CURIA - Documents

JUDGMENT OF THE COURT (Fifth Chamber)

1 October 1998 (1)

(EAGGF Clearance of accounts 1992 and 1993 Beef and veal)

In Case C-238/96,

Ireland, represented by M.A. Buckley, Chief State Solicitor, acting as Agent,assisted by M. Finlay SC and D. Barniville, Barrister-at-Law, with an address forservice in Luxembourg at the Irish Embassy, 28 Route d'Arlon,

applicant,

Commission of the European Communities, represented by X. Lewis, of its LegalService, acting as Agent, with an address for service in Luxembourg at the officeof C. Gómez de la Cruz, of its Legal Service, Wagner Centre, Kirchberg,

defendant,

THE COURT (Fifth Chamber),

composed of: C. Gulmann, President of the Chamber, M. Wathelet (Rapporteur),J.C. Moitinho de Almeida, J.-P. Puissochet and L. Sevón, Judges,

Advocate General: S. Alber,

Registrar: L. Hewlett, Administrator,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 4 February 1998,

after hearing the Opinion of the Advocate General at the sitting on 24 March 1998,

gives the following

Judgment

1.

By application lodged at the Court Registry on 10 July 1996, Ireland brought anaction under the first paragraph of Article 173 of the EC Treaty for the annulmentin part of Commission Decision 96/311/EC of 10 April 1996 on the clearance of theaccounts presented by the Member States in respect of the expenditure for 1992of the Guarantee Section of the European Agricultural Guidance and GuaranteeFund (EAGGF) and in respect of certain expenditure for 1993 (OJ 1996 L 117,p. 19, 'the contested decision), in so far as it related to Ireland.

2.

The application seeks the annulment of that decision in so far as the Commissiondeclared that the following amounts could not be charged to the EAGGF:

£26 222 656.62, being 10% of the expenditure declared by Ireland for publicstorage of beef for 1990, on the ground that it infringed Article 8 ofRegulation (EEC) No 729/70 of the Council of 21 April 1970 on thefinancing of the common agricultural policy (OJ, English Special Edition1970 (I), p. 218);

£24 020 455.26, being 5% of the expenditure declared by Ireland for publicstorage of beef for 1991, on the ground that it infringed Article 8 ofRegulation No 729/70;

£9 613 206, being 2% of the expenditure declared by Ireland for publicstorage of beef for 1991, on the ground that the tender procedure for beefwas unlawful;

£8 862 144, being 2% of the expenditure declared by Ireland for publicstorage of beef for 1992, on the ground that the tender procedure for beefwas unlawful.

The corrections with regard to the public storage of beef

3.

The regulations concerning intervention purchases provide that only meat of acertain quality, deboned and packed to certain standards can be accepted intointervention. In addition, the competent national authorities must carry out checksto ensure compliance with provisions requiring a specified result.

4.

In this connection, Articles 2 and 3 of Regulation No 729/70 provide that refundson exports to third countries granted in accordance with the Community rules areto be financed, as is intervention intended to stabilise the agricultural markets,provided it is undertaken according to those rules.

5.

Article 5 of Regulation No 729/70 provides that Member States must transmitcertain documents at regular intervals to the Commission.

6.

In addition, Article 8(1) of Regulation No 729/70 requires Member States to satisfythemselves that transactions financed by the EAGGF are executed correctly andare actually carried out, to prevent and deal with irregularities and to recover sumslost as a result of irregularities or negligence. Article 8(2) provides that thefinancial consequences of irregularities or negligence attributable to administrativeauthorities or other bodies of the Member States are not to be borne by theCommunity.

7.

Finally, account should also be taken of the Commission's Belle Group Reportwhich lays down guidelines to be followed when financial corrections must beapplied to a Member State.

8.

In addition to three principal calculation techniques which the Commission andIreland agree are inapplicable in the present case, the Belle Group Report also setsout a flat-rate method for difficult cases:

'As the systems audit approach has become more widely applied, EAGGF has hadrecourse increasingly to an assessment of the risk which a systems deficiencypresents. By the very nature of ex-post auditing, it can rarely be established at thetime of audit whether a claim was valid when paid the number of olive trees maybe verifiable at any later time, as this does not normally change, but the numberof sheep or the quality of an exported cheese cannot be verified at a later date. The loss to the Community funds must therefore be determined by an evaluationof the risk to which they were exposed by the control deficiency, which mayconcern as much the nature, or quality, of the controls operated as the quantity of

controls effected. This approach in no sense introduces a principle ofproportionality into the clearance of accounts, but is concerned with establishinga link between cause and effect.

In determining whether a financial correction should result and, if so, at what rate,the general consideration shall be the assessment of the degree of risk of losses toCommunity funds having occurred as a consequence of the control deficiency. Thespecific elements to be taken into account should include the following:

1. whether the deficiency relates to the effectiveness of the control systemgenerally, to the effectiveness of a particular element of the system, or tothe operation of a control or controls under the system;

2. the importance of the deficiency within the totality of the administrative,physical and other controls foreseen;

3. the vulnerability to fraud of the measures, having regard particularly to theeconomic incentive.

9.

The Belle Group Report proposes three categories of flat-rate corrections:

'A. 2% of expenditure where the deficiency is limited to parts of the controlsystem of lesser importance, or to the operation of controls which are notessential to the assurance of the regularity of the expenditure, such that itcan reasonably be concluded that the risk of loss to the EAGGF was minor.

B. 5% of expenditure where the deficiency relates to important elements ofthe control system or to the operation of controls which play an importantpart in the assurance of the regularity of the expenditure, such that it canreasonably be concluded that the risk of loss to the EAGGF was significant.

C. 10% of expenditure where the deficiency relates to the whole of orfundamental elements of the control system or to the operation of controlsessential to assuring the regularity of the expenditure, such that it canreasonably be concluded that there was a high risk of widespread loss to theEAGGF.

10.

The guidelines laid down by the abovementioned report further provide that, wherethere is doubt as to the correction to be applied, the following points may be takeninto account as mitigating factors:

' whether the national authorities took effective steps to remedy thedeficiencies as soon as they were brought to light;

whether the deficiencies arose from difficulties in the interpretation ofCommunity texts.

11.

On 2 April 1990 DG VI of the Commission initiated an inquiry into public storageof beef and veal in Ireland pursuant to Article 9(2) of Regulation No 729/70, whichempowers officials appointed by the Commission to check whether administrativepractices are in accordance with Community rules, whether the requisite supportingdocuments exist and the conditions under which transactions financed by theEAGGF are carried out and checked. It transpired from that inquiry that in morethan 10% of the samples the required result had not been achieved. It alsorevealed various irregular purchases. The weaknesses of the Irish control systemrelated to the quality of meat offered for purchase in certain cases, the amount ofmeat obtained from deboning in other samples and packaging in others.

12.

Those deficiencies were brought to the attention of the Irish authorities by letterdated 11 October 1991 sent by Mr Legras, Director-General of DG VI.

13.

Further inspections were carried out in Ireland by Commission officialsin December 1991. A consignment of boneless Irish beef was inspected in Italyin March and June 1992, and Irish bone-in beef stored in the Netherlands wasinspected in July and August 1993.

14.

By letter dated 3 May 1995 from Mr Legras to the Secretary of the IrishDepartment of Agriculture, Food and Forestry, the Irish authorities were formallynotified of DG VI's conclusion that the total financial corrections for 1990 and 1991should be £74 263 567.90, that is to say a 10% flat-rate correction for each year.

15.

In an endeavour to have the rejected expenditure accepted, the Irish authoritiesinitiated the conciliation procedure established by Commission Decision 94/442/ECof 1 July 1994 setting up a conciliation procedure in the context of the clearanceof the accounts of the European Agricultural Guidance and Guarantee Fund(EAGGF) Guarantee Section (OJ 1994 L 182, p. 45).

16.

On 22 November 1995 the Conciliation Body issued its final report in which itconsidered that it was 'difficult to justify blanket corrections at the level currentlyproposed. It also thought it advisable to differentiate between the level ofcorrections according to the years for which improvements in control procedureshad been introduced and invited the parties to exchange views on the appropriatelevel of financial correction.

17.

In its 1992 Summary Report, the Commission set the corrections at 10% for 1990and 5% for 1991 on the following grounds:

'A correction is necessary because in 1990-91 the Irish authorities did not fulfiltheir obligations under Article 8 of Regulation (EEC) No 729/70. The weaknessesinherent in the monitoring system occurred in areas considered essential by theCommission. Furthermore, anomalies had already been reported for 1991 in

Summary Report VI/320/94. Very large amounts had been wrongly charged to theFund as a result.

As the loss suffered by the EAGGF cannot be measured accurately, it is necessaryto make a flat-rate assessment which, in view of the efforts made by the Irishauthorities to improve their monitoring system, will amount to 10% of theexpenditure charged to the Community budget for 1990 and 1991 in respect of thepublic storage of beef and veal.

After carefully examining the report of the Conciliation Body of 21 November 1995on case 95/IR/013, the Commission considered that the proposed correction for1990 should be maintained, in view of the gravity of the deficiencies found duringtheir controls and that for 1991 fixed at 5%, in view of the measures taken duringthat year to improve the effectiveness and reliability of controls and the consequentlesser risk of irregularities.

18.

Ireland does not dispute the conclusion of the Commission that it was in breach ofArticle 8 of Regulation No 729/70 in 1990 and in 1991. It acknowledges thatweaknesses existed in 1990 and, to a much lesser extent, in 1991 in the system ofpermanent presence. Nevertheless, it disputes certain of the other reasonsadvanced by the Commission in support of that conclusion.

19.

It is in this context that Ireland puts forward five pleas in law alleging, respectively,failure to state reasons, failure to make a proper assessment of the risks to theEAGGF, incorrect assessment of the alleged losses incurred by the EAGGF,infringement of the guidelines laid down in the Belle Group Report and lack oflegal basis.

Failure to state reasons

20.

By its first plea, Ireland alleges that the Commission failed to supply any reasonsto support its conclusion that very large amounts were wrongly charged to theEAGGF.

21.

According to settled case-law, the extent of the obligation to state reasons dependson the nature of the measure in question and on the context in which it wasadopted (see Case 327/85 Netherlands v Commission [1988] ECR 1065, paragraph13, and Case C-54/91 Germany v Commission [1993] ECR I-3399, paragraph 10).

22.

In this regard, it is sufficient to point out that decisions concerning the clearanceof accounts do not require detailed reasons if they are taken on the basis either ofsummary reports or of any correspondence between the Member State and theCommission, which implies that the government concerned was closely involved inthe process by which the decision came about and is therefore aware of the reasonfor which the Commission considers that it must not charge the sums in dispute to

the EAGGF (Case 347/85 United Kingdom v Commission [1988] ECR 1749,paragraph 60).

23.

It is clear from the correspondence between the Commission and the nationalauthorities (see paragraphs 12 and 14 of the present judgment) that theCommission informed them of the weaknesses in the control system which,moreover, had already been mentioned in the 1991 Summary Report. Furthermore, in the 1992 Summary Report the Commission found that thoseweaknesses concerned essential aspects and, in view of the impossibility ofdetermining with any certainty the extent of the loss to the EAGGF it followed theguidelines contained in the Belle Group Report, in setting a flat-rate correction of10% in respect of 1990 and of 5% in respect of 1991, having regard to theimprovements made and the consequent reduced risk to the Community budget.

24.

In view of the foregoing considerations, the first plea in law must be rejected.

Failure to assess the risks to the EAGGF

25.

By its second plea in law, the Irish Government alleges that the Commission failedto demonstrate that very large amounts had been wrongly charged to the EAGGFin 1990 and 1991 as a result of the alleged failure of the Irish authorities to fulfiltheir obligations under Article 8 of Regulation No 729/70.

26.

The Irish Government submits that it follows from Articles 5 and 8 of RegulationNo 729/70, from the case-law of the Court, from the principle of legal certainty andfrom the guidelines published by the Commission that, in making any financialcorrections by reason of a Member State's having been in breach of its obligationsunder Article 8(1), the Commission must first assess the probable extent of theirregularities which have occurred as a result of the alleged control deficiencies andthen estimate the financial consequences of such irregularities. It should thereforemake an assessment of the causal link between the absence of controls and thequantum of probable losses to Community funds.

27.

In that connection it must be borne in mind first of all that, as the Court hasconsistently held, Articles 2 and 3 of Regulation No 729/70 permit the Commissionto charge to the EAGGF only sums paid in accordance with the rules laid down inthe various sectors of agricultural production, leaving the Member States to bearthe burden of any other sum paid, and in particular any amounts which the nationalauthorities wrongly believed themselves authorised to pay in the context of thecommon organisation of the markets (Case 11/76 Netherlands v Commission [1979]ECR 245, paragraph 8; Case 18/76 Germany v Commission [1979] ECR 343,paragraph 7; and Case C-48/91 Netherlands v Commission [1993] ECR I-5611,paragraph 14).

28.

Although it is therefore for the Commission to prove an infringement of theCommunity rules, the Member State concerned must demonstrate that theCommission committed an error as to the financial consequences to be attributedto it (see, to this effect, Case 49/83 Luxembourg v Commission [1984] ECR 2931,paragraph 30).

29.

The Commission is not compelled to prove that there have been losses but maysimply adduce highly significant evidence to that effect. The reason for thismitigation of the burden of proof on the Commission lies in the division of powersbetween the Community and the Member States concerning the commonagricultural policy (see, to that effect, Case C-48/91 Netherlands v Commission, citedabove, paragraph 17).

30.

The management of EAGGF finances is principally in the hands of the nationaladministrative authorities responsible for ensuring that the Community rules arestrictly observed. That system, based on trust between national and Communityauthorities, does not involve any systematic supervision by the Commission, whichmoreover would in practice be quite unable to carry it out. Only the Member Stateis in a position to know and determine precisely the information necessary fordrawing up EAGGF accounts since the Commission is not close enough to obtainthe information it needs from the economic operators (Case C-48/91 Netherlandsv Commission, cited above, paragraph 11).

31.

The limits to the extent of the evidence which the Commission must provide areconfirmed by the guidelines laid down in the Belle Group Report according towhich, for those difficult cases where the extent of the losses cannot be ascertained,'the losses to the Community funds must ... be determined by an evaluation of therisk to which they are exposed by the control deficiency.

32.

As has been stated at paragraph 23 of the present judgment, the Commissionproperly assessed that causal link.

33.

In those circumstances, the second plea in law must be rejected.

Incorrect assessment of the alleged losses incurred by the EAGGF

34.

By its third plea in law, the Irish Government alleges that the Commissionundertook an incorrect assessment of the amount of the alleged losses incurred bythe EAGGF.

35.

In the Irish Government's submission, the risk of loss to the EAGGF in 1991 wasno more than 1% of the sale price of the quantity of beef bought into intervention,which is the equivalent of the difference between the deboning yield obtained inIreland and that obtained in the other Member States.

36.

First of all, it must be noted here that, as the Court has consistently held (Case347/85, cited above, paragraph 13) where it proves impossible to establish withcertainty the extent to which a national measure that is incompatible withCommunity law has caused an increase in the expenditure entered under abudgetary item of the EAGGF, the Commission has no choice but to disallow allthe expenditure in question.

37.

It must further be observed that, where the Commission, instead of rejecting all theexpenditure affected by the infringement, has endeavoured to establish the financialimpact of the unlawful action by means of calculations based on an assessment ofwhat the situation on the relevant market would have been if the infringement hadnot occurred, the burden of proving that those calculations are not correct rests onthe Member State (Case 347/85, cited above, paragraph 15).

38.

In this connection, it is noteworthy that in the light of the Commission's argumentsin its defence, Ireland acknowledged that the difference in yield obtained bycomparison with the other Member States was 1.96%. It follows that, on the basisof Ireland's own statements alone, a 2% correction was already justified.

39.

The Commission has also demonstrated other weaknesses in the control system. In particular it found that the quantity of meat after deboning had not beenchecked at all. In addition, it found upon checking that more than 10% of themeat sampled did not meet the standards for quality, fat-content and offal.

40.

In those circumstances, the amount of the reduction imposed by the Commissiondoes not appear unjustified.

41.

In view of the foregoing considerations, the third plea in law must be rejected.

Infringement of the guidelines laid down in the Belle Group Report

42.

By its fourth plea in law, Ireland claims that, when setting rates of correction, theCommission should have taken account of the mitigating circumstance that thenational authorities had taken effective steps to remedy the deficiencies as soon asthey were brought to light.

43.

The short answer to that point is that the mitigating circumstance relied upon byIreland was duly taken into account by the Commission, since the correctionapplied in respect of 1991 was reduced from 10 to 5% (see paragraphs 16 and 17above).

44.

The fourth plea must therefore also be rejected.

Lack of legal basis

45.

By its fifth plea in law, the Irish Government submits that the Commission seeksto apply deductions to perfectly valid expenditure incurred by Ireland in 1992 inaccordance with Articles 2 and 3 of Regulation No 729/70 and therefore chargeableto the EAGGF. By refusing to charge to the EAGGF any amount in excess of itsprobable losses by reason of weaknesses in control procedures of Ireland, theCommission is effectively imposing a penalty on Ireland for which no jurisdictionexists under the Treaty or any relevant regulation.

46.

It need only be observed here that, where it proves impossible to establish withcertainty the extent to which a national measure that is incompatible withCommunity law has caused an increase in the expenditure entered under abudgetary item of the EAGGF, it is open to the Commission to disallow all theexpenditure in question (see Case 347/85, cited above, paragraph 13).

47.

For the reasons given in paragraphs 23, 38, 39 and 43 of the present judgment,there is, moreover, nothing to indicate that the corrections applied exceed thelosses to the Community budget.

48.

Since it is based on a false premiss, the fifth plea in law must therefore be rejected.

The financial corrections in respect of intervention measures in the beef and vealsector

49.

The basic rules for the common organisation of the market in beef and veal arecontained in Regulation (EEC) No 805/68 of the Council of 27 June 1968 (OJ,English Special Edition 1968(I), p. 187). Article 6 of that regulation authorises theCommission to intervene with a view to maintaining prices on the Communitymarkets. Regulation No 805/68 was amended in particular by Council Regulation(EEC) No 571/89 of 2 March 1989 (OJ 1989 L 61, p. 43), the version as thusamended (hereinafter 'Regulation No 805/68) being that applicable to therelevant period in the present case (1992 and 1993).

50.

Until 1989, there was a system of automatic intervention buying when prices fellbelow certain thresholds, with the result that very large quantities were purchasedby the intervention agencies at prices exceeding the market price.

51.

In order to remedy that unsatisfactory situation, the system was reformed in 1989. Whilst preserving automatic buying-in in the event of a very large fall in prices, asystem of buying-in by tendering procedures was introduced with a view to ensuringthat the quantities bought in and the prices paid out did not go beyond what wasrequired for reasonable support of the market.

52.

Thus, under Article 6(2) of Regulation No 805/68, the Council sets the interventionprice each year. When market prices in the Community fall below certainpercentages of the intervention price, the intervention agencies in one or moreMember States may buy in certain categories, qualities or quality groups of beefand veal originating in the Community, under the conditions laid down in Article6.

53.

The buying-in is organised under tender procedures. Under Article 6(1), suchpurchases may not exceed a quantity of 220 000 tonnes per year for the entireCommunity.

54.

However, under Article 6(5), in the event of a very steep fall in prices a procedureis implemented whereby all offers at or below 80% of the intervention price arethen accepted and are not counted against the maximum quantity referred to inArticle 6(1) (the 'safety-net procedure).

55.

Under Article 6(6), tender procedures must ensure equality of access for allpersons concerned and those procedures are opened on the basis of specifications.

56.

In accordance with Article 6(7), the procedures implementing the interventionsystem are adopted by the Commission, which also decides on the opening andsuspension of tender procedures after consulting a management committee. Duringthe period to which the present case relates, those procedures were defined byCommission Regulation (EEC) No 859/89 of 29 March 1989 laying down detailedrules for the application of intervention measures in the beef and veal sector (OJ1989 L 91, p. 5).

57.

Article 7 of Regulation No 859/89 provides that the decision to open buying-in byinvitation to tender is to be published in the Official Journal of the EuropeanCommunities on the Saturday or the Tuesday before the first deadline for thesubmission of tenders. Under Article 8, during the period in which the invitationto tender is open, the deadline for the submission of tenders is 12 noon (Brusselstime) on the second and fourth Wednesday of each month.

58.

Article 9 of Regulation No 859/89, which lies at the centre of the dispute, provides:

'1. Tenderers may take part in the invitation to tender only if they undertakein writing to comply with all the provisions relating to the tender concerned.

2. Interested parties may participate in the invitation to tender issued byintervention agencies of the Member States in which this is opened either bylodging a written tender against a receipt or by any other written means ofcommunication accepted by the intervention agency, with advice of receipt; theymay submit one tender only per category in response to each invitation to tender.

3. Tenders shall specify:

(a) the name and address of the tenderer;

(b) the quantity tendered for, expressed in tonnes, of the products andcategories specified in the notice of invitation to tender;

(d) the intervention centre or centres to which the tenderer intends to deliverthe product.

...

59.

Under Article 9(4)(c) of that regulation, tenderers must prove that they lodged asecurity for the tender by the final date for submission of tenders and, inaccordance with Article 9(5) and (6), tenders may not be withdrawn after thedeadline for their submission and are to be confidential.

60.

It follows from Article 7 of Regulation No 859/89 that, at the opening of theinvitation to tender, a minimum price may be fixed below which tenders are notaccepted and from Article 8 that intervention agencies are to notify theCommission of the tenders they have received within 24 hours of the expiry of thetime-limit for their submission.

61.

Article 11(1) of Regulation No 859/89 provides that, in the light of the tendersreceived in response to each invitation to tender and after consultation of themanagement committee, the Commission is to fix a maximum buying-in price; adifferent price may be set to reflect average market prices for individual MemberStates or regions within a Member State if special circumstances so require. According to Article 11(2), a decision may also be taken not to proceed with theinvitation to tender and, under Article 11(3), if the total of the quantities tenderedat a price at or below the maximum price exceeds the quantities to be bought in,a reduction coefficient may be applied to the quantities awarded.

62.

Article 12 of Regulation No 859/89 provides that tenders are not to be acceptedif the price proposed is higher than the maximum price laid down and Article 10(2)provides that the security is to be released entirely if the tender is not accepted.

63.

According to Article 13 of Regulation No 859/89, if the tender is accepted, thesecurity is to be released entirely if the quantity delivered represents at least 95%of the quantity tendered. If the quantity delivered comprises between 85% and95% of the quantity tendered, the security is to be forfeited to the interventionagencies in proportion to the quantities lacking, except in cases of force majeure. In all other cases, it is to be forfeited to the intervention agencies entirely, exceptin the event of force majeure.

64.

The requirement that a security be lodged was introduced in order to put an endto the practice of inflated tenders.

65.

Article 12(2) of Regulation No 859/89 provides that rights and obligations arisingfrom the invitation to tender are not to be transferable. Under Article 15 theintervention agency is to pay the successful tenderer the price indicated in histender.

66.

After the facts in the present case arose, Regulation No 859/89 was repealed andreplaced by Commission Regulation (EEC) No 2456/93 of 1 September 1993 layingdown detailed rules for the application of Regulation No 805/68 as regards thegeneral and special intervention measures for beef (OJ 1993 L 225, p. 4). In placeof Article 9 of Regulation No 859/89, there was a new detailed provisionconcerning the persons eligible to submit tenders, Article 11 of Regulation No2456/93, which provides that:

'1. Only the following may submit tenders:

(a) slaughterhouses for bovine animals approved in accordance with Directive64/433/EEC, and not enjoying a derogation under Article 2 of Directive91/498/EEC, whatever their legal status, and

(b) livestock or meat traders who have slaughtering undertaken therein on theirown account and who are entered in a public register under an individualnumber.

2. In response to invitations to tender, interested parties shall forward tendersto the intervention agencies of the Member States in which they are opened, eitherby lodging a written bid against a receipt or by any other written means ofcommunication accepted by the intervention agency, with advice of receipt.

Separate tenders shall be submitted for each type of invitation to tender.

3. Interested parties may submit only one tender per category in response toeach invitation to tender.

The Member States shall ensure that tenderers are independent of each other inthe terms of their management, staffing and operations.

Where there are serious indications to the contrary or ... tenders are not in linewith economic facts, tenders shall be deemed admissible only where the tendererpresents suitable evidence of compliance with the second subparagraph.

Where it is established that a tenderer has submitted more than one tender, all thetenders from that tenderer shall be deemed inadmissible.

4. ...

67.

Between 1990 and 1992, as a result of a combination of various circumstances (madcow disease (BSE), the reunification of Germany, the Gulf War, developments inrelations with Eastern Europe, etc.), the Community beef market underwent anunprecedented crisis which, as from the financial year 1991, led to a consistentincrease in Community budgetary expenditure. Community beef interventionpurchases rose from 540 000 tonnes in 1987 to 1 030 000 tonnes in 1991, anincrease of 90.7% in the space of four years.

68.

According to the Commission, a number of undertakings submitted several tendersin the context of a single tender procedure. In its 1991 Summary Report it stated:

'Ireland

... As many as nine individual offers were being made by the same group at priceswithin a few pence of each other. The same situation was detected in alladjudication procedures examined and must be viewed as widespread. An examplebest describes the general situation:

56th tender, closing date: 22 October 1991

* A total of 68 offers were made at prices ranging from 256.75 to255.50 ECU/100 kg.

* Of these, 58 offers were finally accepted at prices ranging from 255.80to 255.50 ECU/100 kg.

* By comparison of names, addresses, telefax, telex numbers etc., theaudit team was able to establish that the 68 offers had originated fromabout 20 different sources although, naturally, company names andregistration numbers were different and in all but a few cases, offershad been signed by different persons. It could also be regularlyestablished that offers from members of the same group were madeon photocopies with only the individual details per company beingentered separately.

The most classic example was detected in the context of the 65th tenderingprocedure under Regulation No 771/92 with a closing date for tenders of 24 March1992 where the EAGGF found in respect of one group:

All nine offers gave the same address, telephone number, telex number,telefax number and intervention centre for delivery and even the wordmanager was clearly photocopied from an original in each case.

All nine offers were datestamped and timed as arriving at 10h40 on 24March 1992.

All invoices bore the same heading details including bank account numberalthough the originally printed company name had been replaced,sometimes crudely, with the name of the tendering company. Indeed, theinvoices were even consecutively numbered.

In view of all this, the EAGGF concludes that these offers were totally connectedand originated from the same source, and that this connection must have beenevident to the adjudication committees in the Member States concerned. Such anexample, although extreme, is typical of documentation viewed for other groupoffers. Subsequent enquiry at the companies' offices has revealed that six of thecompanies were all formed between 17 and 30 May 1990 and that all paymentsduring 1991 were registered as paid under the same trader reference number heldby the Department of Agriculture.

69.

According to the Commission, those practices were expressly prohibited by theapplicable Community rules and totally incompatible with the purpose of theintervention scheme. In its summary report, it found that there had beeninfringement of Article 9(2) (submission of a single tender per tenderer in responseto each invitation to tender), Article 12(2) (non-transferability of rights andobligations arising from the invitation to tender), Article 9(4)(c) (lodging of asecurity by the tenderer himself) and Article 15(1) (payment of the price to thetenderer) of Regulation No 859/89.

70.

The Commission concluded that this practice had been adopted by tenderers inorder to sell the greatest possible amount of meat into intervention at the highestpossible prices, while significantly reducing the risk of losing their security. According to the Commission, where the quantity actually delivered was lower thanthat which should have been delivered, the splitting of one tender into severalmade it possible in fact to honour at least some of the tenders and therefore torecover the relevant securities.

71.

In its 1992 Summary Report, the Commission, 'in view of the serious andsystematic nature of the abuses found in ... Ireland, maintained its position withregard to the 1992 accounts (p. 121).

72.

In response to the Commission's argument that the competent national authoritiesshould have intervened in order to stop such practices, the Irish authoritiesobjected that Regulation No 859/89 did not authorise them to intervene wheretenders were made by separate legal entities.

73.

The matter was referred to the Conciliation Body established by the Commissionon its own initiative by Decision 94/442.

74.

The Conciliation Body took the view that it could not state with any certainty thatthe tender procedure followed by the Member States was contrary to RegulationNo 859/89. It observed that, in any event, it had subsequently been deemednecessary to explain the rules contained in Regulation No 859/89. The ConciliationBody also pointed out that the Commission had failed to react before 1993 to theMember States' practice.

75.

Notwithstanding the conclusions of the Conciliation Body, the Commission adoptedthe contested decision.

76.

In support of its application, Ireland relies on three pleas in law alleging that (i) thepractice followed within its territory was lawful, (ii) the EAGGF had suffered noharm and (iii) there had been a breach of the principles of legitimate expectationand proportionality and of the criteria of the Belle Group Report.

Lawfulness of the practice followed in Ireland

77.

By its first plea in law, the Irish Government submits that the practice of acceptingtenders from any legal entity during the relevant period was lawful. There was nolegal basis in 1991 and 1992 for the national intervention bodies to reject offersmade by separate legal entities on the ground that those entities were notindependent of other tenderers.

78.

The possibility of a connection between tenderers was not taken into considerationuntil after the period with which the present case is concerned, in Regulation No2456/93, which repealed Regulation No 859/89. The second subparagraph ofArticle 11(3) of Regulation No 2456/93 was the first provision to require thattenderers be independent of each other.

79.

The Irish Government also claims that, if Regulation No 859/89 had intended toprohibit associated companies from (each) lodging tenders, Article 9(3) of thatregulation, which states clearly the information to be included in the tender, wouldhave required the ownership or group membership of the tenderer to be specified. Failing that, a separate provision would have either precluded a Member Statefrom accepting tenders from companies associated with each other, or provided fora register of persons entitled to tender, specifying requirements as to non-registration of companies within the same commercial group. In the present case,there are no such provisions.

80.

The Commission draws a distinction between the term 'tenderer as used inArticle 9(1) of Regulation No 859/89 and the concept of 'interested parties asused in Article 9(2). Whereas the tenderer is merely the person submitting atender, the term 'interested party covers a wider circle. In its view, theprohibition laid down in Article 9(2) of the regulation precluding tenderers fromsubmitting more than one tender per category in response to each invitation to

tender would be rendered redundant if it were possible for the same interestedparty to make several tenders through tenderers who are de jure separate but defacto connected.

81.

The first point to be borne in mind here is the need to ensure legal certainty, whichmeans that rules must enable those concerned to know precisely the extent of theobligations which they impose on them (see, to that effect, Case 348/85 Denmarkv Commission [1987] ECR 5225, paragraph 19). The Commission thus cannotchoose, at the time of the clearance of EAGGF accounts, an interpretation whichdeparts from and is not dictated by the normal meaning of the words used (see, tothat effect, Case 349/85 Denmark v Commission [1988] ECR 169, paragraphs 15and 16).

82.

In this regard, the last sentence of Article 9(2) of Regulation No 859/89 merelyprovides that interested parties may submit one tender only per category inresponse to each invitation to tender. That wording cannot therefore provide anysupport for the interpretation claimed by the Commission that, on account of thedifference in meaning between the words 'interested party and 'tenderers, thelatter may submit one tender only in response to an invitation to tender where theyare part of a single group.

83.

It is only since the entry into force of Regulation No 2456/93 that the Communityrules have contained provisions on interconnections between tenderers. To upholdthe interpretation of Article 9(2) of Regulation No 859/89 suggested by theCommission would be tantamount to applying Article 11 of Regulation No 2456/93retroactively.

84.

However, the contested decision does not fall to be annulled on the basis of theplea in law put forward by the Irish Government, since it contains other factual andlegal grounds which provide it with a sufficient statement of reasons.

85.

The EAGGF's 1991 Summary Report stated that payments had been made tocompanies other than tenderers and that systematic cross-checking of names,addresses and fax, telex, bank account and invoice numbers had led to theconclusion that individual tenders came from the same source.

86.

That evidence was such as to give rise to serious suspicions that the prohibition ontenderers submitting more than one tender per category in response to eachinvitation to tender had been circumvented by the use of other names in order todisguise the fact that the tenders in actual fact emanated from a single operator. In view of the division of powers between the Community and the Member Statesin the field of the common agricultural policy, those were matters which called forinspection and investigation by the latter.

87.

The management of EAGGF finances is principally in the hands of the nationaladministrative authorities responsible for ensuring that the Community rules arestrictly observed. That system, based on trust between national and communityauthorities, does not involve any systematic supervision by the Commission, whichmoreover would in practice be quite unable to carry it out. Only the interventionagencies are in a position to provide the information necessary for setting amaximum buying-in price and, where necessary, a reduction coefficient, since theCommission is not close enough to obtain the information it needs from theeconomic operators (see, to this effect, Case C-48/91 Netherlands v Commission,cited above, paragraph 11).

88.

By failing to carry out such inquiries, Ireland failed to fulfil its obligations underArticle 8(1) of Regulation No 729/70 (see Case C-2/93 Exportslachterijen vanOordegem v Belgische Dienst voor Bedrijfsleven en Landbouw [1994] ECR I-2283,paragraphs 16 to 18).

89.

That provision, which constitutes a specific expression in the agricultural area of theobligations imposed on Member States by Article 5 of the EC Treaty, defines theprinciples according to which the Community and the Member States must ensurethe implementation of Community decisions on agricultural intervention financedby the EAGGF and combat fraud and irregularities in relation to those operations(see Joined Cases 146/81, 192/81 and 193/81 BayWa and Others v Bundesanstalt fürLandwirtschaftliche Marktordnung [1982] ECR 1503, paragraph 13). It imposes onthe Member States the general obligation to take the measures necessary to satisfythemselves that the transactions financed by the EAGGF are actually carried outand are executed correctly, even if the specific Community act does not expresslyprovide for the adoption of particular supervisory measures (see Case C-8/88Germany v Commission [1990] ECR I-2321, paragraphs 16 and 17).

90.

Moreover, the EAGGF found that there had been an infringement of more thanArticle 9(2) of Regulation No 859/89. It also pointed out that the practicesreferred to at paragraph 85 of the present judgment breached the prohibition onthe transfer of rights and obligations arising from the tender procedure(Article 12(2) of Regulation No 859/89) and the tenderers' obligation to lodge asecurity (Article 9(4)(c)) and to receive payment personally (Article 15) (pp. 103and 104 of the Summary Report).

91.

The EAGGF was thereby alleging that Irish tenderers had breached the rule thattenders must be independent, an essential requirement for the validity andeffectiveness of any tender procedure, which underlies not only theabovementioned provisions but also Article 9(6) of Regulation No 859/89(confidentiality of tenders) and Article 6(6) of Regulation No 805/68 (equality ofaccess for all persons concerned). Although that rule does not prevent severalcompanies belonging to one group from taking part at the same time in one tenderprocedure, it does preclude those same companies from agreeing on the terms and

conditions of the tenders which they each submit, if the tender procedure is not tobe distorted.

92.

In view of the foregoing considerations, the first plea in law must be rejected.

Absence of harm to the EAGGF and breach of the principles of legitimate expectationand proportionality and of the criteria of the Belle Group Report

93.

By its second plea in law, the Irish Government claims, in the alternative, that thetender procedures in Ireland did not lead to the purchase of greater quantities ofbeef at higher prices. Indeed, during negotiations, the Commission withdrew thatallegation, which appeared in the 1991 Summary Report.

94.

It also disputes that the practice of submitting multiple tenders reduces the risk offorfeiting the security. It points out that the amounts forfeited in Ireland in 1991and 1992 were very small (£18 268.44 in 1992 in respect of a total security of£86 696 135.57).

95.

Furthermore, during 1991 and 1992, 63% of the total quantity of beef taken intointervention in Ireland was taken in under the 'safety-net arrangements. Sincethat procedure gave rise to the acceptance of all the tenders, there was no need tomake speculative offers. However, multiple tenders were also submitted duringthose periods, which suggests that, in Ireland, the practice was not designed toreduce the risk of incurring a security forfeiture.

96.

By its third plea in law, the Irish Government claims, also in the alternative, first,that the central role of the Commission in the procedure for the acceptance oftenders requires it, where it is aware of a practice which it considers not to be inconformity with the Community rules, to inform the Member State concerned. Ifit fails to do so and not only continues to make advances to the Member State forpayments out of the EAGGF but also permits the Member State to make suchpayments then it may not subsequently refuse to charge those amounts to theEAGGF.

97.

Secondly, withholding 2% of the expenditure incurred in stocking the meat inIreland would unjustly enrich the EAGGF. Ireland relies on a precedent in whichthe Commission, upon determining that a Member State was in technical breachof a Community rule but that the breach was unlikely to have given rise to anysignificant loss of Community funds, made a flat-rate deduction of 0.25% of theexpenditure in question (Case C-22/89 Netherlands v Commission [1990] ECRI-4799). The principle of non-discrimination now requires that Ireland should atleast be given similar treatment.

98.

Thirdly, it is apparent from the Belle Group Report that, where the Commissionproposes making a flat-rate deduction by reason of an alleged control deficiencyby a Member State, it must make an assessment of the risk to which Communityfunds have been put by that deficiency. In the present case, the Commissionaccepted that the practices at issue did not involve any risk to Community funds. Hence the Commission did not respect the criteria in the Belle Group Report.

99.

Fourthly, Ireland alleges that the Commission was in breach of the guidelines in theBelle Group Report in so far as it made two separate flat-rate deductions (5% and2%) in respect of the same expenditure declared by Ireland as a result ofirregularities detected, first, in the control of storage of beef and, second,concerning intervention beef purchases. The criteria in the Belle Group Reportclearly imply that the Commission can make only one assessment of the overall riskto Community funds by reason of alleged control deficiencies in any one sector inany one year, and only one flat-rate deduction.

100.

The Court has consistently held that Articles 2 and 3 of Regulation No 729/70permit the Commission to charge to the EAGGF only sums paid in accordancewith the rules laid down in the various sectors of agricultural production, leavingthe Member States to bear the burden of any other sum paid, and in particular anyamounts which the national authorities wrongly believed themselves authorised topay in the context of the common organisation of the markets (Case 11/76Netherlands v Commission, cited above, paragraph 8; Case 18/76 Germany vCommission, cited above, paragraph 7; and Case C-48/91 Netherlands vCommission, cited above, paragraph 14).

101.

102.

In the present case, it is apparent from paragraphs 85 to 90 of the presentjudgment that the Commission has established that Ireland infringed severalCommunity rules in the field of agriculture.

103.

In addition, it indicated how it was possible for the unlawful conduct of the Irishtenderers to have led to an erroneous assessment of the market by the Communityauthorities likely to result in the purchase of excessive quantities of beef and veal,possibly at higher prices. In so doing, it established the probability that harm wascaused to the Community budget. The Commission cannot be required to do morethan that, since it cannot carry out the systematic checks and since analysis of thecurrent state of a given market depends on information gathered by the MemberStates (see Case C-48/91 Netherlands v Commission, cited above, paragraph 17).

104.

In this connection, no decisive argument can be derived from the limited amountof the securities forfeited to the intervention agencies since multiple offers, asdescribed in the summary report cited at paragraph 68 above and which lead tosuccessful speculation, by definition do not entail any loss of security.

105.

Nor has the Irish Government shown that the conduct for which it was responsibledid not lead to an increase in expenditure in the context of the EAGGF.

106.

Moreover, it is apparent from the correspondence produced by the Commissionthat the Irish authorities acknowledged on two occasions, in the course ofnegotiations with it, that use of the device of connected companies in order toreduce the risk of security loss was widespread (see point 90 of the AdvocateGeneral's Opinion).

107.

So far as concerns the Irish Government's argument regarding reliance on the'safety net procedure, suffice it to observe that, even at that time, more than onethird of the meat continued to be purchased in accordance with normal procedureunder which the submission of linked tenders could have been advantageous totraders.

108.

As for the setting of two corrections in 1991, it must be noted that, havingidentified separate risks arising from different deficiencies in the control system, theCommission was entitled to assess them separately. Moreover, as the Court hasconsistently held, the Commission, instead of seeking to establish the financialimpact of the failure of the Irish monitoring authorities to fulfil their obligations,could have rejected the entire expenditure tainted by the infringement (see Case347/85, cited above, paragraph 13).

109.

Finally, having regard to the essential nature of the formalities which were notcomplied with and of the probability of losses, or even fraud, to the detriment ofthe Community budget, the amount disallowed by the Commission, which waslimited to 2% of the expenditure involved, cannot be regarded as excessive anddisproportionate (Case C-49/94 Ireland v Commission [1995] ECR I-2683,paragraph 22).

110.

In the circumstances, the second and third pleas in law must be rejected.

111.

In view of the foregoing considerations, the application must be dismissed in itsentirety.

Costs

112.

Under the first sentence of Article 69(2) of the Rules of Procedure, theunsuccessful party is to be ordered to pay the costs if they have been applied forin the successful party's pleadings. Since Ireland has been unsuccessful, it must beordered to pay the costs.

On those grounds,

THE COURT (Fifth Chamber),

hereby:

1.

Dismisses the application;

2.

Orders Ireland to pay the costs.

Gulmann

Wathelet

Moitinho de Almeida

Puissochet Sevón

Delivered in open court in Luxembourg on 1 October 1998.

R. Grass

C. Gulmann

Registrar

President of the Fifth Chamber

1: Language of the case: English.