Case T‑358/11

Italian Republic

v

European Commission

(EAGGF — Guarantee Section — EAGF and EAFRD — Expenditure excluded from financing — Public storage of sugar — Increase of costs relating to warehouse rental — Annual inventory of stocks — Physical inspections of storage sites — Legal certainty — Legitimate expectations — Proportionality — Obligation to state reasons — Existence of a risk of financial loss to the funds — Effectiveness)

Summary — Judgment of the General Court (First Chamber), 19 June 2015

1.      Actions for annulment — Actionable measures — Concept — Measures producing binding legal effects — Preparatory measures — Letters from the Commission announcing its intention to exclude certain expenditure by a Member State under EAGGF and EAGF from EU financing — Intermediate measures constituting a stage in the elaboration of the final decision — Not included

(Art. 263 TFEU; Commission Regulation No 885/2006, Art. 11(2), third subpara.)

2.      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 Regulations No 1258/1999, Art. 7(4), and No 1290/2005, Art. 31)

3.      Judicial proceedings — Application initiating proceedings — Formal requirements — Identification of the subject-matter of the dispute — Brief summary of the pleas in law on which the application is based

(Statute of the Court of Justice, Art. 21, first para.; Rules of Procedure of the General Court, Art. 44(1)(c))

4.      Agriculture — Common agricultural policy — EAGGF, EAGF and EAFRD financing —Compensation scheme for sugar storage costs — Increase of charges linked to the renting of warehouses — Obligation on the Member States to organise an effective system of administrative and on-site inspections — Unreliable controls — Disallowance by the funds

(Council Regulations No 1258/1999, Art. 8(1), and No 1290/2005, Art. 9(1); Commission Regulation No 1262/2001, Art. 9(5))

5.      Actions for annulment — Contested act — Assessment of legality in the light of the information available at the time of adopting the measure

(Art. 263 TFEU)

6.      Acts of the institutions — Statement of reasons — Obligation — Scope — Plea based on lack or inadequacy of reasoning — Plea alleging incorrectness of the statement of reasons — Distinction

(Art. 296 TFEU)

7.      Acts of the institutions — Statement of reasons — Obligation — Scope — Decision on the clearance of accounts in respect of expenditure financed by EAGGF, EAGF and EAFRD

(Art. 296 TFEU; Council Regulations No 1258/1999, Art. 7(4), and No 1290/2005, Art. 31; Commission Decision 2011/244)

8.      Acts of the institutions — Temporal application — Procedural rules — Substantive rules — Distinction — Retrospective effect of a substantive rule — Conditions — Non-retroactivity of Article 8 of Regulation No 884/2006

(Commission Regulation No 884/2006, Art. 8)

9.      Acts of the institutions — Choice of legal basis — EU legislation — Requirements of clarity and foreseeability — Express indication of the legal basis — Limit

10.    Acts of the institutions — Regulations — Regulation prescribing specific control measures — No Member State discretion — Non-implementation — Justification — Other control system more efficient — Practical difficulties — Inadmissibility

11.    Plea of illegality — Scope — Measures the illegality of which may be pleaded — General measure providing the basis of the contested decision — Need for a legal connection between the contested measure and the contested general act

(Art. 277 TFEU)

1.      See the text of the decision.

(see paras 24-29)

2.      See the text of the decision.

(see paras 31-33, 198)

3.      See the text of the decision.

(see para. 40)

4.      The second subparagraph of Article 9(5) of Regulation No 1262/2001 laying down detailed rules for implementing Council Regulation (EC) No 1260/2001 as regards the buying in and sale of sugar by intervention agencies provides that, where sugar is stored in rented warehouses, the intervention agency may increase the storage costs by up to 35%, but does not specify either the procedures or the extent of the checks that Member States are obliged to carry out before applying that increase. However, it is clear from the case-law that Article 8(1) of Regulation No 1258/1999, drafted in terms similar to those of Article 9(1) of Regulation No 1290/2005, imposes on the Member States the obligation to take the measures necessary to satisfy themselves that the transactions financed by the European Agricultural Funds are actually carried out and are executed correctly, to prevent and deal with irregularities and to recover sums lost as a result of irregularities or negligence, even if the specific act of EU law does not expressly provide for the adoption of particular supervisory measures. It follows that Member States are required to set up comprehensive administrative checks and on-the-spot inspections thus guaranteeing the proper observance of the substantive and formal conditions for the grant of the premiums in question. If no comprehensive system of checks exists or if the system introduced by a Member State is defective to the point of giving rise to doubts as to compliance with those conditions, the Commission is entitled to disallow certain expenditure incurred by the Member State in question.

It implicitly, but necessarily, follows from the wording of the second subparagraph of Article 9(5) of Regulation No 1262/2001 that a less significant increase must be applied by the intervention agency if the costs actually incurred by the beneficiary in relation to the rental of warehouses are lower than that ceiling of 35%. Such a check that the expenditure which will be charged to the funds is lawful and correct can be carried out only in the context of individual checks on the basis of the supporting evidence adduced by the depositary concerning, first, the circumstances which compelled it to use an external warehouse and, secondly, the additional costs incurred through the use of that warehouse. The effectiveness of checks to ascertain whether the actual costs incurred by beneficiaries relating to the rental of warehouses are indeed consistent with the 35% increase would be seriously weakened, if not rendered impossible, if that increase were applied solely on the basis of general information concerning the situation on the market concerned, such as scales of the prices charged on the market for similar products or information concerning the shortage of appropriate warehouses.

It follows that the second subparagraph of Article 9(5) of Regulation No 1262/2001 must be interpreted requiring Member States to organise a system of supervision allowing verification, on a case-by-case basis, that expenditure for the storage of sugar in rented warehouses was actually incurred, so that only expenditure duly justified by the beneficiaries and expenditure actually incurred by the latter are charged to the funds.

(see paras 52-54, 57, 58)

5.      See the text of the decision.

(see para. 77)

6.      See the text of the decision.

(see paras 87-90)

7.      See the text of the decision.

(see para. 93)

8.      See the text of the decision.

(see paras 111-119)

9.      See the text of the decision.

(see paras 123, 124)

10.    See the text of the decision.

(see paras 151, 155)

11.    See the text of the decision.

(see paras 180, 181)