Contents
In Joined Cases 187 and 190/83‘REFERENCE’ to the Court under Article 177 of the EEC treaty by the Verwaltungsgericht [Administrative Court] Frankfurt-am-Main for a preliminary ruling in the proceedings pending before that court between1. Nordbutter GmbH & Co. KG, Rendsburg, (Case 187/83)2. Bayerische Milchversorgimgs GmbH, Nuremberg, (Case 190/83)andFederal Republic of Germany, represented by the Bundesamt für Ernährung und Forstwirtschaft [Federal Office for Food and Forestry], Frankfurt-am-Main,THE COURT (Third Chamber)composed of: Y. Galmot, President of Chamber, U. Everling and C. Kakouris, Judges,Advocate General : P. VerLoren van ThemaatRegistrar: P. Heimgives the following
Judgment
Facts and Issues
The facts of the case, the course of the procedure and the written observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice of the European Community may be summarized as follows:
I —Legal background, facts and procedure
A —The relevant Community legislation
B —The events giving rise to the main actions
C —The references for a preliminary ruling and the accompanying observations
1. The references for a preliminary ruling
In both cases the Verwaltungsgericht Frankfurt-am-Main expressed reservations as to the validity of the rules on liability contained in Regulation No 2793/77.Consequently, by two orders dated 11 August 1983, the Verwaltungsgericht requested the Court of Justice under Article 177 of the EEC Treaty to give a preliminary ruling on the following question:“Is Article 5 (3) (b) of Commission Regulation (EEC) No 2793/77 of 15 December 1977 on detailed rules of application for granting special aid for skimmed milk for use as feed for animals others than young calves (Official Journal 1977, L 321, p. 30) valid in so far as it provides that a dairy is responsible for undertakings given by a farmer when it is unable to supervise the farmer's compliance therewith?”
2. The observations accompanying the references for a preliminary ruling
The national court observes that, although the Court of Justice has several times had occasion to consider the question of the imposition of liability on the recipient of a subsidy for the conduct of a third party (judgment of 11 May 1977 in Joined Cases 99 and 100/76, Beste Boter and Hoche v Bundesanstalt für landwirtschaftliche Marktordnung, [1977] ECR 861; judgment of 18 February 1982 in Case 77/81, Zuckerfabrik Franken GmbH, [1982] ECR 681), those cases can readily be distinguished from the present cases since they were both concerned with subsidies which were payable to an undertaking in return for the specified processing or use of products covered by the common organization of the market, such processing or use being principally the responsibility of the recipient.It was therefore for the recipient to decide whether or not to introduce a third party and to select the contractual partner of his choice, and to ensure by making the appropriate stipulations that the third party fulfilled the delegated duties or laid himself open to legal action.The position of the dairies in the present cases is quite different for the following reasons:(i) Special aid does not represent payment for some economic activity on the part of the dairy but is granted merely in consideration of the farmers' using on their own farm milk which they themselves have produced.Therefore it is not the dairy but the farmer who is intended to benefit from the aid and the dairy passes on the full amount of the aid to him.(ii) The dairy cannot choose the third party, that is to say the farmer, with whom it wishes to deal and it is therefore under an obligation to contract.The special aid must be available to every farmer in the Community who gives the undertaking set out in Article 4 of Regulation No 2793/77 and it would be contrary to that principle if the granting of the aid were at the discretion of the dairy.(iii) The dairy may not impose on the farmer special terms which are not provided for in the regulation as a condition for submitting the application or passing on the special aid. Thus it may not arrogate inspection rights to itself or insist that securities be lodged.It follows that the dairy is in no way able to protect itself against the farmer's breach of duty or against the financial consequences of that breach.In any event, that is the case for those of the farmer's duties set out in Article 4 of Regulation No 2793/77 which cannot be performed under the direct supervision of the dairy.(iv) There exists not just a legal relationship between the competent authority and the dairy but a genuine triangular relationship between the competent authority, the dairy and the farmer, in so far as the undertaking given by the farmer must also be given to the competent authority.Thus the power and the duty of supervision in connection with the application for aid also rests with the authority that grants the aid, which alone possesses the right to carry out an audit and which for that reason is better placed than the dairies to verify whether the farmers have honoured their undertakings.In conclusion, the Verwaltungsgericht Frankfurt-am-Main considers that: “It is contrary to the general principles of the law of liability to hold someone liable for conduct over which he has absolutely no influence and to make him responsible for risks which he has not himself created. The general principles of the law of liability must, like the principle of proportionality, belong to the general principles of law which are in force in all the Member States of the Community and which are therefore to be regarded as an integral part of Community law. In the Court's opinion, the fact that Article 5 (3) (b) of Regulation No 2793/77 is contrary to that superior rules of law must lead to its invalidity.”
D —The procedure before the Court of Justice
The orders for reference were lodged at the Court Registry on 7 September 1983 (in Case 187/83) and on 9 September 1983 (in Case 190/83).By order of 19 October 1983 the Court decided to join the two cases for the purposes of the procedure and the judgment.In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the European Economic Community, written observations were submitted to the Court by Bayerische Milchversorgungs GmbH, Nuremberg, represented by Klaus Kelling, Rechtsanwalt, by the Federal Office, on behalf of the Federal Republic of Germany, represented by Gisela Siebert, Regierungsrätin at the Federal Office, by the United Kingdom, represented by Mrs Dagtoglou of the Treasury Solicitor's Department, acting as Agent, and by the Commission of the European Communities, represented by Peter Karpenstein and Christine Berardis-Kayser, members of its Legal Department, with an address for service in Luxembourg at the office of Manfred Beschel, a member of the Commission's Legal Department, Jean Monnet Building, Kirchberg.By order of 14 March 1984 the Court, on hearing the report of the Judge-Rapporteur and the views of the Advocate General, decided to assign the cases to the Third Chamber in accordance with Article 95 of the Rules of Procedure and to open the oral procedure without any preparatory inquiry.
II —Written observations submitted to the Court
A —Observations of Bayerische Milch-. versorgungs GmbH
The gist of these observations is that the Court should declare void the contested provision of Regulation No 2793/77 on the grounds set out in the order of the Verwaltungsgericht Frankfurt-am-Main, to which reference is made.
B —The Federal Office, on behalf of the Federal Republic of Germany, the United Kingdom and the Commission of the European Communities all submitted observations to the effect that Article 5 (3) (b) of Regulation No 2793/77 is valid
1. Alleged breach of the general rules on liability
(a)Determination for legal purposes of the recipient of the special aid
As far as this point is concerned, all the parties agree that although, ultimately, from an economic point of view, the special aid is beneficial mainly to the farmers, none the less, from a legal point of view, only the dairies are entitled to it.Thus the observation contained in the order for reference to the effect that the dairies submit applications for special aid on behalf of the farmers is incorrect.The Federal Office lays emphasis on the fact that only the dairy applies for the aid and not the farmer.Nor is the aid transmitted to the farmer by the dairy; rather the granting of aid to the dairy depends on the latter's adherence to maximum prices.The Federal Office also submits that the argument set out in the order for reference to the effect that there is a “triangular legal relationship” between the competent authority, the dairy and the farmer is incorrect.It was not the intention of the regulation to create, between the farmer and the authority which grants the aid to the dairy, a direct relationship arising, for example, as a result of the transmission of the farmer's undertaking to the competent authority.Thus only the daiiy receiving the aid stands in a direct relationship with the authority granting it.A further argument against the existence of a triangular legal relationship is the fact that where the undertakings given are dishonoured the authority granting the aid cannot seek redress against the farmer: the action for reimbursement must be against the dairy.
(b)Determination for economic purposes of the recipient of the special aid
As far as this point in concerned, the Federal Office and the Commission consider that, in contrast to the view expressed by the Verwaltungsgcricht, dairies can derive, for their own benefit, a considerable profit from the system established by Regulations No 986/68 and No 2793/77.On the basis of statistical evidence the Commission concludes that, in the fou rth quarter of 1979, which constitutes the reference period in the cases at issue, the dairies made a profit of 6.05 ECU per 1100 kg on sales of skimmed milk to farmers.It is precisely that difference in the net income which dairies can earn, depending on their decision as to how the milk is to be used, which constitutes the incentive for using in preference liquid skimmed milk as animal feed.An incentive of that kind reflects the wishes of the Community legislature and its purpose is to reduce the production of skimmed-milk powder, which is expensive to store and which can be sold only at a substantial loss in the Community and on the world market.It is therefore wrong to assume, as the national court does, that the dairy passes on the whole of the aid to the farmer.In that connection, the Federal Office adds the following observations:(i) The case regarded as typical by the national court, namely where the farmers use on their own farm the milk which they themselves have produced, in practive constitutes the exception.(ii) The special aid granted in accordance with Regulation No 2793/77 cannot be regarded as constituting a measure intended to benefit milk suppliers alone. On the contrary, the grant of the special aid enables dairies to sell at a loss skimmed milk which whould otherwise be most unlikely to be sold and it encourages the sale óf skimmed milk to a new group of purchasers, namely specialized animal-rearing farms.
(c)The theory that the dairies are under an obligation to contract with farmers
As far as this point is concerned, the Federal Office, the United Kingdom and the Commission all challenge the view expressed by the national court in its order for the reference.They argue that the contested provision of Regulation No 2793/77 in no way means that the Commission unilaterally imposed liability on dairies, but merely that it decided that the special aid for skimmed milk could be granted only if the dairies, upon submission of their applications, undertook to repay that aid where the substantive requirements for the grant thereof were not fulfilled. In other words, the dairies are involved not by virtue of a provision whose application they cannot avoid, but in consequence of a undertaking freely given.Thus, even if it seems particularly desirable for the objectives of Regulations No 986/68 and No 2793/77 to be achieved and for the benefits provided for by those regulations to be enjoyed by as many persons as possible, it does not follow that the dairies are subject to a general duty to apply for those benefits either in their own interests or in the interests of the farmers associated with them.In the absence of an express rule to that effect, each dairy must therefore be free to decide, in the light of its commercial policy, whether or not to market the milk purchased by it and whether it is in its interests to denature skimmed milk and sell it back to the farmers.In view of the risks involved in recourse to the special aid, it is for the dairy alone to decide whether or not to apply for it. In those circumstances, its freedom of decision is not restricted to the acceptance or rejection of the aid system as suchbut also extends, to the selection of farmers.In that regard, even if the view is taken that once a dairy decides to participate in the scheme established by the common organization of the market in milk it is bound by the principle embodied in Article 40 (3) of the EEC Treaty whereby all producers must be treated on a basis of equality (although the Commission wishes to leave that question open), that does not prevent a dairy from establishing, on the basis of commercial considerations and without creating discrimination, criteria for the selection of farmers. In that connection considerations of volume and distance, may be just as relevant as the trustworthiness of individual farmers.The fact that farmers cannot, in their personal capacity, apply for the special aid and are entirely dependent on the dairy's decision is not an argument in support of the view that the dairies are under an obligation to contract.In fact, the purpose of Regulations No 986/68 and No 2793/77 is to reduce intervention stocks of skimmed-milk powder, not to grant an additional benefit to farmers.Thus the possibility of purchasing skimmed milk at a reduced price is merely the means used by the Community legislature to achieve the real objective, which is to prevent the production of surpluses of skimmed milk.Even if farmers exert psychological or economic pressure on a dairy, an indirect constraint of that kind cannot impose any legal obligation on the dairy to apply systematically for special aid.The Federal Office and the United Kingdom lay emphasis on the further argument that the existence of such an obligation to contract with farmers would place a dairy in an impossible position if it were called upon by an indeterminate number of farmers to provide more skimmed milk than it could supply.In that regard, it is pointed out that practice has shown that livestock farms wishing to purchase skimmed milk on the conditions laid down by Regulation No 2793/77 cannot purchase it in unlimited quantities since the capacity of dairies situated within a reasonable radius cannot satisfy that kind of demand.The inability of dairies to satisfy demand is partly due to the fact that it is sometimes more profitable for them to dry the skimmed milk and to offer it to the intervention agencies.
(d)The alleged impossibility for dairies to supervise compliance with the undertakings given by farmers and to take precautions against the risk that skimmed milk which has attracted special aid may be used in a manner inconsistent with those undertakings
As regards this point, the Federal Office, the United Kingdom and the Commission challenge the reasoning of the national court.According to their observations, the legal relationship between the dairy and the farmers supplied by it is of a contractual nature and is governed by private law.According to the Federal Office, it follows that a dairy is free to take precautions against the risk of the misuse of skimmed milk qualifying for special aid and by amending the supply contract accordingly.Since the relationship between the dairy and the farmer is not one of subsidy-payer and subsidy-recipient, such contractual protection could not constitute an unlawful extension of the conditions laid down by Regulation No 2793/77.Furthermore, the undertakings which were customary at the material time contained, in addition to the information specified by Article 4 of Regulation No 2793/77, stipulations whereby the farmer undertook to allow a representative of the dairy to enter the farm premises, to submit for inspection the documents needed as evidence that the milk had been properly used, to supply any necessaiy information and to provide compensation equal to the amount of the repayment claimed, should a claim for repayment arise as a result of the farmer's conduct.The United Kingdom points out that since the relationship between the dairy and the farmer is consensual, should the latter breach any of the undertakings given by him, the dairy will have a right of recovery against the farmer under national civil law, irrespective of whether the breach was established by the competent national authority or by the dairy itself.Finally, the Commission also contends that it is for the dairies to take all necessary precautions, lest the farmers supplied by them fail to comply with the conditions laid down by the Community regulation in question, in particular by the insertion in the contract of a clause entitling them to carry out an inspection.If the farmer refused to accept such a clause the dairy would be entirely within its rights in refusing to supply him with skimmed milk at the reduced price.In the Commission's view, the dairy's possibilities of ensuring compliance with the conditions in force are not restricted to the inspection of herds on the farm but may also take different forms, such as the provision of a guarantee, the insertion in the contract of appropriate clauses against the risks involved in the application of Article 5 (3) (b) and, where the farmers are also the dairy's suppliers, deductions from the monthly payments for milk supplies.In the Commission's opinion, therefore, the dairy's liability is only provisional since it can always protect itself, on a contractual basis, against any loss occasioned by the conduct of the farmer, who is ultimately liable.Summing up on this point, the Commission observes that it is difficult to take the view that it is contrary to the general rules governing liability to impose liability for certain irregularities which are relatively easy to verify, not on the perpetrator, but on a third party upon whom a function is conferred under the aid system, in the case of a system:which those concerned are all free to have recourse to or otherwise;under which all undertakings benefit by applying for specific economic advantages which are not restricted to any individual undertaking; andwhich enables precautions to be taken against the risk of liability by means of appropriate contractual clauses.
2. The alleged contravention of the principle of proportionality
Most of the observations on this point were submitted by the Commission, which contends that the view expressed by the national court is legally and factually incorrect.
(a)Legally incorrect
Whereas the national court seems to imply that the Community legislature is obliged to choose systematically the rule which is least onerous on the parties concerned, it is clear, in the Commission's view, from previous judgments that the Court in fact focuses exclusively on the question whether the means selected by the Community legislature are necessary and appropriate, regard being had to the objectives pursued in a particular set of circumstances.
(b)Factually incorrect
The Commission maintains that reliance on the dairies was inevitable since they are one of the cornerstones of the organization of the market in milk, are in constant contact with the farmers and are therefore better placed than government officials to form an impression of the specific situation of each of their customers, particularly as regards the nature and the size of their herds, the use to which the skimmed milk is put and the reliability of each farmer.Furthermore, in view of the increased risk of abuse and in view of the benefit which dairies themselves derive from the system in question, it seems reasonable to expect the dairies to make a small sacrifice by asking their van drivers to inspect farmers' premises from time to time in the course of their daily rounds.Finally, the Commission observes that, in view of the general benefits derived by dairies from the unrestricted obligation of the competent authorities to intervene on the market for butter and skim-med-milk powder and from the guarantee of sale which that provides, the transfer to that category of undertakings, on the ground that they are closer to the potential perpetrator of the damage, of a risk which is limited and which they can further reduce does not constitute an unacceptable and disproportionate burden, since they accept it voluntarily, themselves derive considerable benefit from the system and can take precautions against the consequences resulting from the conduct of farmers by means of appropriate contractual stipulations.
3. In conclusion, the United Kingdom suggests that the Court should answer the question submitted for a preliminary ruling as follows:
“Article 5 (3) (b) of Commission Regulation No 2793/77 is valid even in circumstances where the dairy is responsible for undertakings given by a farmer when it is unable to supervise the farmer's compliance therewith.”The Federal Office and the Commission suggest that the Court should answer the question as follows:“Examination of the question submitted for a preliminary ruling has failed to disclose any factor of such a kind as to affect the validity of Article 5 (3) (b) of Commission Regulation (EEC) No 2793/77 of 15 December 1977.”
III —Oral procedure
At the sitting on 5 April 1984 oral argument was presented for the Federal Republic of Germany, by Rainer Wilker, acting as Agent, and for the Commission of the European Communities, by Peter Karpenstein, acting as Agent.On that occasion the representative of the Government of the Federal Republic of Germany submitted a copy of a contract between Bayerische Milchversorgungs GmbH and a farmer.The Advocate General delivered his opinion at the sitting on 30 May 1984.
Decision
Costs
Operative part
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