Société laitière de Gacé v Fonds d'orientation et de régularisation des marchés agricoles (FORMA) (273/81)

I —Facts and procedure

In Regulation (EEC) No 804/68 of 27 June 1968 on the common organization of the market in milk and milk products (Official Journal, English Special Edition 1968 (I), p. 176), the Council amongst other things laid down the principle of aid for caseins and caseinates manufactured from skimmed milk produced in the Community. In accordance with Article 3 (1) of Regulation (EEC) No 987/68 of the Council of 15 July 1968, that aid “may vary, according to whether the skimmed milk is processed into casein or into caseinates and according to the quality of those products”.A system of varying the amount of aid based on criteria as to quality was introduced by Article 2 of Regulation (EEC) No 756/70 of the Commission of 20 April 1970 which was subsequently amended on several occasions. From 1 February 1973, Regulation (EEC) No 455/73 of the Commission of 31 January 1973 (Official Journal 1973, L 53, p. 8) laid down particularly stringent requirements as regards the grant of aid for caseins and caseinates.Article 2 (2) of Regulation No 756/70, as amended by Article 1 (2) of Regulation No 455/73 and by Article 1 of Regulation No 2940/73 of the Commission of 29 October 1973 (Official Journal 1973, L 301, p. 23), lays down in its final subparagraph that in order to benefit from the aid “the caseins and caseinates mentioned in (a) to (0 of the first subparagraph must conform to the requirements set out in the annexes”. Annexes I, II and III, which contain the requirements as to the composition of the processed products, all provide in the case of caseinates for a maximum water content of 6% amongst several other criteria concerning the quality of those products.In 1979, Société Laitière de Gacé [hereinafter referred to as “the Société”], the plaintiff in the main action, processed at its factory at Fontaine Simon liquid skimmed milk into 150275 kg of caseinates in respect of which it had sought to benefit from Community aid pursuant to Regulation No 987/68 of the Council.The Service Vétérinaire d'Hygiène Alimentaire [Veterinary Food Hygiene Department] of the Direction de la Qualité [Quality Control Division] of the Ministry of Agriculture, which carries out checks twice a month on samples of the processed product, established that the degree of moisture in a lot of 85635 kg of caseinates manufactured in the second half of June 1979 was 6.6%, in other words 0.6% above the maximum rate of 6% laid down by the Community legislation.By letter of 14 August 1979, the Fonds d'Orientation et de Régularisation des Marchés Agricoles [Agricultural Markets Guidance and Stabilization Fund, hereinafter referred to as “the Fund”], the French intervention agency, informed the Société that since the lot in question was substandard it would not be subsidized. On 20 August 1979, the Fund pointed out that the aid would be granted only in respect of such processed quantities as were strictly in compliance with the criteria as to quality laid down by Regulation No 756/70 of the Commission, excluding any quantities processed in the second half of June 1979.The Société then sought payment from the Fund, after the latter had reexamined the file, of an aid in proportion to the quantity of skimmed milk actually processed.That request was rejected by the Fund on 12 June 1980.The Commission, which had also been approached by the Société, replied to the latter that the decision concerning a request for aid “was a matter for the competent agency in the Member State in question”.On 21 June 1980, the Société brought an action before the Tribunal Administratif [Administrative Court], Paris, for the annulment of the Fund's decision of 12 June 1980 rejecting its application for aid and, in the alternative, requesting the court to seek a preliminary ruling from the Court of Justice on the interpretation and the validity of Regulations Nos 987/68 and 756/70.By a judgment of 16 June 1981, the Tribunal Administratif decided to refer to the Court of Justice the following question for a preliminary ruling:“Whether Regulation (EEC) No 987/68 of the Council laying down general rules for granting aid for skimmed milk processed into casein or caseinates and Regulation (EEC) No 756/70 of the Commission laying down requirements as to the quality of the denatured product contravene the principle of proportionality and whether or not those regulations are thus valid inasmuch as they provide no distinction as to the sanction in the case where skimmed milk is not processed and in the case where after processing the product deviates slightly from the formula laid down in the provisions of the regulations.”The judgment making the reference was received at the Court Registry on 12 October 1981.In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by the Société, represented by Messrs Funck-Brentano and Partners, Advocates, Paris; by the Fund, represented by Philippe Villey, Advocate at the Cour d'Appel [Court of Appeal] Paris; by the Council of the European Communities, represented by Daniel Vignes, a director in the Council's Legal Department, acting as Agent, assisted by Arthur Bräutigam, an administrator in that department; and by the Commission of the European Communities, represented by Jean-François Verstrynge, a member of its Legal Department, acting as Agent.On 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.By order of 3 February 1982, the Court decided pursuant to Article 95 (1) and (2) of its Rules of Procedure, to assign the case to the First Chamber.

II —Written observations submitted to the Court

The Société maintains that by granting an aid for skimmed milk processed into caseins or caseinates the Commission has sought to achieve two objectives which vary considerably in importance.The chief aim of the regulation providing for the aid in question is to encourage producers to process skimmed milk into caseins or caseinates.The secondary aim consists in encouraging producers to comply in the manufcture of the processed product with the criteria as to quality which would enable them to obtain an aid varying in amount according to the result achieved.Failure to comply with the criteria relating to quality cannot therefore lead to the aid's being withheld in its entirety, especially since in the present case, neither the Community nor the purchasers of the caseins at issue have suffered the slightest loss as a result.The contested regulations contravene the principle of proportionality by laying down binding measures or sanctions which exceed the bounds of what is appropriate and necessary to achieve the objective pursued.In the present case, the primary objective, that is to say the processing of skimmed milk into caseinates, has indeed been achieved, with the result that the Société is entitled to benefit from the aid provided for that purpose. The allegation of noncompliance, made by the Veterinary Department of the Ministry of Agriculture and accepted by the Fund, constitutes only a minor breach, in no way affecting the use to which it was intended to put the product. The nonconformity concerns only the criteria as to quality and thus cannot provide lawful justification for withholding the requested aid in its entirety.Only a failure to effect processing could justify a refusal to grant an aid for the manufacture of caseinates. The imposition of a fine to penalize a slight departure from the criteria would be quite sufficient to ensure that the processing operations are carried out properly.The Société emphasizes that such a solution was adopted by the Commission in Regulation (EEC) No 1725/79 of 26 July 1979 on the rules for granting aid to skimmed milk processed into compound feeding-stuffs and skimmed-milk powder intended for feed for calves (Official Journal, L 199, p. 1) which lays down that the amount of aid is to be reduced by a certain percentage in respect of such quantity of the processed product as fails to meet the requirements of the regulation.The Société also recalls that Commission Regulation (EEC) No 2851/80 of 31 October 1980 (Official Journal, L 296, p. 7) which amended Regulation No 1725/79 lays down that even in cases in which payment of an aid may be suspended, the undertaking concerned may request that suspension be replaced by the provision of a security which, if appropriate, is to be forfeited in respect of the aid unduly paid.Those regulations have therefore taken into account the principle of proportionality which was not however observed by Regulation No 756/70.The principle of proportionality prévenu the entire amount of the aid provided for from being withheld from the Société since it is not disputed that the latter produced caseinate and that the slight error in the composition of the product was unintentional and does not affect its ultimate use.The Société adds that if it had processed the skimmed milk into products other than caseinates, the consequences for it would have been far less damaging since it would have suffered merely a reduction in the aid amounting in absolute terms to between FF 50000 and 60000. A penalty of that amount would be sufficiently severe to encourage undertakings to exercise care in supervising the manufacture of their products but would remain consistent with the principle of proportionality. To withhold the aid in its entirety because the product departs slightly from the criteria laid down is however a measure likely to place the undertaking in difficulty; such a risk cannot be justified either by the seriousness of the infringement or by any damage caused to the Community which has not suffered any loss. As far as the Société is concerned, the loss incurred as a result of the Fund's refusal to grant it the aid applied for amounts to FF 1326117.28, a sum greater than the company's share capital of FF 1000000. The Société, which had in accordance with Article 2 (2) of Regulation No 987/68 already included the aid in the purchase price paid to the suppliers of skimmed milk, has been unable to compensate for the difference between that price and the resale price of the finished product which is much lower.The Fund observes that the question of the validity of Regulation No 987/68 of the Council in the light of the principle of proportionality can be answered only in the affirmative.Article 3 (1) of that regulation lays down that “the aid may vary, according to whether the skimmed milk is processed into casein or into caseinates and according to the quality of those products”.The Fund is of the opinion that, by laying down the principle of a variation in the aid according to the product which results from the processing of skimmed milk and according to the quality of that product, the aforesaid provision accurately reflects the desire to establish a relationship between the quality of the product resulting from the processing and the aid granted.The Fund considers that to lay down the principle of a variation in the aid cannot be contrary to the principle of proportionality or be regarded as excessive in relation to the objective pursued, especially since such variation is regarded as a possibility and not as an obligation.As regards the question of the validity in the light of the principle of proportionality of Article 2 of Regulation No 756/70 which precludes (in the version which was in force when the events at issue occurred), without any possible variation, payment of the aid unless the caseins and caseinates meet all the requirements as to composition set out in the annexes to the regulation, no reply is given by the Fund on the ground that the problem is a serious and an awkward one which it is for the Court to resolve.Likewise the Council merely observes that there is no reason to question the validity of Regulation No 987/68.It recalls that the said regulation does not contain any criteria as to quality with which the products must comply in order to qualify for an aid but merely provides in Article 3 (1) that the aid may vary according to the products obtained (casein or caseinates) or according to the quality of those products.In the Council's opinion, the question of validity can refer only to Regulation No 756/70 of the Commission which alone contains specific criteria for determining both the grant of the aid and the variation of the aid according to the quality of the product.The Commission of the European Communities considers it appropriate to begin by making some remarks concerning the facts of the case.It strongly disagrees with the argument that a difference of 0.6% in the degree of moisture in a caseinate may be regarded as negligible. The water content of caseinates is an essential feature of their quality in view of the fact that it may, in cases where it exceeds certain maximum figures, lead to an alteration in the taste and thus to a restriction in the use of the product. Variations which may appear to be slight may therefore have appreciable repercussions on the quality of the product and on its competitiveness on the Community or world market.In another remark, the Commission considers the nature of the refusal to allocate an aid. Contrary to the opinion expressed by the Société and the national court, the Commission takes the view that such refusal can in no way be regarded as a sanction the purpose of which is to penalize the failure to fulfil an obligation created by Community law. In practice, every undertaking is at liberty to organize its commercial activities as it sees fit, though it may not qualify for an aid provided for by the Community legislation if those activities fail to satisfy the conditions for payment of such aid.Next, addressing itself to the question put to the Court, the Commission questions whether Regulations Nos 987/68 and 756/70 may be regarded as having contravened the principle of proportionality.The Commission begins by observing that the processing of skimmed milk is not the only objective pursued by the Community legislation. That legislation pursues another parallel objective concerning the quality of caseins and caseinates in order to ensure and to widen sales outlets for skimmed milk and to restrict the amounts of aid to be paid in respect of that product.In order to attain those objectives, the Community legislation provides for a system laying down minimum requirements as to quality which are to be met by processed products with the result that the aid may not be paid in the event of noncompliance with those requirements.The Commission takes the view that the methods adopted by the Community legislation are necessary, sufficient and not excessive in relation to the objectives pursued.They are necessary inasmuch as the quality of the processed product could not be guaranteed if compliance with a maximum water content were not compulsory although such a guarantee is indispensable to maintain a sales outlet for skimmed milk.They are sufficient since there is no reason to cast doubts on the quality of a product if the 6% water content threshold has been complied with.They are not excessive since it is impossible to envisage any other measures which would enable the same objectives to be achieved more easily. Payment of part of the aid in the event of a slight departure from the criteria laid down, as suggested by the Société, would not remove the risk that the image of high quality which is needed to sell the product might be tarnished. Furthermore, the methods are not disproportionate if it is borne in mind that the remedy for the lack of conformity of the quality of a processed product is easy to discover and consists merely in subjecting the product to further drying.The Commission adds that even if the view is taken, contrary to its own opinion, that the methods adopted by the contested regulations are out of proportion to the objectives pursued, it would still be necessary to establish, in the light of the case-law of the Court of Justice, the manifest nature or the seriousness, or both, of such an imbalance. In view of the importance attaching to the stringent application of the requirement as to quality for the attainment of the objectives of the Community legislation in the matter of aid for the processing of skimmed milk, it would in any event be impossible to adduce such proof in the present case.

III —Oral procedure

At the silting on 17 June 1982 oral argument was presented for Société Laitière de Gacé by L. Funck-Brentano, for the Fund by P. Villey and for the Commission of the European Communities by J.-F. Verstrynge, a member of its Legal Department, acting as Agent.The Advocate General delivered her opinion at the sitting on 23 September 1982.

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