deciding whether and to what extent producers enjoy such powers of control in any given case, it is necessary to refer to the national provisions of company law together with the statutes or instruments of incorporation of the organizations in question. Bargstedt's instrument of incorporation of 27 May 1980 laid down the principle of majority voting for the adoption of decisions by the general meeting. Producers thus needed to hold a majority of votes to ensure that they exercised a determining influence on the management of the company. Mr Bargstedt held 68 out of 103 votes at the time and thus had the final say in determining management policy. The instrument of incorporation laid down a requirement of unanimity on only very few issues concerning Bargstedt's existence or the instrument of incorporation. The producers had no rights of veto. The advisory board composed of producers was established only after the period in question and is consequently irrelevant to the resolution of the proceedings.

The Greek Government points out that for the 1983 financial year Regulation No 1035/72 was applicable. After analysing the text of Article 13 the Greek Government concludes that Bargstedt does not satisfy any of the conditions laid down in that article.

With regard to Regulation No 1360/78, the Greek Government observes that it provides confirmation of the rule that producers' groups are to consist exclusively of agricultural producers; the possibility of recognizing groups which include persons other than producers is an exception for which express provision is made in certain specific cases. There is no justification for applying that derogation by analogy to the territory of the Federal Republic, since Regulation No 1360/78 is not applicable there.

According to the Greek Government, the very concept of a producers' organization implies that producers should hold the majority of votes, giving them decision-making power in the organization. Only if that is the case do the essential conditions for the proper functioning of producers' organizations continue to exist. If the majority of votes are held by a non-producer, the producer members have no adequate guarantee that the organization will function fairly and efficiently. A right of veto is no substitute for rights which should properly belong to the majority because the only consequence of such a right of veto is that certain acts of the main shareholder may be blocked.

The Commission considers that the problem of interpretation should be examined in the context of all the provisions applicable in respect of producers' organizations. First it examines the market organizations for fruit and vegetables and for products processed from fruit and vegetables and Regulation No 1360/78 which, although not applicable to a case such as this, nevertheless contains horizontal rules on the subject of producers' groups.

The Commission then looks for corresponding provisions in the other market organizations which include sectoral provisions on the subject. In the hops sector a producers' group means a group consisting exclusively or, when national legislation allows, mainly of hop-producers formed on the initiative of the producers (see Article 7 of Regulation No 1696/71 on the common organization of the market in hops, as amended by Council Regulation No 1170/77 of 17 May 1977 (Official Journal 1977, L 137, p. 7)). In the silkworm, cotton and fisheries sectors, a producers' group means any group of producers formed on the initiative of producers or breeders.

The Commission considers that the Regulations concerning products processed from fruit and vegetables are not very helpful as regards the minimum requirements imposed on producers' groups. However, the groups in question are subject to the provisions applicable to fruit and vegetables, in particular to Article 13 of Regulation No 1035/72; the new version contained in Regulation No 3284/83, in force since 1 June 1984, was not applicable at the material time. Under Regulation No 1035/72 the essential point is that producers' organizations should be able to fulfil their purpose as regards production (by improving product quality and adapting the volume of supply to market requirements) and marketing (by promoting the concentration of supply and by making suitable technical means available for the product's presentation). As far as this last aspect is concerned it may well be wise to admit to an organization business people who are not necessarily producers. The ratio legis does not therefore preclude the admission of non-producers as members of producers' organizations.

The basic Regulation in the hop sector (cited above) is the only one to provide expressly that a producers' group, when national legislation allows, may consist mainly of hop-producers. That addition should be considered not as introducing something new but as constituting a clarification of the normal practice.

The provisions mentioned also lead to the conclusion that producers must in any case retain a decisive influence on the organization. That requirement is spelt out in Article 5 of Regulation No 1360/78. That provision provides that if producers' groups include non-producers, the groups' statutes must ensure that the producers retain control over the groups and any decisions they may take. The Commission suggests that that same concept should be applied to producers' organizations governed by other provisions in so far as the inclusion of non-producers in producers' organizations is not formally prohibited for special reasons, as in the olive sector.

(b) Protection of legitimate expectations (third question)

Stute observes that Bargstedt was recognized not only by the Land Hamburg but also by the Bundesamt, which accorded that recognition indirectly by approving the contracts for the supply of cherries concluded with Bargstedt. Furthermore, during the period in question recognition was not yet provided for by Article 13 of Regulation No 1035/72; it did, however, constitute a precondition for the application of Regulation No 516/77. When it recognized Bargstedt the Land Hamburg was thus acting in relation to Regulation No 516/77.

The sole purpose of recognition is to ensure legal certainty; in particular, purchasers of fruit from a recognized group can thus be assured that the preconditions for obtaining processing aid are satisfied. Therefore if the Land Hamburg acted wrongly in according recognition to Bargstedt, Bargstedt's clients, the purchasers of its products, ought not to suffer thereby. Bona fide purchasers ought to be able to rely on recognition granted by public authorities. In that respect Stute points out that the protection of legitimate expectations constitutes one of the general principles of law recognized by the Court. It follows that an error committed by public authorities may not be held against a beneficiary of Community aid unless the latter supplied those authorities with incorrect information.

The German Government observes that the Land Hamburg recognized Bargstedt as a producers' organization at the first stage of production for the purposes of Regulation No 1035/72. However, the Bundesamt is the sole competent authority under Regulation No 516/77 concerning processed products. It has proceeded on the principle that recognition accorded for the purposes of applying Regulation No 1035/72 may not be taken into consideration for the purposes of applying Regulation No 516/77, particularly if that recognition was accorded wrongly.

The Greek Government points out that, as the Court held in its judgment of 28 January 1986 in Case 129/84 Italy v Commission [1986] ECR 309, recognition of a producers' organization by a Member State, which is not provided for by Regulation No 1035/72, does not make such an organization entitled to benefits under that Regulation; in order to qualify for financing they must fulfil the conditions relating to producers' organizations under Article 13 of that Regulation. As regards protection of the legitimate expectations of third parties who have concluded contracts with such an organization, the Greek Government observes that good faith on the part of contracting parties within the framework of the common agricultural policy is not sufficient to justify their claims in so far as the operations which form the basis of their claims are not in keeping with the structure or wording of the relevant Community provisions.

The Commission states that if Bargstedt was recognized by the competent authority before the adoption of Regulation No 3284/83, the amending Regulation, that recognition was accorded pursuant to national law. The requirements of legal certainty, recognized by the Court in its judgment in Case 101/78 Granaria v Hoofdproduktschap voor Akkerbouwprodukten [1979] ECR 623, demand, however, that such recognition should operate with regard both to the group and to third parties, in particular purchasers of the group's products, as long as recognition has not been terminated under the procedure laid down for that purpose.

(c) Suggested replies

The Commission suggests that the questions referred to the Court should be answered as follows :

1 Language of the case: German.