Court of Justice of the European Communities (including Court of First Instance Decisions)

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1. Agriculture ° Common organization of the markets ° Milk and milk products ° Aid for processing skimmed milk into casein and caseinates ° Supervision by Member States ° "Regular supervision" of the manufacturing concern and of the composition of the casein and caseinates ° Concept ° Consequences to be drawn from the result of the checks
(Commission Regulation No 756/70, Art. 3(3))
2. Agriculture ° EAGGF ° Clearance of accounts ° Deadline notified to the Member State for submitting additional information ° Request by Commission to provide such information made after the deadline initially notified ° Effect

1. In the context of the supervision to be carried out by the competent national intervention agency, the concept of "regular supervision" within the meaning of Article 3(3) of Regulation No 756/70 on granting aid for skimmed milk processed into casein and caseinates requires that, when the official checks reveal that some of the batches which satisfied the processor' s internal checks do not in fact comply with the requirements of that regulation and are therefore not eligible for aid, the national authorities either carry out further checks in order to ascertain whether the other batches for which an aid application has been submitted do in fact comply with the requirements of the regulation or make the appropriate extrapolation in accordance with the law of probability.
2. If, in the course of clearing the EAGGF accounts for a given financial year, the Commission, after the deadline notified to the Member State for the submission of additional information, requests that State, without mentioning a deadline, to provide certain additional information, it cannot rely on the fact that the explanations were provided by the national authorities after the deadline initially notified as a ground for disallowing the charge to the EAGGF of the sums in question.

In Case C-413/92,
Federal Republic of Germany, represented by Ernst Roeder, Ministerialrat at the Federal Ministry of Economic Affairs, acting as Agent, with an address for service in Luxembourg at the Embassy of the Federal Republic of Germany, 20-22 Avenue Emile Reuter,
applicant,
v
Commission of the European Communities, represented by Ulrich Woelker, of the Legal Service, acting as Agent, with an address for service in Luxembourg at the office of Georgios Kremlis, of the Legal Service, Wagner Centre, Luxembourg,
defendant,
APPLICATION for the partial annulment of Commission Decision C(92) 1783 Final, published under number 92/491/EEC, of 23 September 1992 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1989 of the European Agricultural Guidance and Guarantee Fund (EAGGF), Guarantee Section (OJ 1992 L 298, p. 23),
THE COURT (Fifth Chamber),
composed of: J.C. Moitinho de Almeida, President of the Chamber, D.A.O. Edward (Rapporteur), R. Joliet, G.C. Rodríguez Iglesias and F. Grévisse, Judges,
Advocate General: M. Darmon,
Registrar: H. von Holstein, Deputy Registrar,
having regard to the Report for the Hearing,
after hearing oral argument from the parties at the hearing on 10 March 1994,
after hearing the Opinion of the Advocate General at the sitting on 3 May 1994,
gives the following
Judgment

1 By application lodged at the Court Registry on 14 December 1992, the Federal Republic of Germany brought an action under the first paragraph of Article 173 of the EEC Treaty for a declaration that Commission Decision C(92) 1783 Final, published under number 92/491/EEC, of 23 September 1992 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1989 of the European Agricultural Guidance and Guarantee Fund (EAGGF), Guarantee Section (OJ 1992 L 298, p. 23; hereinafter "the contested decision"), was void in so far as it excluded DM 432 000 from Community financing.
2 Regulation (EEC) No 756/70 of the Commission of 24 April 1970 on granting aid for skimmed milk processed into casein and caseinates (OJ, English Special Edition 1970 (I), p. 201; hereinafter "the regulation"), in force at the relevant time, provides in Article 3(1)(b): "Producers of casein or caseinates shall not benefit from the aid unless they ... submit to supervision by the competent intervention agency." Article 3(3) states: "The supervision mentioned in paragraph 1(b) shall consist of at least a regular supervision of the manufacturing concern and of the composition of the casein and caseinates." There is no definition of "regular supervision" in the regulation.
3 The documents before the Court show that at the material time the procedure applying in Germany for supervising the manufacturers of casein and caseinates comprised a stage which was internal to the manufacturer and an official stage.
4 In the first stage, the manufacturers themselves took samples of each batch of casein and caseinates manufactured, analysed them and recorded the results in a laboratory register. The manufacturers submitted an application for aid only if the result of those analyses was satisfactory.
5 In the second stage, State inspectors visited each manufacturer at least once a week to carry out an on-the-spot check. On each visit the inspectors, on the basis of the documents supplied to them, ascertained whether the undertaking had regularly carried out the internal analyses required by the applicable legislation. In addition, on at least two visits per month they took samples of each sort of casein and caseinates and had them analysed by the relevant official laboratories. Lastly, every four to six months a final check was carried out at each undertaking, which culminated in the definitive aid decisions.
6 In the contested decision, the Commission refused to charge to the EAGGF DM 432 000 which had been paid by the Federal Republic of Germany to German producers for skimmed milk to be used in the manufacture of casein and caseinates.
7 To justify its refusal, the Commission disputed the system of supervision practised in Germany. In its "Summary Report" relating to the contested decision it set out its criticisms, stating that if the results were satisfactory, all the aid was approved; however, if the results were unsatisfactory, any amount deducted was confined solely to the aid payable for the batch in question, and the EAGGF regarded such an approach as incorrect.
8 The Federal Republic of Germany therefore brought this action, putting forward three pleas in law.
The first plea
9 In its first plea, the Federal Republic of Germany submits that the system of supervision applying in Germany at the relevant time ensured that there was regular supervision of manufacturers of casein and caseinates within the meaning of the regulation. Each batch manufactured was in fact subject to an internal check; moreover the results were confirmed by official checks in 95% of cases, and if excessive levels of thermophilic micro-organisms ° which are very difficult to detect ° are disregarded, in 98% of cases.
10 The Commission states that it had no objection to the system applying in Germany as such. Its criticisms solely concern the consequences drawn by the German authorities from the application of the system when the official analyses showed a negative result in contrast to the internal analyses.
11 In answer to a question put by the Court, the Commission explained that, where a company submitted an application for aid for 100 batches which, according to the samples taken by way of internal check, complied with the requirements of the regulation, and on the official check the authorities took ten samples of which one was unsatisfactory, the German authorities refused aid solely for the batch whose sample had given a negative result, while granting the aid for the remaining 99 batches, although the negative sample represented 10% of the official samples. The Commission considers that, where the result of an official check differed from that of the internal check, the German authorities should have either carried out further laboratory tests or extrapolated the result. Since the authorities had adopted neither of those two solutions, the Commission itself made the appropriate extrapolation when clearing the EAGGF accounts.
12 The Commission' s argument must be accepted.
13 Admittedly, under the system applying in Germany at the relevant time each batch manufactured was subject to an internal check and overall there was a high rate of agreement between the results of the internal checks and those of the official checks. However, the system practised did not guarantee that there was such agreement in all the cases in which aid was paid. If the official check revealed a negative result, that should necessarily have cast doubt on the reliability of the internal analyses carried out by the undertaking in question. The German authorities should therefore either have carried out further checks in order to ascertain whether the other batches for which an application had been submitted by the undertaking did in fact comply with the requirements of the regulation or have made the appropriate extrapolation in accordance with the law of probability.
14 It is common ground that the German authorities took neither of those steps.
15 In those circumstances, the first plea must be rejected.
The second plea
16 In its second plea, the Federal Republic of Germany submits that if it incorrectly interpreted Community law that was due to the Commission' s conduct. In its Summary Report ° Conclusions from the preliminary work for the clearance of the EAGGF Guarantee section accounts for the years 1974 and 1975 (hereinafter "the Summary Report 1974-1975"), the Commission stated: "In Germany the current system does not provide for the extrapolation of results, in the case of a negative analysis, to the whole of the period for which the sample is representative ... The negative results and the results with high quality classification can then be attributed only to the quantities from which the samples are taken." The applicant considers that the practice of the German authorities has therefore been expressly declared to be compatible with Community law. If the Commission subsequently altered its view, it should have drawn the attention of the Federal Government to that fact in due time and enabled it to adapt to the new criteria.
17 The Commission admits that in its Summary Report 1974-1975 it did not dispute the principle of the German method of supervision. However, the report included an important sentence: "If the results are negative, specific analyses are made." The words "specific analyses" meant further analyses of samples which had not yet been the subject of an official check in a laboratory. The Commission considers that it is only on that condition that the German method, based on internal self-checking, would have satisfied the requirements of Article 3 of the regulation. Supervision which is systematic but purely administrative would not be sufficient if no such additional samples were taken where the results were negative.
18 In its reply, the applicant disputes that the obligation to take additional samples where the results are negative is apparent from the Summary Report 1974-1975. It was therefore entitled to consider that its system of supervision had the Commission' s approval.
19 Furthermore, it stresses that the official checks involved taking reserve samples which, where the results were negative, were tested in another laboratory if the undertakings so requested.
20 Even on the assumption that an incorrect statement in a Commission summary report could entail annulment of the decision being challenged, the Commission' s interpretation of the words "specific analyses" is the only interpretation compatible with the coherence of the system.
21 Where the result is negative, the only way of checking the reliability of the internal analyses which have not yet been the subject of official analyses is to carry out further checks on those batches. The German authorities could not therefore reasonably consider that those words referred to verifying in another laboratory the results of the analyses already made in the course of the official check.
22 Accordingly, the second plea must be rejected.
The third plea
23 In its third plea, the Federal Republic of Germany submits that the sum of DM 432 000 excluded from Community financing includes a sum of DM 24 365 which, even if the Commission' s criteria are accepted, should be borne by the EAGGF.
24 That sum comprises two amounts of which the first, DM 6 668, concerns a quantity of casein which was initially mistakenly categorized as defective.
25 In its rejoinder, the Commission accepts that it was wrong to charge that amount to the Federal Republic of Germany.
26 As for the second amount, DM 17 697, it originates in a list vitiated by errors which indicated the number of negative samples for each manufacturer. In that list, the total number of negative samples had been increased because both the main samples taken from a batch and the samples taken for cross-checking had been considered to be negative.
27 The applicant stresses that it had by fax of 24 April 1992 drawn the attention of the Commission to that error but that the latter had not made any change. Although it is true that that document was sent after the deadline of 15 July 1991 set by the Commission, by letter of 1 August 1991 the Commission asked the Federal Republic of Germany to submit new documents relating to aid for casein without mentioning the deadline of 15 July or setting another.
28 According to the Commission, the letter of 1 August 1991 was just a summary of the outcome of a meeting held in Brussels on 21 June 1991, during which the German authorities had been requested to provide certain additional information. Although it was sent by fax after the deadline of 15 July, the Commission considers that that letter cannot imply that time started running again or that the deadline was being disregarded. At the hearing the Commission did however accept that, had the request been made in good time, the explanations given by the German authorities would have justified the sum in question being charged to the EAGGF.
29 Admittedly, the letter of 1 August 1991 is set out as a summary of the outcome of the bilateral meeting held before the deadline initially notified to the applicant for submitting its observations. However, a number of factors could have led the applicant to think that the Commission was prepared also to take into consideration information provided to it after that date.
30 First, the letter of 1 August 1991 had been sent several weeks after the meeting in question, and two weeks after the deadline. Secondly, it made no mention of the date of the deadline. Thirdly, the fact that the delay in sending the letter was attributable to the time required to have it translated into German was not explained to its addressee and is consequently irrelevant.
31 The third plea should therefore be accepted.
32 Commission Decision C(92) 1783 Final, published in the Official Journal under number 92/491, should accordingly be annulled in so far as it disallows the charge to the EAGGF of DM 24 365 representing aid for the processing of skimmed milk into casein and caseinates.
33 The remainder of the application should be dismissed.

Costs
34 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to ordered to pay the costs. Since the Federal Republic of Germany has been essentially unsuccessful, it must be ordered to pay the costs.

On those grounds,
THE COURT (Fifth Chamber)
hereby:
1. Annuls Commission Decision C(92) 1783 Final, published in the Official Journal under number 92/491/EEC, of 23 September 1992 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1989 of the European Agricultural Guidance and Guarantee Fund (EAGGF), Guarantee Section, in so far as it disallows the charge to the EAGGF of DM 24 365 representing aid for the processing of skimmed milk into casein and caseinates.
2. Dismisses the remainder of the application.
3. Orders the Federal Republic of Germany to pay the costs.