Report of the Judge-Rapporteur in Case C-59/92

I — Facts

1. In July 1984 Ebbe Sönnichsen GmbH (hereinafter Ebbe Sönnichsen) imported a consignment of fresh beef and veal meat into the Community. The company paid the whole of the agreed price to the seller, on fob terms, in Uruguay, with an irrevocable letter of credit.

2. The declaration relating to the customs value did not mention any defect in the quality of the meat.

3. After examining a number of samples, the Hauptzollamt St-Annen (Chief Customs Office St-Annen, hereinafter the Hauptzollamt) cleared the goods, in accordance with a request from Ebbe Sönnichsen and determined import customs duties on the basis of the sum paid by irrevocable letter of credit, and of the cost of maritime freight.

4. Subsequently, after the goods were unloaded, Ebbe Sönnichsen discovered that about a third of the meat was spoiled and, according to the experts consulted, was totally lost as it was no longer fit for human consumption. Ebbe Sönnichsen therefore wrote to the Hauptzollamt, requesting the partial reimbursement of import duties, by letter of 11 October 1984.

5. An agent of the seller later gave Ebbe Sönnichsen a credit note, which however was not honoured.

6. The Hauptzollamt refused the application for the repayment of import duties, and rejected the complaint lodged by Ebbe Sönnichsen. As a result the company appealed to the Finanzgericht (Finance Court).

II — The relevant regulations

7. Article 2 (1), first indent, of Council Regulation (EEC) No 1430/79 of 2 July 1979 (OJ 1979 L 175, p. 1), relating to the repayment or remission of import or export duties provides:

8. According to Article 5 of the regulation, when goods are refused by the importer because they are defective or do not comply with the terms of the contract:

9. Article 2(1) of the Council Regulation (EEC) No 1224/80 (OJ 1980 L 134, p. 1) provides:

10. Article 3 of the same regulation, which repeats Article 1 of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (OJ 1980 L 71, p. 107, hereinafter the Agreement), provides:

11. If the customs value cannot be determined under Article 3, Article 2(2) and (3) of the same regulation provides that recourse is to be had to other means in the order expressly laid down for that purpose.

12. According to Article 3(3) of the same regulation:

13. In conformity with Article 1(1 )(g) of the same regulation, the material time for valuation for customs purposes means:

14. Article 4 of Commission Regulation (EEC) No 1495/80 of 11 June 1980, laying down certain provisions for the implementation of Articles 1, 3 and 8 of the aforementioned Regulation No 124/80 (OJ 1980 L 154, p. 14) provides for the eventuality of partial loss or damage. The second sentence in the provision was added by Commission Regulation (EEC) No 1580/81, of 12 June 1981 (OJ 1981 L 154, p. 36). Article 4 provides:

III — The proceeding before the national court

15. The Finanzgericht upheld the application made to it after the complaint had been rejected by the Hauptzollamt and directed the latter to comply with the request for repayment. It held that, in accordance with Article 2(1) of Regulation No 1430/79, Ebbe Sönnichsen was entitled to the repayment of import duties paid for the spoiled goods. The Finanzgericht pointed out in its decision that, according to the combined provisions of Article 2(1), and Article 3(1) of Regulation No 1224/80, the value of imported goods for customs purposes was equal to their transaction value, that is to say the price actually paid or payable for the goods when sold for export purposes to the customs territory of the Community. It also observed that according to Article 4(2) of Regulation No 1485/80, as amended, a proportional share of the price actually paid or payable was required in the case of partial deterioration which occurred before the release into free circulation of the meat to be delivered. The defective goods were therefore, to that extent, not subject to customs duties.

16. In its appeal on a point of law (Revision) to the Bundesfinanzhof, the Hauptzollamt submitted that, on the contrary, that the second sentence of Article 4 of Regulation No 1495/80 was not applicable, because the meat was already of defective quality at the time of purchase. That provision was only applicable where the goods were damaged after the burden of the corresponding risk had been transferred to the buyer.

17. The Bundesfinanzhof therefore decided, by order of 10 December 1991, to refer the following questions to the Court pursuant to Article 177 of the EEC Treaty.

IV — Summary of the observations of the Bundesfinanzhof

18. In the grounds of its order for reference, the Bundesfinanzhof points out that, according to the judgment of the Court in Case 183/85 (Hauptzolhmt Itzehoe v H J Repenning [1986] E CR 1873) the expression actually paid or payable price, within the meaning of Article 3(1) of Regulation No 1224/80, is explained by Article 4 of Regulation No 1495/80, according to which the price used to ascertain the customs value must be reduced in proportion to the damage suffered.

19. The Bundesfinanzhof observes that there remain doubts as to whether, beyond that particular case, the same principles also apply to the proceedings before it, in which it is not disputed that the goods were already spoiled before Ebbe Sönnichsen took over the burden of risk of possible deterioration in the course of transport.

20. In the opinion of the Bundesfinanzhof, the wording of the second sentence of Regulation No 1495/80 seems to point to an affirmative answer, inasmuch as it refers to damage to goods before they enter into free circulation, without specifying the nature or date of the damage. This opinion is also supported by the economic purpose of the system of valuation of goods for customs purposes introduced by Regulation No 1224/80, a system which is based on the customs clearance of imported goods but does not base such clearance on a fictitious price. According to the Bundesfinanzhof, it would be contrary to that purpose for customs clearance in this particular case, notwithstanding the loss in value incurred, to be based on the purchase price, for the sole reason that the plaintiff had not been able to obtain from the seller the actual repayment of the proportion of the price corresponding to the loss in value. Besides, this solution is not necessary in order to enable the customs authorities to play the protective role which is part of the economic side of their functions. The determining factor is the quality of the goods and not the price paid at the time of purchase; the latter is a mere indicator for determining the actual value of the imported goods.

21. The Bundesfinanzhof states that, on the other hand, the case of the Hauptzollamt — which limited the field of application of the second sentence of Article 4 of Regulation No 1495/80 to transit damage — seems to rest primarily on Explanatory Note 3-1 (hereinafter the Explanatory Note) on goods in noncompliance with the terms of contract adopted by the Technical Committee on Customs Valuation established by the Customs Cooperation Council, which clarifies the interpretation to be given to Article 1 of the aforementioned Agreement but does not have the force of law. This leads to a clear distinction between goods which do not conform to the terms of the contract on the basis of which they were imported (inherent defect), and damaged goods. For the former, reference is as a rule made to the price paid or payable, as agreed at the time of purchase. This distinction is supported, moreover, by the wording of the second sentence of Article 4, of Regulation No 1495/80 which refers to damage suffered by the goods, if the concept of damage is to be understood in the sense given in the Explanatory Note cited above, as opposed to inherent defect. According to the Bundesfinanzhof, this interpretation would have the advantage above all of reducing the work of the administration by avoiding disputes as to the evaluation of defects in goods between those declaring the value of goods for customs purposes, and by the customs authorities, since such an evaluation would then be a matter for the contracting parties, who would have to reach agreement.

22. The Bundesfinanzhof concludes from this that if the second sentence of Article 4 of Regulation No 1495/80 is held not to be applicable, it remains to be seen whether the determination of the transaction value according to Article 3(1) of Regulation No 1224/80 merely requires the stipulation of a new purchase price which reflects the inherent defect — and the Finanzgericht will have, if need be, to say whether a credit note can fix a price — or whether the repayment of the price paid at the time of purchase, in the amount indicated in the credit note, must actually have taken place. If the contractual stipulation is the only deciding factor, the customs duties can be repaid on sight of the credit note. However, if the deciding factor is the actual putting into effect of the stipulation, customs duties cannot be repaid, if only because the credit note has not been honoured.

V — The procedure before the Court

23. The order for reference was registered at the Court Registry on 27 February 1992.

24. Pursuant to Article 20 of the Statute of the Court of Justice of the EEC, written observations were submitted on 25 May 1992 by the Commission, represented by Mr Richard Wainwright, Legal Adviser, and Mr Arnold Ridout, British civil servant seconded to the Commission's Legal Service under the exchange scheme for civil servants, acting as Agents, with the assistance of Hans-Jurgen Rabe, Rechtsanwalt, Hamburg, and on 2 June 1992 by Ebbe Sönnichsen GmbH, represented by Mr Klaus Landry, Rechtsanwalt, Hamburg.

25. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided on 15 February 1993 to assign the case to the First Chamber.

VI — Summary of written observations submitted to the Court

A — The first question

26. Ebbe Sönnichsen, plaintiff and respondent to the appeal on a point of law (Revision), claims that this question should be answered in the affirmative.

27. In reliance on the judgment in Repenning, cited above, it argues that even if the goods in point in the main proceedings were damaged before being sold, the price actuallypaid or payable must be reduced in proportion to the loss in value. That loss in value is not confined to damage in transit or deterioration which occurred before the transfer of risk. Nor does it matter whether or not the buyer had obtained compensation for the loss in value suffered.

28. The only determining point for the Court is that the reduction in value occurred between the purchase of the goods and their being released into free circulation (see the judgment of the Court in Case 11/89 Unifert Handels v Hauptzollamt Münster [1990] ECR 2275).

29. Ebbe Sönnichsen adds that the Explanatory Note, cited above, does not contradict its argument. In the first place, it does not lay down different rules for determining the customs value of defective or damaged goods. Furthermore, the Court's case-law (the judgment in Repenning, cited above) shows that there is no real contradiction between the concepts of deterioration and of defect. Once goods have been damaged, they are defective.

30. Finally, according to Ebbe Sönnichsen, a negative reply to this question would not help to reduce the workload of the customs authorities. The person declaring the customs value must prove that the goods have lost value as the result of something which happened between their being purchased and their entry into free circulation. He must also show the extent of the loss of value, and that the price which he may have paid under the contract was for undamaged goods free of defects. Ebbe Sönnichsen considers that it is better to adopt this solution than to leave it to the contracting parties to evaluate a defect in the goods.

31. The Commission proposes a positive reply to this question. It points out, first, that, in its judgment in Repenning the Court interpreted Article 3(1) of Regulation No 1224/80, as amended by Article 4 of Regulation No 1495/81, before the incorporation of the second sentence added by Regulation No 1580/81, as meaning that the price actually paid or payable must be reduced in proportion to the damage incurred.

32. In view of the foregoing, the Commission finds that the Bundesfinanzhof is entitled to ask whether the second sentence of Article 4 of Regulation No 1495/80, as amended, is also applicable where a proportion of the goods were already spoiled before the fob delivery to Ebbe Sönnichsen.

33. The Commission states that, in accordance with the wording of the second sentence of Article 4, the partial loss or deterioration of the goods to be valued must have occurred before they were entered into free circulation. No distinction is made between the time prior to, or subsequent to, the transfer of the risk to the buyer. The determining criterion for the valuation lies in the objective characteristics of the goods at the time of the customs inspection. Regulation No 1224/80, which bars the use of notional customs values, states moreover that there is no need to operate such a distinction.

34. The Commission points out that the provisions of Council Directive No 79/695 (EEC) of 24 July 1979, relating to the harmonization of procedures for the release of goods for free circulation (OJ 1979 L 205, p. 19; see, in particular, Articles 3(1), 5(1) and (2) and 11(1)) also correspond to that principle.

35. The Commission also notes that although the price actually paid or payable is a factor which, according to the Court's case-law, may have to be adjusted (see Repenning case, cited above), the price agreed and actually paid as between seller and buyer at the time of the contract for goods free of defects cannot be regarded as their customs value where the goods are defective at the time of valuation, so that their value is reduced or they become altogether valueless. According to the Commission, the implementing provisions of Article 4, second sentence, of Regulation No 1485/80 reflect those principles.

36. With respect to the above-cited Explanatory Note which, according to the case-law of the Court, is purely advisory, (and the judgment in Repenning), the Commission is of the opinion that it, too, does not preclude such an interpretation of the second sentence of Article 4 of Regulation No 1495/80.

37. The Commission notes that, according to that Explanatory Note (under B.7, Article 1) in the case of damaged goods, the price actually paid or payable does not apply to imported goods. That is why the transaction value is either not used or is calculated — in case of partial damage — by taking into account the loss in value of the goods.

38. For goods not conforming to the specification in the contract of sale, that is, goods which are undamaged but which do not conform to the original contract or order, as mentioned in the Explanatory Note, the Commission considers that there must be a price actually paid or payable, so that the customs value can be calculated on the transaction value. The goods in question are always free of defect (of average type and quality) and objectively worth their price.

39. According to the Commission, the distinguishing criterion to be applied in the main proceedings is therefore the damage incurred by the goods, in the sense of a deterioration of their material properties. The timing of the damage, on the other hand, is irrelevant.

40. It is only such an interpretation of the Explanatory Note that justifies different customs treatment of the two types of goods.

41. In this particular case, the goods are damaged in the sense of the Explanatory Note, and this enables the transaction value to be set with due regard to loss of value.

42. The Commission puts forward a further argument concerning the provisions in Article 5(1) of Council Regulation No 1430/79, mentioned above.

43. That provision expressly refers only to goods refused by the importer. Although it does not allow any direct inference to be drawn concerning the treatment of goods which, as in the case in the main proceedings, are already within the Community, in the Commission's view it confirms that a defect which directly affects goods at the time of the customs declaration must be taken into account when they are valued for customs purposes, irrespective of the time when the damage occurred and of the transfer of risk from seller to buyer.

44. The Commission proposes that the Court should reply as follows to the first question put by the Finanzhof:

B — The second question

45. Ebbe Sönnichsen is of the opinion that, in view of its affirmative reply to the first question, the second question becomes irrelevant. It therefore replies that, in the event of a negative reply to the first question, the transaction value can only be determined on the basis of a new specified purchase price which takes account of defects found in the goods, and the question whether the stipulation amending the purchase price originally agreed has actually been given effect is of no importance. Ebbe Sönnichsen notes that in its judgment in Repenning, referred to above, the Court did not take into consideration whether the buyer had actually received compensation for the loss in value of the goods.

46. The Commission reasons as follows, should the Court reply in the negative to the first question. According to the wording of Article 3(1) of Regulation No 1224/80, the transaction value is the price actually paid or payable for the goods. This depends primarily on the transaction of sale between the parties. When the goods are defective, the price actually paid may be altered, and may therefore be inappropriate. If the parties agree to a price reduction, the price is payable after the transaction of sale. Hence, according to the wording of the provision, it is no longer a matter of actually putting into effect the stipulation which altered the original agreement concerning the purchase price.

47. The Commission therefore proposes the following reply to the second question of the Bundesfinanzhof:

1 Language of the case: German.