Opinion of Advocate General Darmon

Mr President,

Members of the Court,

1. By order of 5 February 1992 the Bundesgerichtshof has referred to the Court for a preliminary ruling three questions on Commission Regulation (EEC) No 262/79 of 12 February 1979 on the sale of butter at reduced prices for use in the manufacture of pastry products and ice-cream (hereinafter the Regulation). Before I go into the content of the questions raised, it is appropriate to indicate the relevant points of the rules in question and to summarize the facts of the case in the main proceedings between Hoche and the Bundesanstalt für landwirtschaftliche Marktordnung (hereinafter the BALM).

2. Article 6(3) of Regulation (EEC) No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products provides that special measures may be taken for butter held in public storage which cannot be marketed on normal terms during a milk year. Article 6(7) provides that Detailed rules for the application of this article and, in particular, of the amount of aid for private storage shall be adopted in accordance with the procedure laid down in Article 30, namely by reference to the Management Committee for Milk and Milk products.

3. In that context the Commission adopted several regulations on the sale of butter at reduced prices, including the one applicable in this case, with the aim of remedying the situation relating to the stocks of Community butter ... built up as a result of intervention.

4. Sale at reduced prices makes it possible to reduce Community butter stocks albeit to the benefit of a specific sector of the food industry, namely that of pastry products and ice-cream. It thus set up a standing tendering procedure. During the period of validity of the standing invitation, individual invitations to tender are issued. The successful tenderer is the one making the highest bid compared to the minimum price fixed. Only those who undertake to have the butter processed in accordance with the provisions of the Regulation may submit a tender and in this respect they must lodge a so-called processing security, intended to ensure that the butter is used in accordance with this Regulation, the amount of which is to be equal to the differences between the market price of the butter and the minimum prices fixed. Once processing has been carried out in accordance with the requirements laid down and within the period prescribed, the security is to be released. The Member States in whose territory processing and incorporation take place are to carry out inspections and to check that the requirements have been met. Non-compliance with certain conditions referred to in the Regulation is penalized by total or partial forfeiture of the security.

5. In 1980, Hoche, which runs a processing plant, put in a tender to the BALM and furnished security.

6. After processing the butter into concentrated butter, the company sold it to an Italian purchaser. During transport, the German customs authorities took a sample of 250 grams in order to check the processing. The competent authority's analyses revealed only 375 grams of beta-sitosterol and 49 grams of vanillin per tonne, which, moreover, were not uniformly distributed. In this respect, I may mention that the Regulation provides in the Annex that, in accordance with the one of the formulae selected, 480 grams of beta-sitosterol and 250 grams of vanillin must be incorporated when the butter is processed.

7. Article 5(2) provides that:

8. Hoche was informed of the results of the analyses after it had exported the concentrated butter to Italy. On the basis of these checks the BALM refused to release the security which, being in the form of bank guarantee, was cashed.

9. Hoche claimed before the Landgericht, and obtained, reimbursement of the security. However, that decision was quashed by the Oberlandesgericht. In the appeal on a point of law, the Bundesgerichtshof is now asking the Court essentially whether the requirement that the products incorporated should be uniformly distributed throughout the butter is to apply even once the processing has been carried out, that is to say when the butter has cooled. The Bundesgerichtshof also wishes to know whether the burden of proof of non-compliance with the Regulation rests on the BALM or whether it is for the appellant to adduce proof of compliance with its requirements. The last question, which may be regarded more as a request to consider the validity of Article 22(5) of the Regulation, concerns the compatibility of the principle of proportionality with a provision penalizing non-compliance with certain conditions by total forfeiture of the security, even if the processed butter was finally used in accordance with the Regulation.

10. I shall start by considering the first question, on the interpretation of Article 5(2) of the Regulation. As already stated, that article provides that in the course of processing certain products must be incorporated into the butter in such a way as to ensure uniform diffusion. Does this mean that that uniformity must exist only at the time of the processing operation?

11. Such an interpretation seems to me to be contrary to the wording as well as to the aims of the Regulation.

12. First, the wording of the Regulation.

13. Article 5(2) provides, in substance, that the products specified in Annexes I and II must be incorporated into the butter in the course of the processing in order to ensure a uniform distribution per tonne of concentrated butter.

14. As the BALM remarks, rightly, I think, the products which must be incorporated into the butter can only be incorporated during the processing. In Hoche and De beste Boter ν BALM this Court observed:

15. However, it is only at the stage of the intermediate product that the tracer products are incorporated, and it must be noted that as a result of that operation the product thus obtained can only be finally used for the processed products specified in Article 4 of the Regulation. In the course of that operation, the butter is heated, the tracer products are incorporated and the product thus processed is concentrated butter. However it is evident that such uniformity is required beyond the processing stage: the use of the term in such a way as to ensure shows that one of the aims of this processing is the uniform distribution of the tracer products in concentrated butter. Moreover, I cannot see in the wording of the Regulation any distinction between heated concentrated butter and cooled concentrated butter.

16. This literal interpretation is confirmed by the ratio legis of the Regulation. Indeed, the incorporation of the tracer products and their uniform distribution in the concentrated butter are intended to guarantee the use of the reduced-price butter — by the undertakings which benefit from that reduction — in accordance with the aim of Community rules.

17. The sixth recital in the preamble provides that:

18. The seventh recital provides that:

19. Only uniform distribution is capable of ensuring this differentiation, and analyses make it possible to verify that it is both satisfactory and permanent.

20. In the course of the processing, the incorporation of the tracer products, technically irreversible except through reprocessing, which would cancel out any financial advantage in the operation, offers a first guarantee aimed at preventing misuse of the intervention butter.

21. A second guarantee lies in the requirement that the uniformity is to persist until the concentrated butter is incorporated into the final product. It is necessary, in view of the importance of the advantage allowed, to be able to ensure by all appropriate checks that the successful tenderer cannot put the intervention butter back on to the market as an every-day consumer product.

22. Thus, Article 6 provides that if the concentrated butter is not processed in the same place as that in which the tracer products arc incorporated, it must be transported in accordance with certain conditions intended to ensure that it is finally used for one of the products listed in Article 4.

23. Also, in the case of Pommerehnke ν BALM, whereas the provision in dispute seemed to refer only to butter, and not to concentrated butter, the Court interpreted the provision in the light of the purpose of the rules which, let me repeat, is to dispose of stocks of intervention butter.

24. The Court held that:

25. From Article 5(2), it follows that the Regulation requires a uniform distribution of the products to be incorporated in both the heated butter and the cooled concentrated butter.

26. I shall now consider the question of the burden of proof as regards compliance with the conditions referred to in Article 5(2).

27. It is essential to distinguish between, on the one hand, checks carried out at the stage of the final use of the concentrated butter and, on the other hand, as in this case, those applied by the competent authorities of the Member States, before final use, to ensure compliance with the requirements laid down in the Regulation.

28. First of all, as regards the successful tenderer's use of the concentrated butter in the products specified in Article 4, it is for him to prove that it has been correctly used. This may be seen from Article 22(4) which provides:

29. That article refers to Commission Regulation No 1687/76 of 30 June 1976 concerning proof of proper use of the butter, and in particular Article 13(4) which makes the release of the security subject to the lodging of certain documents listed and delivered by the competent authorities. The burden of the proper final use of the butter can therefore rest only on the successful tenderer.

30. The Court adopted a similar decision in the case of Corman, the relevant facts in which are as follows. Corman acquired intervention butter and had undertaken to comply with the conditions for the processing and final use of the butter. It sold the butter to different buyers in Germany and obtained from the German customs authorities the documents attesting the proper use of the butter, so the processing security was released. However, it subsequently appeared that the butter had not been used in accordance with its intended purpose and the intervention agency claimed restitution of the amount of the processing security.

31. In respect of the burden of proof the Court stated that:

32. Admittedly that case concerned Regulation No 232/75 and not Regulation No 262/79 as in this case. However, an identical solution is required in so far as both provisions are to the same effect.

33. Thus the BALM contends that until the time the attestation is issued, the burden of proving that the conditions of Article 5(2) have been complied with rests on the successful tenderer.

34. However, Article 22(5), which specifically concerns cases of non-compliance with the conditions laid down in Article 4, provides that:

35. Thus, total or partial forfeiture of the security is subject to the establishment of an infringement because insufficient quantities of the tracer products have been incorporated in the concentrated butter. It is therefore on that product or on the related documents that checks are to be effected, but not on the documents attesting that the concentrated butter has been incorporated into the products specified in Article 4.

36. Here, Article 22 (5) reverses the burden of proof. In order to refuse the total or partial release of the security, the burden of proof is now on the competent authority to show breach of the conditions laid down in Article 5.

37. Were the German customs authorities entitled to discharge the burden of proof which rested on them by carrying out a check through sampling?

38. In the case of BayWa ν BALM the Court held that:

39. That solution was justified by the absence of relevant provisions in the Community regulations in dispute. It may therefore be said that Regulation No 262/79 by not laying down detailed rules for supervision leaves to the Member States the power to check through business undertakings that Community requirements are complied with. In the course of the oral procedure none of the parties contested a Member State's entitlement to set up such supervision systems.

40. Similarly, in the case of Société pour l'Exportation des Sucres ν ΟΒΕΑ the Court recognized the principle of carrying out checks not prescribed by the Regulation, notwithstanding the fact that the results became known only after the goods had been exported. That case involved consideration of the lawfulness of a check prior to the loading of products intended as food aid. The Court stated that:

41. Since fulfilment of the conditions of Article 5(2) is an essential part of the supervision system implemented by the Regulation, the sampling carried out by the national authorities cannot as such be regarded as unlawful.

42. However, it should be noted that although a Member State may set up such a checking system it is for the national courts to review its procedural legality as well as its probative value.

43. In its observations, however, the Commission stated that some errors had been made when applying the national provisions. The explanations given by its representative during the oral procedure did not help greatly to identify them precisely. In any event that is a matter for the national court. If the national court were of the opinion that the sampling carried out by the German authorities was unlawful or had no probative value the security would have to be released.

44. On the other hand if the national authority produces to that court information which allows it, at first sight, to consider that the check establishing the infringement was procedurally correct and of a sufficiently probative nature, the undertaking cannot simply contradict its conclusions. It must disprove them by producing contrary evidence.

45. In its last preliminary question, which I regard, as I mentioned, as involving a review of legality, the Bundesgerichtshof is asking the Court whether, in view of the principle of proportionality, forfeiture of the security should not be partial only, because the end result was attained even though the tracer products were not uniformly incorporated or only incorporated in insufficient quantities into the concentrated butter.

46. A reminder of the Court's case-law on this matter provides pointers for the answer to be given.

47. Thus the Court held that in cases of penalties such as non-release of the security for failure to produce evidence in due time it was necessary to consider whether it:

48. Thus the Court's consistent case-law regarding supervision of this matter states that:

49. In the case of Man ν JBAP a distinction was made between primary and secondary obligations. Whereas the first is necessary in order to attain the objective sought, the second, on the contrary, has an administrative function a breach of which should not be penalized as severely as failure to comply with the primary obligation.

50. The case of Maas ν BALM clearly stated that breaches of a primary obligation could be penalized by total forfeiture of the security without there being any breach of the principle of proportionality. The Court stated as follows:

51. However, since that judgment the Court has taken the view that total forfeiture of a security might be excessive, even as a penalty for a primary obligation. After describing an obligation to ship foodstuffs within a fixed period as a primary undertaking, the Court nevertheless held that:

52. The cases of Lingenfelser, Italtrade and Pressler further highlight the weakening of the scope of this distinction. However, it seems to me that the basis of it is still there in so far as an appreciation of the proportionality of a penalty is closely linked to the importance of the obligation entered into by the firm concerned.

53. Although total forfeiture of a security may appear excessive even where there is a breach of a primary obligation, in my opinion it is essential to make the distinction in order not to penalize an infringement of a secondary obligation as severely as, if not more severely than, that of a primary one.

54. Let us therefore consider whether the provision at issue respects the principle of proportionality by penalizing breaches of the obligation to incorporate and uniformly distribute certain products by forfeiture of the security, which in some cases may be total, even though the butter may have been used in accordance with the requirements of the Regulation.

55. It is necessary to determine whether:

56. I would remind the Court that the object of incorporating certain products into the concentrated butter is explained, first, by the reasons stated in the sixth and seventh recitals in the preamble to the regulation, which provide that the purpose of the incorporation and uniform distribution is to guarantee the intended use of the processed butter by which it can distinguished from other butter.

57. From Article 3 it may be seen that:

58. The tenderer thus undertakes to comply not only with the purpose of the Regulation, namely the withdrawal from the market of certain quantities of butter and their use in certain industries, but also with the detailed technical rules intended to ensure that the butter thus processed shall actually be taken off the market.

59. It is to be noted, also, that under the second subparagraph of Article 18(2), successful tenderers are privileged because for tenderers:

60. The plan on which the system rests may be summarized as follows. Successful tenderers acquire the intervention butter at a price below the market price. In consideration of that advantage they undertake to process it by adding tracer products and to ensure its use for the manufacture of specified products. As a guarantee of compliance with this twofold undertaking they furnish a security amounting to the difference between the intervention price of the butter and its market price, that is to say the economic advantage conferred on them.

61. It is apparent that this plan is aimed at ensuring compliance with the purpose of the Regulation and at preventing any distortions of competition which might result if it were not uniformly applied throughout the Community.

62. The obligation to comply with the conditions willingly subscribed to by the successful tenderer has already been recognized by this Court in De beste Boter ν BALM:

63. In the aforesaid case of BayWa ν BALM on denaturing of wheat in accordance with a specific reference method, the Court held that:

64. Similarly, in the case of RU-ΜΙ ν FORMA the Court refused to declare void a regulation which penalized with the total loss of aid a failure to comply scrupulously with the conditions for denaturing skimmed milk intended for animal feed. Admittedly there were no final checks confirming that the feed had actually been put to the final intended use, although the company had produced proof of the proper use of the product.

65. The Court was of the opinion that:

66. The purpose of providing this guarantee is essential in order to prevent a misuse of the Regulation since, as admitted by the plaintiff's representative in the main proceedings, the final check on the incorporation of the tracer products is not systematic. Incorporation and uniform distribution are a consistent proof of the denaturing of the butter, which can no longer be put on the market as an every-day consumer product.

67. Non-compliance with the obligation to process the butter is not, however, penalized more rigorously than that of the obligation concerning its final use. On the contrary, whereas the lack of evidence that the butter was used as intended is penalized by total forfeiture of the security, infringement of the processing obligation is penalized only in proportion to the extent of the deficiency established, as the second subparagraph of Article 22(5) provides only for partial forfeiture of the security where there is a shortfall of less than 20% and for total forfeiture above that proportion.

68. Finally, I may mention, as I stated in my opinion in Lingenfelser, that a review of validity cannot consist in examining the merits of each measure, but must penalize only cases in which the limits of the discretion conferred on the Commission have clearly been exceeded.

69. I therefore propose that the Court should rule as follows:

1 Original language: French.

2 OJ 1979 L 41, p. 1.

3 OJ, English Special Edition 1968 (I), p. 176.

4 Second recital in the preamble to the Regulation.

5 Article 12.

6 Article 17.

7 Article 3.

8 Article 16.

9 Article 22.

10 Article 21.

11 Article 22(5).

12 The wording of the preliminary questions is contained in the Report for the Hearing (II.5).

13 Joined Cases 154/84 and 155/84 [1985] ECR 1215.

14 Paragraph 21.

15 My emphasis.

16 Joined Cases 66/81 and 99/81 [1982] ECR 1363

17 Paragraph 13.

18 Paragraph 14.

19 Regulation laying down common detailed rules for verifying the use and/or destination of products from intervention (OJ 1976 L 190, p. 1).

20 See sixth recital in the preamble to Regulation (EEC) No 262/79.

21 Case 124/83 [1985] ECR 3777.

22 Paragraph 50. Sec also the judgment in Case 20/84 De Jong ν Vib [1985] F.CR 2061.

23 As indicated Article 18 (2) provides that except in cases of force majeure and save as otherwise provided in Article 19 (2) the processing security for in Article 12 shall be released only for Quantities in respect of which the success ful tenderer has furnished proof that the conditions laid down in Article 6 have been fulfilled.

24 My emphasis.

25 Joined Cases 146/81. 192/81 and 193/81 [1982] ECR 1503.

26 Paragraph 20.

27 Case 56/86 [1987] ECR 1423.

28 Paragraph 9.

29 Paragraph 11.

30 P. 13 of the French version.

31 It seems also that in the course of the incorporation of the tracer products a check had been carried out by the BALM. It would be for the national court, if it thought fit, to call for production of the relevant report.

32 Case 122/78 Buttons ν ¡ORMA [1979] ECR 677. paragraph 16.

33 Case 66/82 Fromimçau ν ¡ORMA [1983] ECR 395. para graph 8; identical statement in judgments in Case C 155/89 Philip Brothers [19901 ECR I 3265), in Case C 118/89 Lingenfelser [1990] ECR I 2637, paragraph 12, and in Case C 199/90 hallrade [1990] ECR I 5545, para graph 12.

34 Casc 181/84 [1985] ECR 2889.

35 Paragraph 20.

36 Case 21/85 [1986] ECR 3537.

37 Paragraph 15.

38 Paragraph 17.

39 Case 118/89, previously cited in note 33.

40 Case 199/90, previously cited in note 32.

41 Case C-319/90 [1992] ECR I-203.

42 Case C-199/90, previous cited, paragraph 14.

43 Mv emphasis

44 Joined Cases 99/76 and 100/76 ECR [1977] 861

45 Paragraph 4

46 Paragraph 10.

47 Case 272/81 [1982] ECR 4167.

48 Paragraph 12.

49 Case C-118/89, previously cited.