61986C0136

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My Lords,

The Bureau national interprofessionnel du cognac (" BNIC ") has claimed against Mr Aubert, a wine-grower, the sum of FF 7 916.02 as a levy alleged to be due because in the marketing year 1979/80 he exceeded the marketing quota which was binding on him . Mr Aubert denies liability on the basis that the quota and the levy based upon it infringe Community law and in particular violate Article 85 of the EEC Treaty .

The Court is told that this is not an isolated case . 465 growers have refused to pay the levy . One district court in the Cognac area ruled in favour of BNIC; five such courts accepted that the levy was not payable for reasons similar to those advanced by Mr Aubert . The tribunal d' instance de Saintes before which the claim against Mr Aubert came has referred two questions to the Court pursuant to Article 177 of the EEC Treaty, namely :

"( 1 ) Are provisions establishing production quotas consisting of a marketing quota and a storage quota compatible with the provisions of Article 85 of the Treaty of Rome in so far as they are intended to limit the production of a product in order to maintain its quality?

( 2 ) If they are not so compatible, is a levy based on such a quota compatible with those provisions of the Treaty of Rome?"

The issue, which is clearly of considerable importance to BNIC and to growers and dealers in the Cognac area arises in this way .

BNIC is an inter-trade organization concerned with cognac wines and spirits which was established pursuant to a Ministerial Order of 5 January 1941 . That order was subsequently amended from time to time . By Article 1 of Ministerial Order of 14 November 1960, as replaced by the provisions of Article 1 of an Order of 18 February 1975, BNIC is composed of persons representing wine-growers and dealers, delegates from wine-growers and dealers and certain other allied trades . Although the delegates are proposed by their respective trade organisations, all members of BNIC are appointed by the Minister for Agriculture . Certain government officials are required to attend meetings of BNIC and may participate in a consultative capacity . The proceedings of BNIC are presided over by an appointee of the Minister for Agriculture, who also appoints a government commissioner (" the Commissioner "). By Article 4 of the 1960 Order it is provided that the Commissioner shall attend meetings of BNIC and its permanent committee . He may either give his assent to decisions adopted or submit them to the Minister for approval . There is no provision in this article for him to make any other form of order .

By Law No 75-600 of 10 July 1975, as amended by Law No 80-502 of 4 July 1980, agreements concluded by recognised inter-trade organizations such as BNIC can ( where they are designed to promote matters such as the quality of goods, the sale of products and the application, subject to State control, of marketing rules, prices and conditions of payment ) be given binding effect by the Minister with the result that they govern in the production zone in question all members of the trades constituting the inter-trade organisation . By Article 3 of the law, such organizations may charge all members of the trades constituting them a levy resulting from the agreements as made binding .

For the making of such an agreement BNIC' s Rules of Procedure, adopted on 19 June 1978, contemplate the following procedures : ( a ) internal negotiations between members of each of the two "families" of growers and dealers followed by a meeting of each of the groups; ( b ) the preparation of a draft agreement or proposal which is put before the ordinary general assembly of BNIC; ( c ) if three-quarters of the members of that assembly agree to do so, an extraordinary general assembly is convened which debates the draft agreement and hears reports from the two families as to their attitude; ( d ) if the two families are in agreement then the extraordinary general assembly asks for the agreement to be made binding by the Minister .

The referring court finds that there was a general meeting of BNIC on 18 October 1979 . The minutes of the ordinary general meeting show that the Production Committee of BNIC had discussed a draft document relating to the 1979/80 season, a draft which was finalized by the Director of BNIC ( who is a salaried official of BNIC ). Discussions had taken place with officials of the Ministry and, it seems, with the Commissioner . A maximum yield of 10 hectolitres of pure alcohol per hectare, a marketing quota of 4.5 hectolitres of pure alcohol per hectare ( adjusted for young or new growers ), a storage quota for cognac, variable according to the product, and a marketing ceiling of 8.5 hectolitres per hectare in Grande Champagne and 8 hectolitres per hectare in other crus were proposed . For each hectolitre of pure alcohol over 4.5 hectolitres ( adjusted for young and new growers ) a levy (" cotisation financière ") of FF 300 per hectolitre up to the marketing ceiling was fixed . Over the marketing ceiling there was to be a "sanction" of FF 3 000 per hectolitre of pure alcohol sold and for any excess of production over the maximum yield a "sanction" of FF 1 500 per hectolitre . The Commissioner expressed his approval of all the proposals save as to the maximum yield of 10 hectolitres per hectare, but the ordinary general assembly adhered to this figure .

The matter then came before the extraordinary general assembly when the families reported their agreement with the proposal . The Commissioner proposed that the word "sanction" should be replaced by "levy" (" cotisation "). It was decided that the agreement would be signed by the heads of the families and the Director after the Commissioner had signed his Decision for the marketing year, so long as there were no more than drafting changes to the terms approved which I have summarized .

On 29 October 1979 the Commissioner adopted the Decision fixing the maximum yield at 10 hectolitres of pure alcohol per hectare and the production quota as consisting of a marketing quota of 4.5 hectolitres of pure alcohol per hectare plus a storage quota of the same amounts as those proposed in the draft agreed by the assembly for the various kinds of cognac . Article 9 of his Decision provided that "exceptionally and solely for the marketing year 1979/80 a levy shall be introduced for the financing of measures for the organization of the market in Cognac wines and spirits and in particular for the study and identification of markets ( other than for cognac and Pineau des Charentes ) for the musts and wines for the specialized white vineyards of the Cognac Delimited Region ". The levy was to be at the rate of FF.300 per hectolitre of pure alcohol for any quantity marketed in excess of 4.5 hectolitres of pure alcohol per hectare, adjusted for young and new growers, up to the maximum limit of 8 hectolitres per hectare or 8.5 hectolitres per hectare for Grande Champagne . Above this a supplementary levy of FF 3 000 per hectolitre of pure alcohol was to apply .

By Article 10 of the Decision, the funds were to be used to pay FF.300 per hectolitre of pure alcohol to wine-growers who had been unable to sell their marketing quotas and who agreed not to produce cognac from it . The rest was to be paid into a fund intended to finance the measures referred to in Article 9 .

On 23 November 1979, BNIC adopted an inter-trade agreement whereby it was agreed "in accordance with Article 9 of the government commissioner' s decision" that a levy was to be charged for the same period, on the same basis of assessment, at the same rates and for the same purpose as the levy provided for in the decision . By Article 5 of that agreement, "BNIC shall be responsible for assessing and recovering the sums due and for keeping accounts in respect of the operations to implement the above articles ".

The inter-trade agreement was made binding on all relevant traders in the area by Ministerial Order of 2 January 1980 pursuant to Law No 75-600 of 10 July 1975 .

Although Mr Aubert is principally concerned to resist payment of the levy it seems to me from the text of the order for reference that in the proceedings before the national court he is attacking the legality both of the marketing and storage quotas and the levy; the questions put by the tribunal cover both matters .

It appears to be agreed that the claim against Mr Aubert is only in respect of the levy of FF.300 per hectolitre : no claim is made in respect of the "sanctions" or supplementary levies of FF 3 000 or FF 1 500 . The levy is said to be intended to raise money to maintain quality, but the tribunal has found that one-fifth was used as a supplementary payment to growers .

The first question posed by the national court is directed to whether the intention to limit the production of a product in order to maintain its quality is enough to make the arrangements compatible with Article 85; the second to whether the levy based on provisions incompatible with the Treaty ( that is on the footing that they are not outwith the prohibition in the article merely because of the intention to maintain quality ) is itself incompatible with the Treaty . The questions have, however, been treated as raising other issues which underlie the questions posed .

BNIC has explained the difficulties faced by growers and dealers in the Cognac region due to a considerable increase in the area under cultivation of white wine used for cognac between 1972 and 1977 and the falling or levelling off of sales and the overproduction which led to the imposition of quotas for the 1975/76 marketing year and to the imposing of a levy for 1979/80 . It was necessary, it is said, to diversify in order to protect the large number of persons involved in or in connection with the production and marketing of a product of great economic importance to the region .

These difficulties may explain what was done; they cannot in themselves take conduct, otherwise within Article 85 of the Treaty, outside it .

It is then argued that Article 85(1 ) does not apply to the agreement reached in so far as it concerned wines and musts to be used for distillation . These are agricultural products within Article 38(1 ) of, and Annex II to, the Treaty . By virtue of Article 42 of the Treaty, Article 85 is applicable to them only to the extent determined by the Council . Article 2 of Council Regulation No 26 ( Official Journal, English Special Edition, 1959-62, p . 129 ) ( which applies certain competition rules to the production of and trade in agricultural products ) excludes such agreements, decisions and practices as form an integral part of a national market organization or are necessary for attainment of the objectives set out in Article 39 of the Treaty . The present inter-trade agreement, it is said, relates to an agricultural product ( wine and must ) within the framework of such a national market organisation; the levy is intended to assist the organization to attain the aims set out in Article 39 in that it is intended to finance a programme of research and study into new outlets . The marketing quota is no more than a point of reference for the assessment of the levy .

This argument cannot, in my view, be accepted . It is plain that the inter-trade agreement and the Commissioner' s Decision of 1979 were, as was the Commissioner' s decision imposing quotas in 1976, concerned with spirits entitled to the registered designation of origin "Cognac ". The quotas and the levies were both directed to spirits which, in Annex II to the Treaty, are expressly excluded from the category of agricultural products . The fact that the proceeds of the levy were to be used in part to study outlets for wine and must from the Cognac region cannot affect that conclusion . The subject matter of the agreement thus falls within Article 85 of the Treaty .

On any view, as the tribunal appears to have accepted, and as the Commission submits, such part of the levy as was used to pay a supplement to certain producers was incompatible with the rules as to price adopted under the common organization of the market in wine .

Article 85 expressly provides that agreements between undertakings or associations of undertakings and concerted practices which limit or control production and markets, and which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market are prohibited .

An agreement to adopt quotas of the kind to be found here, supplemented by a levy "based on" ( as the reference states ) and payable for exceeding those quotas, would in my view plainly be within that article . The principal object seems to have been to limit quantities reaching the market and to keep up prices . Whether its intention was also to maintain quality is less evident from the papers though this is a matter for the national court . However, even if the intention of the provisions is to limit production in order to maintain quality that does not of itself take the provisions out of Article 85(1 ). It might be a reason for the Commission to grant an exemption under Article 85(3 ) but in this case the arrangements made were not notified and the Commission was not asked to grant such an exemption . It is perhaps, as the Commission contends, unlikely that an agreement imposing production quotas and a levy would be exempted within Article 85(3 ) even if the object was to maintain quality .

Such a quota system in respect of spirits to be used in the making of cognac, which is widely exported to other Member States, can clearly affect trade between Member States and restrict or distort competition even if the spirit itself is not exported to Member States ( Case 123/83 BNIC v Clair (( 1985 )) ECR 391 ).

It thus seems to me that the fixing of quotas and the levy is capable of falling within Article 85(1 ) if there existed an agreement or a concerted practice within the meaning of that article .

BNIC contends that provisions of the kind in question were not within Article 85(1 ) because there was no agreement between undertakings or associations of undertakings or any concerted practice . The inter-trade agreement was made by a body of a semi-administrative law nature and springs from the regulating power exercised by the Commissioner . It does not, however, argue this matter in depth but leaves it to the Court .

The tribunal says : "It should be noted that those quotas are fixed by decision of the government commissioner and not, as in the case of the fixing of a minimum purchase price for cognac spirits, by a mere inter-trade agreement extended by an interministerial decree . The purpose of an inter-trade agreement made on 31 December 1980 (( ( sic .) this should, it seems, be 23 November 1979 )), extended by an interministerial decree of 2 January 1980, was to state the aim of the levy ." It went on to query whether the fixing of a production, marketing and storage quota should be regarded as a concerted practice even though adopted to improve production or preserve quality so that by virtue of Article 85(3 ), Article 85(1 ) might be inapplicable to the production quota . It thus appears to have considered that there was a concerted practice, but that the quotas were established by the Commissioner .

It is to be noted, however, that Article 4 of the Order of 1960 provides that the Commissioner may give his assent to "decisions" taken or submit them to the Minister . That contemplates that the proceedings start with a "decision" of BNIC . If the Commissioner approves this ( rather than remitting it directly to the Minister ) the inter-trade agreement is signed and then "extended" ( with the effect that it binds all traders in the region ) by the Minister . No other provisions of French law have been produced to show that the Commissioner has other independent powers .

In this case, although the Commissioner' s decision recites the "deliberations" of the General Meeting of 18 October 1979 ( rather than a "decision" taken ) it seems to me that if the minutes of the meeting are accurate, it is open to the tribunal to find that there was an accord within BNIC by the two families that the quotas and the levy should be adopted . If such an accord were not subject to the Commissioner' s assent, it would in my view plainly be an agreement or concerted practice within the meaning of Article 85 . There were undoubtedly negotiations with government departments and, it seems, the Commissioner or his staff, but these negotiations do not prevent there being such an agreement unless the tribunal found, contrary to the evidence of the minutes, that the agreement was imposed on BNIC .

It may be that such agreement is to be treated as conditional on the Commissioner' s assent so that it is not finally binding . The reality is, however, if the minutes are accurate, that the draft originated within BNIC . The proposals came from its members . BNIC' s Production Committee and its Director, respectively, prepared and finalised the draft . The meeting made it plain that if the Commissioner made any changes other than drafting changes to the relevant articles their representatives would not sign it .

The Commissioner did give his assent to what had been agreed at the meeting in his "decision ". The inter-trade agreement was then signed and dated 23 November 1979 - its terms being essentially those agreed at the meeting and approved in the "decision ".

Such an inter-trade agreement is an agreement between undertakings or associations of undertakings within the ambit of Article 85 of the EEC Treaty ( paragraphs 19 and 20 of the Court' s judgment in BNIC v Clair ). The adoption of a measure by the Minister making the agreement binding on all traders concerned, even if they are not parties to the agreement, cannot exclude the agreement from the scope of Article 85(1 ) ( paragraph 23 of that judgment ).

It is suggested, however, that there is a distinction between the quotas and the levies, the former being fixed by the Commissioner ( and not by BNIC in the inter-trade agreement ), the latter being imposed by the inter-trade agreement since only BNIC and not the Commissioner had power to impose such levies .

It can be said that there is a difference in form since the agreement on the face of it fixes the levy . On the other hand the Decision specifies that the levy "shall be introduced" and "shall be payable" as specified . The agreement recites that in accordance with Article 9 of the Commissioner' s Decision it is agreed that "a levy shall be introduced", and the levy is imposed by specific reference to the quotas in the Decision . The agreement adopts and incorporates the figures for maximum yield and the marketing quotas specified in the Decision . The only extra provision is one relating to machinery - that BNIC shall assess and receive the sums due and keep accounts .

Accordingly, it would not seem on the face of the documents that BNIC in the inter-trade agreement did not agree the quotas but only agreed the levies . The referring court may well find that BNIC initiated both and adopted both in the inter-trade agreement .

In my view, on this basis, all the provisions of Article 85 are satisfied . There was an agreement between undertakings or associations of undertakings limiting or controlling production and marketing capable of affecting trade between Member States, the object or effect of which was to prevent, restrict or distort competiton within the common market . The answer to both questions is in the negative .

If I had come to the view that BNIC was right in saying that it alone could and did fix the levy but that the Commissioner could and did fix the quotas then the imposing of the levy was in breach of Article 85 of the Treaty .

The reference does not mention Article 5 of the Treaty . There has, however, been much argument as to whether, if BNIC' s role was minimal and if in reality the quotas and the levy were initiated and approved by the State authorities, there was a breach by France of Article 5 read with Article 85 of the Treaty . The United Kingdom intervened to suggest that this was a case where the Court could clarify the relationship between the two Articles and the scope of a State' s liability under these Articles . The Commission contends that a State measure which promotes or encourages the conclusion of an agreement which is contrary to Article 85(1 ) and which cannot be exempted under Article 85(3 ) breaches the "effet utile" of Article 85 and is therefore in conflict with the Treaty .

It does not seem to me that an overall clarification of the scope of Article 5 read with Article 85 falls to be made in this case . The Court has already made clear that Article 85 is concerned with the activities of undertakings and not with laws or regulations of Member States . Thus where Member States and Member States alone impose prices or restrictions on production or marketing, such legislation or regulation is not within Article 85 . On the other hand, the Treaty imposes on Member States a duty not to adopt or maintain in force any measure which could deprive Article 85 of its effectiveness . "Such would be the case, in particular, if a Member State were to require or favour the adoption of agreements, decisions or concerted practices contrary to Article 85 or to reinforce the effects thereof ." ( Joined Cases 209 to 213/84 Ministère public v Asjes (( 86 )) ECR 1425 judgment of 30 April 1986 ). Such is the case, as the United Kingdom contends, where the government lays down rules which either oblige or encourage traders to align their conduct or, by agreement, to fix prices or quotas . There may be grey areas where governments, for the pursuit of an economic aim, following agreement or consultation with the trade, impose prices or quotas, in which case difficult questions may arise . But each case must be considered on its own facts .

In the present case, if the national court found that the decision of the Commissioner or the Ministerial Order merely gave official form to an agreement already reached by BNIC which was itself in breach of Article 85, then, in my view, there would be established a breach of Article 5 read with Article 85 of the Treaty . State action reinforces the effect of the prohibited agreement . If the national court finds that the initiative and influence of BNIC in obtaining the Commissioner' s decision and the Minister' s Order was predominant or decisive and that, even though doing more than giving official form to BNIC' s wishes, the Commissioner and the Minister essentially adopted BNIC' s wishes since it approved them, then there would equally be a breach of Article 5 and Article 85 in this case . State action adopts or at least reinforces the effect of a prohibited agreement . The same position would, in my view, result if the national court found that the Commissioner had led or persuaded BNIC to adopt the agreement or to follow a practice itself in conflict with Article 85 .

It seems impossible to say, on the facts stated in the reference, as supplemented by the documents referred to in it and by the minutes of the meetings, that this is a case where there was neither ( a ) an agreement or concerted practice falling within Article 85 nor ( b ) an act by the State requiring or reinforcing the effects of an agreement falling within Article 85, but merely a decision by government binding on traders as a matter of governmental policy which would fall outside both Article 5 and Article 85 .

These matters all involve to some extent questions of fact for the national court, but on the view I have come to that there was here an agreement prohibited by Article 85, they do not arise . The fixing of the quotas and the levy are prohibited in any event .

I consider, accordingly, that the questions referred should be answered on the lines that an inter-trade agreement imposing a levy for exceeding a marketing quota and a storage quota, even in so far as the quotas were intended to limit the production of a product in order to maintain its quality, is prohibited by Article 85(1 ) of the EEC Treaty .

The costs of the parties to the main action fall to be dealt with by the national court . The costs of the Commission and the United Kingdom are not recoverable .