Report for the Hearing delivered in Case C-372/88

I — Legal background

1. National legislation

1. The Milk Marketing Board of England and Wales, the plaintiff before the national court (hereinafter referred to as the Board), was established as a statutory corporation under the Agricultural Marketing Act 1931, modified in 1958. Its principal activities are the purchase and wholesaling of milk and, by its commercial subsidiary, Dairy Crest Limited, the sale by retail of milk for human consumption and the manufacture and sale of milk products of various kinds.

2. The marketing of milk produced in England and Wales is regulated by the Milk Marketing Scheme 1933, as now in force, which was created pursuant to the abovementioned Act. Subject to certain exceptions, the scheme imposes on the Board the obligation to purchase any milk of marketable quality offered to it by registered producers and gives it the power to require registered producers to sell such milk to it. Under the scheme, again subject to certain exceptions, producers are prohibited from selling milk unless they are registered or exempt from registration. The Board buys raw milk from producers at a common, or pooled, price, and sells it at differing prices according to the use to which it is put. The common price reflects the average of the prices realized by the Board on resale, less operating costs. The Board distributes the whole of its income to the producers.

2. Community legislation

1. After the United Kingdom's accession to the European Communities, Council Regulation (EEC) No 1421/78 of 20 June 1978 amending Regulation (EEC) No 804/68 on the common organization of the market in milk and milk products enabled the Milk Marketing Boards operating in the United Kingdom to be recognized with regard to the prerogatives they enjoy in the marketing of milk, in particular their exclusive right to buy milk from producers established in their area. That was made possible by the modification of Article 25 of Regulation No 804/68, which is now in the following terms :

2. Pursuant to Article 25(2) and (3) of Regulation No 804/68, the Council adopted Regulation (EEC) No 1422/78 of 20 June 1978 concerning the granting of certain special rights to milk producer organizations in the United Kingdom (Official Journal 1978, L 171, p. 14). Article 1(2) of that regulation provides that the United Kingdom may, under certain conditions,

3. Articles 7 and 8 of Regulation No 1422/78 are worded as follows:

4. After the five Milk Marketing Boards had carried out a poll of milk producers showing that each board was representative within the meaning of Article 25 of Regulation No 804/68, the Commission adopted Regulation (EEC) No 1565/79 of 25 July 1979 laying down rules for implementing Regulation (EEC) No 1422/78 concerning the granting of certain special rights to milk producer organizations in the United Kingdom (Official Journal 1979, L 188, p. 29). Article 1 of that regulation authorizes the United Kingdom to grant the rights set out in Article 25(1) of Regulation No 804/68, subject to the conditions laid down in Regulation No 1422/78 and in Regulation No 1565/79 itself. Articles 3 to 5 of that regulation lay down detailed provisions for the application of Articles 7 and 8 of Regulation No 1422/78, including the notification procedures to be followed by producers wishing to withhold milk from sale. Producers must specify the period of withholding and whether all milk or only a proportion of the total will be withheld.

II — Facts and procedure in the main proceedings

1. Cricket St Thomas Estate, the defendant in the main proceedings (hereinafter referred to as Cricket St Thomas), is a partnership which carries on the business of farming an estate comprising four dairy units of approximately 150 cows each. It has facilities for the bulk storage and pasteurization of milk. The milk which is pasteurized in its dairies comes not only from its own herds but is also bought in from the Board. Cricket St Thomas sells that pasteurized milk to consumers both directly and through roundsmen, shops and supermarkets. It holds a producer-retailer licence and sells milk through intermediaries under a producer-processor agreement concluded with the Board in 1981, in accordance with the provisions of the Milk Marketing Scheme.

2. In 1984, Cricket St Thomas stopped paying contributions to the Board, which brought an action to recover those sums in 1986. The action relates to contributions payable by registered producers under the Milk Marketing Scheme, that is to say capital contributions, which are calculated by reference to the total quantity of milk sold and are used to finance the Board's capital investments, producer-retailer (PR) contributions due under producer-retailer licences, and producer-processor (PP) contributions due under the terms of the producer-processor agreement concluded between the Board and Cricket St Thomas, as well as penalties and awards in respect of losses caused to the Board, imposed or determined by a disciplinary committee pursuant to the scheme for failure to comply with obligations thereunder, particularly failure to furnish returns of the quantities of milk withheld from the Board.

3. Before the High Court, Cricket St Thomas contended that each of those claims was contrary to Community law. It claimed that the Board's exclusive purchasing prerogative does not extend to milk which the producer pasteurizes, on the ground that pasteurizing is processing within the meaning of Article 25(1) of Regulation No 804/68 inasmuch as the milk is not left in its original state. Cricket St Thomas further contended that the Board has no power under Community law to require producers who withhold their milk from the Board to pay contributions, and that the sums demanded were in any event unreasonable in amount.

4. By an order of 3 November 1988, the High Court of Justice, Queen's Bench Division, referred the following questions to the Court for a preliminary ruling:

5. In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted by the plaintiff in the main proceedings, represented by Wedlake Bell, solicitors, by the defendant in the main proceedings, represented by J. B. Havenhand, solicitor, D. Vaughan QC and M. McEwan and D. Anderson, barristers, by the United Kingdom, represented by Susan J. Hay of the Treasury Solicitor's Department, acting as Agent, and by the Commission of the European Communities, represented by P. Oliver, acting as Agent.

6. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral proceedings without any preparatory inquiry and to assign the case to the Sixth Chamber.

III — Written observations submitted to the Court

1. The plaintiff in the main proceedings maintains that the Milk Marketing Boards' prerogatives with respect to the exclusive right to purchase milk from producers established in their area are necessary for the boards to operate effectively. If the Board's exclusive right were construed so as to remove from its prerogative milk which a producer intended to pasteurize, that right would be so weakened as to put in jeopardy the beneficial economic results which Regulation No 1421/78 identified as contingent upon the Board's functions and the milk marketing scheme in question. In the Board's view, the question thus arises whether Article 25(1) of Regulation No 804/68 is to be construed in a way that would risk defeating the purpose of that regulation.

2. In the view of Cricket St Thomas, the defendant in the main proceedings, the case involves the question whether the Board is entitled, as a matter of Community law, to require the contributions at issue from producers who withhold their production of milk in order to pasteurize it. It claims that all of those contributions are irrecoverable, being unlawful under Community law and the common organization of the market in milk and milk products because they are excessive and not proportionate.

3. In the view of the United Kingdom, the Board's exclusive right to buy referred to in Article 25(1) of Regulation No 804/68 is exercisable in respect of all milk marketed by producers as milk, including pasteurized milk. If that provision were to be construed in such a way as to exclude pasteurized milk from the Board's exclusive right, the purpose of the regulation would be placed in jeopardy.

4. The Commission observes that the first question asks whether pasteurization constitutes processing within the meaning of Article 25(1) of Regulation No 804/68 so that the Board's exclusive right does not apply.

1 Language of the case: English.