Case T‑245/13

United Kingdom of Great Britain and Northern Ireland

v

European Commission

(EAGGF — Guarantee Section — EAGF and EAFRD — Expenditure excluded from financing — Single payment scheme — Key controls — Ancillary controls — Articles 51, 53, 73 and 73a of Regulation (EC) No 796/2004)

Summary — Judgment of the General Court (Second Chamber), 4 September 2015

1.      Agriculture — Common agricultural policy — EAGGF, EAGF and EAFRD financing — Clearance of accounts — Disallowance of expenses arising from irregularities in applying EU rules — Challenge by the Member State concerned — Burden of proof — Shared by the Commission and the Member State

(Council Regulation No 1290/2005, Art. 31(1))

2.      Agriculture — Common agricultural policy — Direct support schemes — Common rules — Single payment scheme — Undue allocation of certain payment entitlements affecting the total value of the entitlements allocated — Consequences — No obligation on the Commission to carry out a retrospective re-evaluation of the unit value of those entitlements

(Council Regulation No 73/2009; Commission Regulations No 796/2004, Arts 73 and 73a, and No 239/2005, fifteenth recital)

3.      EU law — Interpretation — Methods — Literal, systematic and teleological interpretation

4.      Agriculture — Common agricultural policy — Direct support schemes — Common rules — Single payment scheme — Undue allocation of aid of the basis of payment entitlements unduly allocated by reason of errors as to the eligible area — Consequences — Obligation to repay the whole amount of aid paid — Conditions

(Council Regulations No 729/70, No 1258/1999, No 1290/2005 and No 73/2009, Art. 34(1); Commission Regulation No 796/2004, Arts 73 and 73a)

5.      Agriculture — Common agricultural policy — Integrated administration and control system for certain aid schemes — Reductions and exclusions in the event of overdeclarations — Area declared in an aid application exceeding that determined on a check — Penalty — Calculation on the basis of the payment entitlements declared by the farmer — No obligation to take into account a prior re-evaluation of the unit value of the payment entitlements in the event of undue allocation of those entitlements

(Commission Regulation No 796/2004, Arts 2, point 22, 50(2) and (3), and 51(1))

6.      Agriculture — Common agricultural policy — Integrated administration and control system for certain aid schemes — Reductions and exclusions in the event of overdeclarations — Non-application in the case of declaration in an aid application of a greater area than the payment entitlements declared, but satisfying other eligibility criteria — Account taken of payment entitlements as re-evaluated following the finding that allocation of those entitlements was undue — Exclusion

(Commission Regulation No 796/2004, Arts 50(2), 51(2)a, and 73a)

7.      Agriculture — Common agricultural policy — Integrated administration and control system for certain aid schemes — Reductions and exclusions in the event of overdeclarations — Measures constituting an administrative penalty — No possibility of retroactively applying rules laid down by Regulation No 1122/2009 as less severe penalties — Said rules not a penalty

(Council Regulation No 2988/95, Art. 2(2); Commission Regulations No 796/2004, Art. 51, and No 1122/2009, Art. 57(2), second indent)

8.      Agriculture — Common agricultural policy — EAGGF, EAGF and EAFRD financing — Clearance of accounts — Disallowance of expenses arising from irregularities in applying EU rules — Flat-rate correction issued by the Commission in accordance with internal guidelines — Application by the Commission of the said internal guidelines in the context of the clearance of the accounts of funds other than EAGGF — Lawfulness

(Council Regulation No 1290/2005, Art. 31(1))

1.      See the text of the decision.

(see paras 64-67, 173, 183)

2.      No provision of Regulation No 73/2009 establishing common rules for direct support schemes for farmers under the common agricultural policy and establishing certain support schemes for farmers provides expressly for the possibility of modifying the payment entitlements of a farmer who received too high a number of payment entitlements during the initial allocation. By contrast, Article 73a of Regulation No 796/2004 lays down rules relating to the recovery of undue entitlements from which it is apparent that, in the circumstances covered by those rules, the payment entitlements may be recalculated. That provision originates, as is apparent from recital 15 in the preamble to Regulation No 239/2005, the regulation by which it was inserted into Regulation No 796/2004, in the intention to establish rules to cover the eventuality where a farmer has received unduly a certain number of payment entitlements or the value of each of the payment entitlements was fixed at an incorrect level.

In a case where the undue allocation of payment entitlements has affected both the unit value and the total value of the payment entitlements allocated to a farmer, in that the unit value has been underestimated whereas the total value has been overestimated, Article 73a of Regulation No 796/2004 makes no provision for retrospective re-evaluation of the unit value of the payment entitlements.

As regards the interpretation of Article 73a(1) of Regulation No 796/2004, the wording of that provision neither provides for nor expressly excludes the retrospective re-evaluation of the unit value of payment entitlements following the recovery of undue entitlements. In that regard, the statement in the third subparagraph of Article 73a(1) of Regulation No 796/2004, according to which the entitlements allocated unduly shall be deemed not to have been allocated ab initio, cannot be interpreted as requiring such re-evaluation. By contrast, it is necessary to read that statement in conjunction with Article 73a(4) of that regulation, and interpret it as having the sole purpose of showing that aid granted on the basis of unduly allocated entitlements is itself undue, so that it must be repaid in accordance with the provisions of Article 73 of Regulation No 796/2004.

Nor can such upward re-evaluation follow from Article 73a(2) of Regulation No 796/2004. That provision provides only for a downward re-evaluation of the payment entitlements and cannot be interpreted as requiring an upward retrospective re-evaluation of the unit value of payment entitlements where, in the event of undue allocation of certain payment entitlements and undervaluation of the unit value of the entitlements allocated, the total value of the entitlements allocated to a farmer was overestimated.

(see paras 82, 83, 87, 88, 93, 95-97)

3.      See the text of the decision.

(see para. 85)

4.      When the EU legislature lays down conditions governing eligibility for the grant of aid, exclusion as a result of failure to comply with one of those conditions is not a penalty, but merely the consequence of failure to fulfil the conditions laid down by law. Thus, the application of Article 73(1) of Regulation No 796/2004 laying down detailed rules for the implementation of cross-compliance, modulation and the integrated administration and control system provided for in Regulation No 1782/2003 without a prior re-evaluation of the payment entitlements does not constitute a penalty for the farmer by resulting in recoveries of sums which exceed the actual risk to the European Agricultural Guarantee Fund (EAGF). First, in accordance with Article 34(1) of Regulation No 73/2009 establishing common rules for direct support schemes for farmers under the common agricultural policy and establishing certain support schemes for farmers, support is to be granted for activated payment entitlements, that is to say, for payment entitlements accompanied by a corresponding number of eligible hectares. Therefore, an error as to the eligible area affects, in any event, the amount of aid paid in its entirety. Second, having regard to the combined provisions of the third subparagraph of Article 73a(1) of Regulation No 796/2004 and Article 73a(4) of that regulation, aid granted on the basis of unduly allocated payment entitlements constitutes, undue aid which must be recovered in accordance with Article 73 of that regulation.

Moreover, in the absence of any provision providing, in the event of undue allocation of certain payment entitlements which affected the total value of the payment entitlements, for the upward retrospective re-evaluation of their unit value, an interpretation whereby such re-evaluation must be carried out prior to the application of Article 73 of Regulation No 796/2004 is incompatible with the requirement that the conditions under which expenditure is to be borne are to be strictly interpreted under Regulation No 729/70 on the financing of the common agricultural policy, replaced by Council Regulation No 1258/1999 on the financing of the common agricultural policy, which was in turn replaced by Regulation No 1290/2005. Furthermore, in any event, the first subparagraph of Article 73(4) of Regulation No 796/2004 provides that the repayment obligation referred to in paragraph 1 of that provision does not apply if the payment was made by error of the competent authority or of another authority and if the error could not reasonably have been detected by the farmer. It follows that a farmer acting in good faith is protected from the recovery of the undue aid where the error which affected the eligible area or indeed the grant of the payment entitlements is attributable to the authorities and where he could not reasonably have detected it.

(see paras 105, 110-112, 115, 119)

5.      It is not apparent either from the wording of Article 51(1) of Regulation No 796/2004 or from reading it in the light of the definition, in Article 2(22) of that regulation, of the term ‘area determined’, that the penalty for overdeclaration of area provided for in the said Article 51(1) of Regulation No 796/2004 must be determined on the basis of the retrospectively recalculated payment entitlements. It is apparent from the wording of Article 51(1) of Regulation No 796/2004 that the reductions and exclusions for which it provides are to apply where the area declared by the farmer exceeds the area determined in accordance, inter alia, with Article 50(3) of that regulation and the difference between the two areas exceeds the margins indicated by that provision.

Although it is apparent from that provision that an over-declaration is penalised by the reduction, under the conditions set out therein, of the area determined on the basis of which the aid is calculated, the fact remains that, having regard to the very wording of that provision, its application is not in any way subject to a prior re-evaluation of the unit value of payment entitlements in the event of undue allocation of such entitlements. Even on the assumption that Article 2(22) of Regulation No 796/2004 thus defines the area determined by reference to the area accompanied by a number of payment entitlements actually at the farmer’s disposal and that that definition is relevant in the context of Article 51 of that regulation, that definition is not such as to require the penalty applicable pursuant to Article 51(1) of Regulation No 796/2004 to be calculated on the basis of a recalculated value of the payment entitlements. Article 2(22) of that regulation does not contain any indication as regards the value of the payment entitlements which should, if necessary, be taken into account.

That reading of Article 51(1) of Regulation No 796/2004 is all the more necessary in the light of the provisions of Article 50 of that regulation and, in particular, paragraph 2 of that article. It is apparent from Article 50(2) of Regulation No 796/2004, which defines the basis for calculating the aid, that, if there is a discrepancy between the payment entitlements declared and the area declared, the calculation of the aid is to be based on the lower size. In other words, it is apparent from that provision that, in the absence of any indication to the contrary, the aid is to be calculated on the basis of the payment entitlements declared by the farmer, without it being necessary to take into account any upward re-evaluation of their unit value.

(see paras 134-136, 138, 139)

6.      In the light of the general scheme of Article 51 of Regulation No 796/2004, to combat irregularities and fraud, the insertion of paragraph 2a into that provision is based on the consideration that, in the event of a discrepancy between the area declared and the payment entitlements declared, there is, in principle, no risk of irregularity or fraud provided that the area declared satisfies all other eligibility requirements. In the event of such a discrepancy between the area declared and the number of entitlements declared, the amount of aid is in any event to be determined, in accordance with Article 50(2) of that regulation, on the basis of the lower size, so that, in any event, aid cannot be paid on the basis of an area not determined. It follows that, in principle, there is, in such a case, no risk of undue payment granted on the basis of an area not determined.

As regards reductions and exclusions applicable in the event of overdeclaration of agricultural area, it is only where the area declared is more than the number of payment entitlements declared and that area fulfils all other eligibility requirements that, in accordance with the first subparagraph of Article 51(2a) of Regulation No 796/2004, the reductions and exclusions established in paragraph 1 of that provision do not apply. In that regard, the comparison between the area declared and the payment entitlements declared is made, in the context of Article 51(2a) of Regulation No 796/2004, irrespective of the number of payment entitlements actually at the farmer’s disposal, if necessary after recovery of undue entitlements on the basis of Article 73a of Regulation No 796/2004.

(see paras 144, 145, 151)

7.      The second indent of Article 57(2) of Regulation No 1122/2009, laying down detailed rules for the implementation of Regulations Nos 73/2009 and 1234/2007, does not constitute a new rule on the application of reductions and exclusions in the case of overdeclaration of agricultural area, which must, being a less severe rule than that stemming from Article 51 of Regulation No 796/2004 apply retroactively. Even if reductions and exclusions of aid, such as those provided for in Article 51 of Regulation No 796/2004, constitute an administrative penalty within the meaning of Article 2(2) of Regulation No 2988/95 on the protection of the European Communities’ financial interests, that is not the case with provisions concerning the definition of a basis for calculation, such as those in the second indent of Article 57(2) of Regulation No 1122/2009.

Moreover, the second indent of Article 57(2) of Regulation No 1122/2009 in no way alters the rules on reductions and exclusions, as set out in Article 58 of Regulation No 1122/2009. The latter article moreover reproduces the rules set out in Article 51(1) of Regulation No 796/2004, although it must be noted that the provisions of Article 51(2a) of Regulation No 796/2004, which formed an exception to the reductions and exclusions of Article 51(1) of that regulation, are not reproduced in Article 58 of Regulation No 1122/2009.

(see paras160, 162-166)

8.      Even if Document No VI/5330/97, setting out the Commission’s guidelines for the application of financial corrections, was adopted by the Commission in the context of the EAGGF and, as its title indicates, contains guidelines for the calculation of financial consequences when preparing the decision regarding the clearance of the accounts of the EAGGF Guarantee Section, there is nothing to prevent the Commission from applying that document also when exercising the powers which Article 31(1) of Regulation No 1290/2005 confers on it for the purpose of the clearance of the accounts of the EAGF.

(see para.189)