Report for the Hearing In Case C-197/91
I — Facts and procedure
1. Legislative framework
(a) System for financing the common agricultural policy
1. Regulation (EEC) No 729/70 of the Council of 21 April 1970 (OJ, English Special Edition 1970 (I), p. 218) concerns the financing of the Common Agricultural Policy. Article 1 of the regulation provides that the task of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (hereinafter EAGGF) is to finance refunds on exports to nonmember countries and intervention intended to stabilize the agricultural markets. Under Article 3, such intervention is undertaken according to Community rales within the framework of the common organization of agricultural markets.
2. Article 4 requires Member States to designate the authorities and bodies which they empower to disburse the expenditure referred to in Article 3. The annual accounts of these authorities and bodies, which the Member States transmit to the Commission, are cleared by the Commission in accordance with Article 5(2)(b). Member States also supply the documents needed for the clearance.
3. Article 8(1) requires the Member States, acting in accordance with national provisions laid down by law, regulation or administrative action, to adopt the measures necessary to satisfy themselves that transactions financed by the EAGGF are actually carried out and are executed correctly, to prevent and deal with irregularities, and to recover sums lost as a result of irregularities or negligence. Member States are also obliged to inform the Commission of the measures taken for those purposes and in particular of the state of the administrative and judicial procedures. Article 8(2) further provides that, in the absence of total recovery, the financial consequences of irregularities or negligence shall be borne by the Community, unless the irregularities or negligence are attributable to administrative authorities or other bodies of the Member States. The sums recovered are paid to the paying authorities or bodies and deducted by them from the expenditure financed by the EAGGF.
(b) The common organization of the market in fruit and vegetables
4. Regulation (EEC) No 1035/72 of the Council of 18 May 1972 (OJ, English Special Edition 1972 (II), p. 437) deals with the common organization of the market in fruit and vegetables. Title I of this regulation concerns the common standards governing the markets. Article 3(1) provides that, when quality standards have been established, products to which they apply may not be displayed or offered for sale, sold, delivered or marketed in any other manner within the Community unless they conform to the standards. Article 8(1) requires Member States to appoint authorities to verify whether the products for which quality standards have been laid down comply with the provisions of Article 3.
5. Tide II of Regulation No 1035/72 deals with producers' organizations. Article 13 defines those organizations as meaning any organization of fruit and vegetable producers which is established on the producers' own initiative for the purpose, in particular, of promoting the concentration of supply and the regularization of prices at the producer stage, and of making suitable technical means available to producer members for presenting and marketing the relevant products, which requires those producer members to sell their total output through the organization and to apply, with regard to production and marketing, rules which have been adopted by the organization with a view to improving product quality and adapting the volume of supply to market requirements.
6. Under Article 15, producers' organizations may fix a withdrawal price below which the producers' organizations will not offer for sale products supplied by their members. In that event, and provided that the products comply with the quality standards, the producers' organizations or, where appropriate, associations of such organizations must grant an indemnity to members for the quantities that remain unsold. To finance those withdrawal measures, producers' organizations must establish an intervention fund, maintained by contributions assessed on quantities offered for sale.
7. Title III of the regulation concerns prices and the intervention system. Article 18(1) provides that Member States must grant financial compensation to producers' organizations which intervene pursuant to the provisions of Article 15, provided that the withdrawal price lies at a specific level in relation to the prices referred to in Article 19(2), and that the indemnity granted to members in respect of quantities withdrawn from the market does not exceed the amount which results from applying the withdrawal price to those quantities. According to Article 18(2) the value of the financial compensation must be equal to the indemnities paid by the producers' organizations, less net receipts from products withdrawn from the market.
8. Article 19(2) provides for State intervention in the operation of the market. If the Commission has found that the market for a given product is in a state of serious crisis the Member States must buy in products of Community origin offered to them, provided that those products satisfy the quality requirements and were not withdrawn from the market pursuant to Article 15(1).
2. Facts
9. In the course of clearing the accounts for 1987, the Commission investigated the manner in which the Italian authorities had checked the operations of the fruit and vegetable producers' organizations. According to the Commission the number and the scale of the checks carried out were inadequate to allow those authorities to form a reliable view of the matter. It therefore concluded that the Community provisions had not been properly applied, and that this shortcoming was likely to jeopardize the grant of certain heads of compensation.
10. Accordingly, the Commission adopted Decision 89/627/EEC of 15 November 1989 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1987 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (OJ 1989 L 359, p. 23), revising by 5% the financial compensation claimed by Italy.
11. The seventh recital in the preamble to the decision reads as follows:
12. The Italian authorities failed to provide by 31 December 1989 the evidence requested, and accordingly the financial correction was definitively confirmed by Commission Decision 90/213/EEC of 19 April 1990 (OJ 1990 L 113, p. 32), as may be seen from the second recital:
13. In December 1990, the Italian intervention agency, Azienda di Stato per gli Interventi sul Mercato Agricolo (hereinafter AIMA) requested all the producers' organizations involved to refund 5% of the total financial compensation paid in 1987.
14. One of those organizations is the Associazione tra Produttori Ortofrutticoli Piemontesi (hereinafter Asprofrut), which received AIMA's request by letter dated 12 December 1990. Asprofrut in turn informed its members by circular letter of 30 April 1991 that it had directly debited from the current account governing relations between each of the members and itself a sum equal to 5% of the compensation paid in 1987 for the withdrawal of products from the market.
15. The compensation reclaimed from one of Asprofrut's members — Frutticoitori Associati Cuneesi (hereinafter FAC) — amounted to a total of LIT 35835325 and related to a quantity of apples withdrawn from sale during the 1986/1987 marketing year.
3. Proceedings before the national court and questions referred for a preliminary ruling
16. FAC took the view that Asprofrut's policy of seeking refunds was unfair, since there had been no irregularities vitiating its operations or withdrawals of products. FAC therefore summoned Asprofrut to appear before the Pretura Circondariale di Cuneo, requesting that court to declare the refund demand unfounded and illegal and to forward the documents of the case to the Court of Justice pursuant to Article 177 of the EEC Treaty, so as to enable it to rule both on the validity of the decisions adopted by the Commission reducing the amounts to be credited to the Italian State and on the legitimacy of the Italian authorities' attempt to pass on to all fruit and vegetable producing organizations, indiscriminately, a proportion of the sum disallowed.
17. Asprofrut entered a defence before the court, contending that the Court of Justice should give a preliminary ruling on the validity of the decisions of the Commission.
18. In the circumstances, the Pretore di Cuneo held that it was essential to its judgment to inquire into the validity of the Commission's decisions reducing, both in percentage and in flat-rate terms, the sums payable to Italy by way of financial compensation. It held that there was legitimate doubt as to the compatibility with Community law of a flat-rate reduction in the absence of any real and coherent evidence of fraud or irregularities specifically ascertained and quantified.
19. By order of 5 July 1991 the Pretore di Cuneo reserved its ruling on the action brought by FAC and referred the following questions to the Court:
4. Procedure before the Court
20. The order for reference of 5 July 1991 was received at the Court Registry on 29 July 1991.
21. Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were lodged by FAC, the plaintiff in the main proceedings, represented by E. Cappelli and P. De Catering of the Rome Bar, the Greek Government, represented by V. Kontalaimos, Deputy Legal Adviser, acting as Agent, and the Commission, represented by E. de March, Legal Adviser, acting as Agent.
22. 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.
23. Pursuant to Article 95(1) and (2) of the Rules of Procedure, the Court decided on 3 June 1992 to assign the case to the Sixth Chamber.
II — Summary of the observations submitted to the Court
24. FAC observes that it will be unnecessary to consider the second question if the Court rules in answer to the first that the decisions of the Commission are invalid. The question as to validity is largely a question of fact.
25. FAC submits that the doubt as to the validity of the Commission's decisions arises mainly from the content of AIMA's letter of 12 December 1990, which states quite clearly that the expenditure disallowed by the decisions of the Commission is equal to 5% of total expenditure on financial compensation paid in 1987 to all Italian fruit and vegetable producing organizations. With that statement, AIMA automatically passes on to the recipients of compensation the repercussions of these decisions, without any reference to the grounds for the refusal to allow that portion of the expenditure.
26. FAC points out that it was only as a result of proceedings for interim relief before the national court that the administration had explained that the adverse decisions of the Commission were due to the finding that there had been irregularities and negligence during the withdrawal of products from the market. The Italian producers' organizations then turned to the Commission, which, by letter of 12 March 1991, confined itself to stating that the disqualification from EAGGF financing was due to the finding that the amounts involved had been paid in breach of the conditions regarding reimbursement.
27. According to FAC, it follows that neither AIMA's letter of 12 December 1990 nor the decisions of the Commission nor its letter of 12 March 1991 set out any specific instances of irregularity or negligence or identified in any way those responsible for the contraventions. The financial repercussions of the Commission's decisions were therefore passed on because of a liability imposed on the producers' organizations in respect of unspecified conduct on the part of unidentified persons.
28. In that connection, FAC submits that the amount disqualified from financing by the EAGGF was calculated on the basis of a few irregularities observed in the citrus-fruit sector, and was negotiated at great length with the competent Italian authorities.
29. Turning to the second question, FACsubmits in the first instance that the Pretore seems to be asking the Court to rule on whether AIMA's demand for refunds is consistent with Community Law. Such a question cannot be raised, and must therefore be reworded. What the Pretore really wishes to establish is whether the relevant Community law is to be interpreted as preventing public authorities from passing on to producers' organizations, indiscriminately, the financial repercussions of disallowing funds spent on market intervention, unless those authorities declare the expenditure to have been improper and determine liability.
30. According to FAC, the answer to that question is provided by Regulation No 729/70. Although Articles 8 and 9 of that regulation oblige the Member States — in the first place — to recover sums lost as a result of irregularities, the competent national and Community authorities are nonetheless bound by the rules requiring them to act strictly within their powers and to allow others the right to a fair hearing — rules which are common to Community law and national law.
31. The Greek Government submits that the Court must begin by considering whether it has jurisdiction to rule on the validity of decisions on the clearance of accounts. It points out that such decisions are drafted in accordance with a special procedure and become definitive unless they are challenged under Article 173. Even if Article 177, in theory, allows EAGGF accountancy to be reviewed, the Greek Government contends that it is not legitimate, after the expiry of the period permitted under Article 173, to cast doubt on the validity of decisions on the clearance of accounts falling within the ambit of Regulation No 729/70.
32. Turning to the question of validity, the Greek Government claims that reference should be made to the Community provisions governing budgetary matters and the financial relations between the Community and the Member States. In so far as the EAGGF account forms part of the Community budget, it necessarily operates in accordance with the official accountancy rules, which call for meticulous bookkeeping and the justification of every item in the accounts. Viewed in that light, the reimbursement of Community funds cannot be regarded as the infliction of financial penalties on an offending Member State.
33. However, the budgetary rules have not been observed in this case. In the absence of a detailed and exhaustive description of the quantities of low-quality fruit, and a specific identification of the amounts corresponding to the financial compensation awarded in respect of such fruit, the lump-sum reduction fixed unilaterally by the Commission assumes the character of a financial penalty, which is not permitted under Regulation No 729/70.
34. The Greek Government submits that the Court cannot give a preliminary ruling on the second question, since it relates solely to national issues to be resolved under Italian law.
35. The Commission observes in the first place that there is no legal connection between the decision on the clearance of the accounts and any national efforts to recover the funds. As far as the financing of the common agricultural policy is concerned, a distinction must be drawn between the relations between the Commission and the Member States, on the one hand, and the relations between those Member States and traders, on the other. Decisions on the clearance of accounts relate only to the first category, and cannot have any legal effect vis-à-vis third parties (see judgments in Case 819/79 Germany v Commission [1981] ECR 21 and Joined Cases 89 and 91/86 CNTA v Commission [1987] ECR3005).
36. With regard to the second category of relations, the Commission submits that the obligation to recover funds arises from Article 8 of Regulation No 729/70 rather than from the decisions on the clearance of the account. The obligation exists irrespective of whether the Commission has recorded the irregularity or negligence in question in such a decision. Conversely, a State whose account has been corrected will have to show the merits of its efforts to recover funds from third-party recipients, and cannot plead the binding character of the Commission's decision on the clearance of the account. It follows that the validity of such decisions is not at issue in the context of efforts to recover overpaid amounts from traders.
37. With regard to the second question before the Court, the Commission observes that the financial correction is not due to the discovery of particular instances of fraud or negligence on the part of producers' organizations but is due to the inadequacy of the checks carried out by the Italian authorities. The Commission therefore fails to see on what basis the Italian authorities could now claim refunds from those organizations.
38. The Commission further submits that the fact that the recovery of funds is a priori governed by national law does not entitle the national authorities to infringe the rights conferred on traders by Regulation No 1035/72. Consequently, once payment has been made the sum cannot be reduced except in cases of irregularity, fraud or (possibly) error on the part of the paying body. Community law therefore militates against any systematic and indiscriminate recovery of a flat-rate percentage from the recipients as a whole, unless each organization is shown to be severally liable.
1 Language of the case: Italian.