Report for the Hearing in Case C-281/89
I — Facts and procedure
1. Legal background
(a) The system of financing the common agricultural policy
1. Regulation (EEC) No 729/70 of the Council of 21 April 1970 provides for the financing of the common agricultural policy (Official Journal, English Special Edition 1970 (I), p. 218). Article 1 provides that the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (the EAGGF) is to finance refunds on expons to non-member countries and intervention intended to stabilize the agricultural markets. Such intervention is undertaken, pursuant to Article 3 of the regulation, in accordance with the Community rules in the context of the common agricultural policy.
2. Article 4 provides that the Member States are to designate the authorities and bodies which they empower to effect the expenditure referred to in Article 3. The annual accounts of those authorities and bodies, which the Member States forward to the Commission, are cleared by the Commission pursuant to Article 5(2)(b). The Member States also provide it with the documents necessary for such clearance.
3. Under Article 9, the Member States are to make available to the Commission all information required for the proper working of the EAGGF. Moreover, the Commission staff is empowered to carry out on-the-spot checks, during which they are to have access to all documents relating to the expenditure financed by the EAGGF.
4. Regulation (EEC) No 1723/72 of the Commission of 26 July 1972 on the clearance of the accounts of the EAGGF (Official Journal, English Special Edition, Second Series III, p. 109) lays down the procedures according to which the annual accounts are to be forwarded to the Commission, so that it can adopt the clearance decision provided for in Article 5(2) of Regulation No 729/70. Article 8(a) of Regulation No 1723/72 provides that that decision must include determination of the amount of the expenditure incurred in each Member State during the year in question recognized as chargeable to the EAGGF, Guarantee Section.
5. Council Regulation (EEC) No 1883/78 of 2 August 1978 (Official Journal L 216, p. 1) lays down the general rules for financing of intervention by the EAGGF, Guarantee Section. Council Regulation (EEC) No 3247/81 of 9 November 1981 (OJ L 327, p. 1) lays down, pursuant to Article 4(3) of Regulation No 1883/78, certain rules and conditions governing the annual accounts of the intervention agencies, in particular those relating to intervention measures consisting in the purchase, storage and sale of agricultural products by intervention agencies. Annex I to the regulation lists the items (expenditure) to be shown on the debit side of the annual accounts and specifies under heading I, Costs, material operations, the expenditure to be expressed as standard amounts.
(b) The colouring of the common wheat of bread-mailing quality
6. Regulation (EEC) No 2727/75 of the Council of 29 October 1975 (OJ L 281, p. 1) provides for the common organization of the market in the cereals sector. Under the common organization, the Commission adopted on 17 May 1976 Regulation (EEC) No 1146/76 of 17 May 1976 on particular and special intervention measures for cereals (OJ L 130, p. 9). Those measures relate to cereals for which in certain regions of the Community there is a danger of substantial quantities being offered for intervention.
7. In 1983, the Council considered it necessary to adopt special measures by-reason of a substantial increase in the stocks of common wheat in the main producing Member States and because that increase was liable to create, at the time of the 1983/84 harvest, obstruction of the intervention machinery in those Member States. In that context, Regulation (EEC) No 1322/83 of 26 May 1983 on the transfer of 550000 tonnes of common wheat of bread-making quality by French and German intervention agencies (OJ L 138, p. 63) provides that certain quantities of common wheat at the disposal of intervention agencies in France and Germany with a view to their use in animal feeds are to be transferred to certain regions of the Community where there is a shortage.
8. Commission Regulation (EEC) No 2794/83 of 6 October 1983 on the sale on the internal market of 450000 tonnes of common wheat of bread-making quality held by the Italian intervention agency and amending Regulation (EEC) No 1687/76 (OJ 1983 L 274, p. 18) lays down detailed arrangements for the transfer and sale of the wheat for Italy. The second paragraph of Article 5 is intended to facilitate verification of the use of the wheat in question in animal feed. To that end, it provides that the intervention agency concerned shall colour the product so that it can be identified. Colouring must be carried out at minimum expense.
2. The facts
9. The Italian intervention agency (AIMA — Azienda di Stato per gli interventi nel mercato agricolo) determined at ECU 6.15 per tonne the expenditure incurred in the colouring operation required by Regulation No 2794/83 and applied for reimbursement thereof from the EAGGF (LIT 3682607099 for the total quantity).
10. At a meeting of the Cereals Management Committee of 15 December 1983, the Commission informed AIMA of its intention to reimburse the expenditure incurred on the basis of a standard amount. On 20 December 1983 the Italian administration sent the Commission a telex message objecting to reimbursement on that basis. In two further telex messages, of 7 January and 5 October 1984, it provided the Commission with certain information concerning the components of the colouring expenditure: the type and costs of the colouring agents used, the costs of dilution, equipment and certification costs, and the costs of removal from silos.
11. However, the Commission maintained its position. On 7 June 1985 it decided to reimburse the colouring expenditure by way of standard amounts at the rate of ECU 1.17 per tonne of cereals treated, calculated in accordance with the system in force for expenditure on the storage of intervention products provided for in Annex I to Regulation No 3247/81. The Italian Government commenced proceedings before the Court of Justice for the annulment of that decision pursuant to Article 173 of the EEC Treaty. By judgment of 4 February 1988 (in Case 256/85 [1988] ECR 521), the Court upheld the action and annulled the decision of 7 June 1985 in so far as it applied to the colouring operation provided for in Regulation No 2794/83.
12. In order to enforce that judgment, the Commission wrote to the Member States concerned on 15 April 1988 and invited them to inform it of the expenditure actually incurred on the colouring of cereals in 1983, 1984, 1985 and 1986, and also to provide evidence that the colouring method chosen was the least costly. All the Member States except Italy responded to that request.
13. During a check carried out by Community officials at AIMA at the end of October 1988, the Commission was able to obtain certain information from the Italian authorities. It appeared that the colouring operations were carried out between 26 October 1983 and 6 October 1986. They were carried out individually by those responsible for storage on behalf of AIMA, progressively as the product was withdrawn from storage for delivery to the purchasers. AIMA entrusted the monitoring of those individual operations to Société générale de surveillance, Geneva, which issued a colouring certificate for each consignment disposed of. At no time did AIMA contact other undertakings with a view to their carrying out colouring operations.
14. On 26 November 1988 the Commission received some further information by telex and then, by memorandum of 19 January 1989, on the basis of the information available to it, suggested charging to the EAGGF the expenditure declared by Italy at the rate of ECU 1.17 per tonne, in the absence of any evidence to show that the colouring method adopted was the least costly possible. Despite the objections voiced by the Italian authorities, the Commission confirmed its position in a letter of 13 April 1989 in which it pointed out that the only legislative provision to which it was appropriate to refer for the amount chargeable to the EAGGF for the colouring of cereals was Article 5 of Regulation No 2794/83, which sets a limit for Community expenditure that is based on the least costly method possible and requires the Member State concerned to show that the method used actually complies with that limit. That approach is definitively confirmed in Commission Decision 89/418/EEC of 26 June 1989 amending Decision 88/630/EEC on the clearance of the accounts presented by the Member States in respect of the EAGGF, Guarantee Section, expenditure for 1986 (OJ 1989 L 192, p. 33).
II — Procedure before the Court
15. By application lodged at the Court Registry on 12 September 1989, the Italian Government commenced the present action against Decision 89/418.
16. Upon 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. However, it decided to put the following questions to the Commission of the European Communities.
17. The Italian Government claims that the Court should:
18. The Commission contends that the Court should:
III— Submissions and arguments of the parties
19. The Italian Government makes two submissions in support of its application. First, it maintains that the Commission disregarded the principle of res judicata in adopting the contested decision. The Court's judgment of 4 February 1988 partially annulling the Commission Decision of 7 June 1985 disposed of the issue concerning the reimbursement of expenditure on colouring. The fact that in paragraph 18 of that judgment the Court stated that the expenditure actually incurred might be reimbursed only if the minimum possible cost had been incurred cannot reopen the issue since the level of expenditure declared by Italy was not at issue in that judgment, that being so precisely because the Commission had not challenged it. The Commission cannot rectify its omission by now contesting the appositeness of the expenditure declared since the principle of res judicata applies not only to the submissions actually made by the parties but also to any arguments which might have been, but were not in fact, put forward.
20. The Italian Government's second submission relates to the burden of proof as to whether the expenditure on colouring was the minimum possible. It states that the Italian administration provided the Commission with evidence of actual expenditure by indicating the factors on which the calculation was based and that it was not required to furnish further evidence. It considers that no provision of Community law provides for any tendering procedure for colouring operations. Moreover, in its view there is no reason for concluding that a better price could have been obtained by recourse to such a procedure. The cost analyses undertaken by the Italian administration in themselves guarantee the requisite efficiency.
21. The Italian Government states, in that regard, that a call for tenders would not only have delayed the delivery of the cereals to buyers but would also have served no purpose. Those who were awarded the contract for colouring were recognized as reliable and efficient by AIMA when the latter entrusted it with the storage of cereals. As those contractors were all paid on a flat-rate basis for the services rendered it was logical, in the Italian Government's view, to give them a lump-sum payment for the colouring operations as well.
22. Moreover, it cannot be claimed that the colouring agent used would have been less costly if it had been purchased in its entirety by AIMA rather than separately by the various storage undertakings. In the Italian Government's view, it is not the duty of AIMA, which is an intervention agency, to purchase products of that kind.
23. In those special circumstances, it was, in the Italian Government's view, incumbent on the Commission to show specifically why the costs declared were not the lowest costs possible and to give a proper explanation as to why the expenditure was unacceptable. A mere reference to the situation in other Member States where the costs of colouring were lower did not constitute a proper explanation in that context since it took no account of the different circumstances obtaining in the Member States.
24. The Commission considers that the Italian Government's first submission is without foundation. The question of minimum expenditure was not raised or examined by the Court in its judgment of 4 February 1988. The issue in the present case was, moreover, expressly left open in paragraph 18 of the judgment.
25. The Commission also regards the second submission as unfounded. Article 5 of Regulation No 2794/83 imposes the obligation to achieve a precise result; colouring must be as inexpensive as possible. Whilst it is true that that provision does not require the Member States to hold a tendering procedure, the fact nevertheless remains that the prescribed result necessarily requires a comparison to be made in order to achieve that result. However, it is clear that the Italian authorities did not make such a comparison and that the colouring operations were consequently not carried out in accordance with the Community rules. The Commission observes that, in such an irregular situation, the Court has held (judgment in Case 347/85 United Kingdom v Commission [1988] ECR 1749) that it is entitled simply to refuse any reimbursement. In the present case it states that it nevertheless preferred, for reasons of fairness, to allow the expenditure that would have been incurred if a more efficient method of colouring had been adopted. In those circumstances, it is for the Member State concerned to show that the conditions for reimbursement were in fact satisfied or that the expenditure was unfairly estimated by the Commission.
26. In the present case, the Italian authorities did not provide any evidence in that respect. The Commission also considers that the procedure adopted by the authorities may have been the easiest but it certainly was not the least costly. The expenditure for colouring declared by Italy was in fact 34 times higher than that declared by Ireland, the Member State with the lowest figure. If Italy had taken a competitive approach, its expenditure could have been limited. In that connection, it considers the claim that the organization of a call for tenders would have needlessly delayed the delivery of the cereals to the buyers to be unconvincing since the deliveries covered a period of almost three years.
IV — Replies to the questions put by the Court
1. Reply to the first question
27. The Commission, in estimating the expenditure on colouring incurred by Italy, adopted the standard amount that it had determined at an earlier stage. That standard amount was the weighted average of the expenditure declared by the Member States after deduction of obviously excessive costs.
2. Reply to the second question
28. The Commission produced the information forwarded by Belgium, Germany, France, Ireland and the United Kingdom. In particular, it appears from that information that the United Kingdom chose the cheaper of the two scientifically permitted colouring agents, sought prices from six suppliers and chose the lowest; that Ireland chose the cheapest colouring agent and that the Belgian and German authorities also provided evidence that they had endeavoured to buy at the lowest price. France's reply, however, gave no details of the comparative method adopted.
1 Language of the case: Italian.