61989J0281

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1. Action for annulment - Judgment of the Court - Principle of res judicata - Scope

2. Agriculture - EAGGF - Clearance of accounts - Refusal to charge to the EAGGF expenditure arising from irregularities in the application of the Community rules - Irregularity related to the financial conditions governing the implementation of the Community rules - Contestation by the Member State concerned - Burden of proof

(Council Regulation No 729/70)

1. The principle of res judicata extends only to the matters of fact actually or necessarily settled by a judgment of the Court.

2. In matters concerning the financing of the common agricultural policy by the EAGGF, it is for the Commission, where it intends to disallow expenditure declared by a Member State, to prove an infringement of the Community rules. If the Commission establishes such an infringement, the Member State concerned must then, if appropriate, demonstrate that the Commission committed an error as to the financial consequences to be drawn from it.

In a particular case where it is not possible to draw a distinction between the irregularity and its financial consequences, in so far as the irregularity relates to the financial conditions under which an operation required by the Community rules was carried out, it is for the Member State concerned, which is familiar with the manner in which the operation was conducted, to prove that it complied with the requirements imposed on it.

In Case C-281/89,

Italian Republic, represented by Luigi Ferrari Bravo, Head of the Department for Contentious Diplomatic Affairs, Ministry of Foreign Affairs, and Oscar Fiumara, Avvocato dello Stato, acting as Agents, with an address for service in Luxembourg at the Italian Embassy, 5, rue Marie-Adelaïde,

applicant,

v

Commission of the European Communities, represented by Dierk Booss and Giuliano Marenco, Legal Advisers, acting as Agents, with an address for service in Luxembourg at the office of Guido Barardis, a member of the Commission' s Legal Department, Wagner Centre, Kirchberg,

defendant,

APPLICATION for a declaration that Commission Decision 89/418/EEC of 26 June 1989 amending Decision 88/630/EEC on the clearance of the accounts presented by the Member States in respect of the European Agricultural Guidance and Guarantee Fund, Guarantee Section, expenditure for 1986 (Official Journal 1989, L 192, p. 33) is void in part,

THE COURT

composed of: G. F. Mancini, President of Chamber, acting as President, G. C. Rodríguez Iglesias and M. Díez de Velasco (Presidents of Chambers), Sir Gordon Slynn, C. N. Kakouris, R. Joliet and P. J. G. Kapteyn, Judges,

Advocate General: J. Mischo

Registrar: D. Louterman, Principal Administrator,

having regard to the Report for the Hearing,

after hearing oral argument presented by the parties at the hearing on 7 November 1990,

after hearing the Opinion of the Advocate General delivered at the sitting on 22 November 1990,

gives the following

Judgment

1 By application lodged at the Court Registry on 12 September 1989, the Italian Republic brought an action under the first paragraph of Article 173 of the EEC Treaty for a declaration that Commission Decision 89/418/EEC of 26 June 1989 amending Decision 88/630/EEC on the clearance of the accounts presented by the Member States in respect of the European Agricultural Guidance and Guarantee Fund (EAGGF), Guarantee Section, expenditure for 1986 (Official Journal 1989, L 192, p. 33) was void in part.

2 Regulation (EEC) No 1322/83 of 26 May 1983 on the transfer of 550 000 tonnes of common wheat of bread-making quality by French and German intervention agencies (Official Journal L 138, p. 63) provides inter alia for the transfer of 450 000 tonnes of that common wheat from the French intervention agency to the Italian intervention agency with a view to its use in animal feed.

3 The second paragraph of Article 5 of Regulation (EEC) No 2794/83 of 6 October 1983 on the sale on the internal market of 450 000 tonnes of common wheat of bread-making quality held by the Italian intervention agency and amending Regulation (EEC) No 1687/76 (Official Journal 1983 L 274, p. 18) provides that "... to facilitate verification of use in animal feed, the intervention agency concerned shall colour the product so that it can be identified" and that "colouring must be carried out at minimum expense".

4 The Italian intervention agency, the Azienda di Stato per gli interventi nel mercato agricolo (hereinafter referred to as "AIMA") determined at ECU 6.16 per tonne the expenditure incurred in carrying out the colouring operation provided for by Regulation No 2794/83 and requested reimbursement on that basis from the EAGGF (LIT 3 682 607 099 for the whole quantity).

5 The Commission considered that the colouring costs should be reimbursed on the basis of a standard amount, which it fixed by decision of 7 June 1985 as ECU 1.17 per tonne of treated cereal. The Italian Government objected to reimbursement on that basis and brought an action before the Court of Justice under Article 173 of the EEC Treaty for a declaration that that decision was void. By judgment of 4 February 1988 in Case 256/85, Italy v Commission, [1988] ECR 521, the Court upheld the action and annulled the decision to the extent to which it applied to the colouring operation required by Commission Regulation No 2794/83.

6 In order to implement that judgment, the Commission, by telex message of 15 April 1988, asked the Italian Republic and the other Member States concerned to inform it before 29 April 1988 of the expenditure actually incurred for the colouring of cereals during 1983, 1984, 1985 and 1986 and also to provide it with evidence to show that the colouring method adopted was the least costly. Italy did not respond to that request.

7 However, during an inspection by Community officials at the premises of AIMA at the end of October 1988, the Commission obtained certain information from the Italian authorities. It was found that the colouring operations had taken place between 26 October 1983 and 6 October 1986. They were carried out individually by those responsible for storage on behalf of AIMA, progressively as the product was withdrawn from the warehouse for delivery to the purchasers. AIMA entrusted the monitoring of the individual operations to a private company, which issued a colouring certificate for each consignment disposed of. At no time did AIMA approach other undertakings for the purpose of carrying out colouring operations.

8 On 26 November 1988, the Italian authorities gave the Commission certain further information. It was the same information that AIMA had already provided in two other telex messages of 7 January 1984 and 5 October 1984, giving a breakdown of the colouring costs.

9 The Commission took the view that all the abovementioned information did not constitute proof that the method adopted by AIMA had been the least costly possible and accordingly that the requirements of Article 5 of Regulation No 2794/83 had not been satisfied. Despite the objections of the Italian authorities, on 26 June 1989 the Commission finally adopted the contested decision which charged the expenditure declared by the Italian Republic to the EAGGF only at the rate of ECU 1.17 per tonne.

10 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the course of the procedure and the pleas in law and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

11 The Italian Government makes two pleas in law in support of its application. In the first place, by adopting the contested decision, the Commission reopened proceedings which had been definitively closed by the Court' s judgment in Case 256/85, cited above. The Commission thus infringed the principle of res judicata. Secondly, the Italian Government maintains that it provided proof of expenditure actually incurred and that it is incumbent upon the Commission to show specifically why the expenditure declared does not represent the minimum possible cost.

The principle of res judicata

12 According to the Italian Government, the Commission should have objected to the level of expenditure incurred during the proceedings disposed of by the judgment in Case 256/85, cited above. It is not entitled to rectify its omission now by challenging the appositeness of the expenditure. The principle of res judicata extends not only to the issues raised by the parties but also to the arguments which could have been, but were not, put forward.

13 The Commission considers that argument to be without foundation. The issue in Case 256/85 was whether it could legitimately decide to reimburse colouring expenditure by way of standard amounts. It was only after that question had been answered in the negative that the Commission could raise the question whether the colouring operation had been carried out at minimum expense. Moreover, paragraph 18 of the judgment in Case 256/85 expressly left the matter open.

14 It must be observed that the principle of res judicata extends only to the matters of fact and law actually or necessarily settled by a judicial decision. The abovementioned judgment disposed only of the question whether, under the general rules applicable to the financing of intervention in the context of the common agricultural policy, the expenditure concerned was to be reimbursed by way of standard amounts or in full.

15 However, the present dispute relates to a different problem, namely the level of the expenditure declared, a matter not dealt with by the judgment in Case 256/85.

16 The submission concerning the principle of res judicata is therefore unfounded.

The burden of proof

17 According to the Italian Government, the Italian administration duly declared that it had incurred actual expenditure reflecting the particular circumstances of the relevant market in Italy. It is therefore incumbent on the Commission to state precisely why that expenditure was unacceptable and, in particular, to prove that it did not correspond to the lowest possible expense. A mere reference to the difference between the expenditure declared by Italy and that declared by the other Member States does not amount to valid proof.

18 The Commission considers, on the other hand, that the colouring operations in Italy were not carried out in accordance with the Community rules. Article 5 of Regulation No 2794/83 requires the Member States to achieve a precise result: the colouring must be carried out at minimum expense. Compliance with that provision necessarily implies that a comparison must be made. In the present case, the Italian authorities made no comparison. The Commission considers that, in view of an irregularity of that kind, it was entitled under the case-law of the Court to refuse to reimburse any costs at all. It states, however, that for reasons of fairness it chose to take account of the expenditure corresponding to a more effective method of conducting the operation.

19 It is necessary in the first place to have regard to the general rules concerning the burden of proof in matters concerning the financing of the common agricultural policy. The Court has consistently held that it is for the Commission to prove an infringement of the rules on the common organization of the agricultural markets (see the judgment in Case 347/85 United Kingdom v Commission [1988] ECR 1749, in Case 262/87 Netherlands v Commission [1989] ECR 225 and in Case C-335/87 Hellenic Republic v Commission [1990] ECR I-2875). If the Commission establishes such an infringement, the Member State concerned must then, if appropriate, demonstrate that the Commission committed an error as to the financial consequences to be drawn from it.

20 It must then be made clear that the abovementioned cases presuppose that a distinction can be drawn between the existence of any irregularity committed and the financial consequences thereof. However, such a distinction cannot be drawn in this case in so far as the failure to fulfil the requirement laid down by the last sentence of the second paragraph of Article 5 of Regulation No 2794/83 relates directly to the method of financing the operation in question and, therefore, to its financial consequences. As the Advocate General observes in paragraph 16 of his Opinion, the infringement consists precisely in the fact that the cost of the operation was not kept to a minimum. Since the Member State concerned has all the information concerning the conditions under which the operation at issue was carried out, it has the burden of proving that the Community provision was complied with.

21 It is therefore necessary to consider whether the Italian administration has proved that the colouring operation provided for in the second paragraph of Article 5 of Regulation No 2794/83 was carried out at minimum cost. The evidence adduced must at least show that the colouring method chosen was less expensive than others or that it was impossible to choose another method.

22 It appears from the documents before the Court that the Italian administration furnished evidence that the colouring operation was carried out together with a list of the components of the expenditure incurred: the type and cost of the colouring agent used, dilution costs, equipment and certification costs and the costs of withdrawal from the silos. However, it did not provide the Commission with any evidence to show that the costs thus incurred in carrying out the operation were the minimum possible. The Italian administration has not proved that the colouring method adopted was the least costly by comparison with other methods or that that method, whilst displaying certain practical advantages, was the only one possible in the circumstances of the case.

23 It has not therefore been shown that the obligation laid down in the last sentence of the second paragraph of Article 5 of Regulation (EEC) No 2794/83 was fulfilled.

24 The Court has held that, in those circumstances, the Commission was entitled to refuse to charge the declared expenditure to the EAGGF or to reimburse only part of the expenditure declared (see the judgment in Case 342/85 Italy v Commission [1987] ECR 4677 and in Case 347/85 United Kingdom v Commission supra). In such circumstances, the Commission enjoys a margin of discretion in evaluating the amount of expenditure to be charged to the EAGGF. In the present case, the Commission was entitled to fix the costs at ECU 1.17 per tonne. That amount corresponds to the weighted average of the expenditure declared by the other Member States.

25 The second submission must therefore be dismissed.

Costs

26 Pursuant to Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs. Since the Italian Republic has failed in its submissions, it must be ordered to pay the costs.

On those grounds,

THE COURT

hereby:

(1) Dismisses the application;

(2) Orders the Italian Republic to pay the costs.