61995C0015

1 In this case the Tribunal de Grande Instance (Regional Court), Morlaix, seeks a preliminary ruling by the Court of Justice under Article 177 of the EC Treaty on three questions on the interpretation and validity of certain provisions of Council Regulation (EEC) No 857/84 of 31 March 1984 adopting general rules for the application of the levy referred to in Article 5c of Regulation (EEC) No 804/68 in the milk and milk products sector. (1)

2 Those questions arose in a case in which the limited liability agricultural undertaking EARL de Kerlast brought an action against Union Régionale de Coopératives Agricoles (`Unicopa') and Coopérative du Trieux concerning a quantity of milk which had been attributed to its reference quantity, thus entailing the payment of an additional levy for exceeding the said quantity.

3 EARL de Kerlast is an undertaking engaged principally in milk production, which has an individual reference quantity of 365 045 litres. Mr Kergus, who works both as a farmer and as a lorry driver, is the owner of a milk undertaking which has been assigned an individual reference quantity of 144 245 litres. According to the French authority competent for the implementation of the common organization of the market in milk and milk products, Mr Kergus is not a `SLOM' (2) producer. SLOM producers are those who had not delivered milk in the reference period selected for the assignment of individual reference periods through having entered into a non-marketing undertaking under Regulation (EEC) No 1078/77 (3) and to whom special reference quantities were assigned under Regulation (EEC) No 764/89.(4)

4 By an unregistered contract signed on 11 September 1992 EARL de Kerlast and Mr Kergus set up a `société en participation' (private joint venture arrangement) by virtue of which EARL de Kerlast took over Mr Kergus's reference quantity (144 245 litres) and Mr Kergus received in exchange 20% of the sales of milk made by the société en participation.

5 From October 1992 to September 1993 Coopérative du Trieux, a member of Unicopa and the purchaser of the milk produced by EARL de Kerlast, attributed the milk to the latter's reference quantity and to that of Mr Kergus on the basis of the information supplied by both parties. However, as from October 1993 the purchaser decided to attribute the whole of the milk acquired from EARL de Kerlast to the latter's reference quantity. As a result, EARL de Kerlast exceeded its individual reference quantity and in December 1993 and January 1994 Coopérative du Trieux deducted from the amounts credited to EARL de Kerlast the sums of FF 26 022 and FF 83 134 respectively by way of additional levy.

6 On 1 April 1994 EARL de Kerlast commenced proceedings against Coopérative du Trieux and Unicopa before the Tribunal de Grande Instance, Morlaix, for annulment of the attribution made and for payment for the full amount of its milk production. The national court took the view that to enable it to give judgment it was necessary to refer the three following questions to the Court of Justice:

`(1) On a proper construction of Article 7 of Council Regulation (EEC) No 857/84, are producers precluded from setting up sociétés en participation (private joint venture arrangements) - which are without legal personality of their own, are not effective against third parties and are unpublicized - in so far as they constitute a disguised form of quota-leasing, or are such arrangements authorized as a necessary structural adjustment within the meaning of Article 1 of Council Regulation (EEC) No 856/84?

(2) Must Article 12(c) of Regulation No 857/84 and Article 3a of Regulation No 764/89 be interpreted as requiring actual resumption of production by the person concerned?

(3) Does Article 40(3) of the EEC Treaty preclude a decision by a Member State, pursuant to Regulation No 857/84 of 31 March 1984 as amended by Regulation No 764/89 of 20 March 1989, prohibiting "sociétés en participation" and authorizing partial GAECs (groupements agricoles d'exploitation en commun - collective farming groups) confined to dairy farming (Circular No 4019 of 20 November 1989 DPE/SPM/C 89 and Circular No 7051 of 14 November 1991 DEPSE/SDSA C 91)?'

Before considering the questions referred to the Court, I shall briefly state the Community provisions applicable to the case.

The rules applicable

7 With a view to correcting the imbalance between supply and demand for milk and milk products and the consequent structural surpluses, Regulation (EEC) No 856/84 (5) modified the common organization of the market in the sector by introducing an additional levy system applicable from 2 April 1984. This machinery for the control of milk production was organized as follows:

- A total quantity was laid down for the Community as a whole, corresponding to the guarantee threshold for milk production.

- That quantity was distributed among the Member States on the basis of deliveries of milk on their territory during the 1981 calendar year increased by 1%, with the exception of the quantity intended for the Community reserve set up to allow for the special needs of certain Member States and certain producers.

- Each Member State distributed its guaranteed quantity amongst its producers, assigning to them an individual reference quantity commonly called the `milk quota'.

- If they exceeded their reference quantity, producers were required to pay an additional levy intended to finance the expenditure occasioned by the marketing of those excess quantities. The levy was payable by the producer (formula A) or by the purchaser of the milk with a right to pass on the burden to the producer (formula B), depending on the choice made by each Member State. France opted for formula B.

8 The general rules for the application of this additional levy system were laid down by the Council in Regulation No 857/84, which allowed the Member States to choose the year 1981, 1982 or 1983 as the reference period for the calculation of producers' individual quotas and to establish in addition national reserves of reference quantities to take into account the special situations of certain of their producers.

9 Furthermore, Article 7 of Regulation No 857/84 regulated the delicate question of the transfer of reference quantities, taking a linking of the reference quantity to the holding as a basic principle, which is expressed in the original version of Article 7(1) as follows:

`Where an undertaking is sold, leased or transferred by inheritance, all or part of the corresponding reference quantity shall be transferred to the purchaser, tenant or heir according to procedures to be determined.'

Article 7(3) allowed the Member States to provide that a part of the quantities transferred be added to the national reserve of reference quantities.

10 Article 5 of Regulation (EEC) No 1371/84 (6) implemented Article 7 of Regulation No 857/84 by providing that the producer who took over the holding was to receive the whole of the reference quantities in the event of transfer of the entire holding and that in cases of partial transfer of the holding the reference quantities were to be distributed in proportion to the areas used for milk production or according to other objective criteria laid down by Member States. Other legal measures for the transfer of quotas, having comparable legal effects as far as producers were concerned, were assimilated to sale, lease or transfer by inheritance.

11 That system of transferability of reference quantities was subsequently developed, as was the whole additional levy system, in order to adapt it to changing conditions in the milk and milk products sector. That development retained the basic principle of linking quotas to holdings in the event of transfer and introduced gradual derogations from that principle intended to promote some restructuring of milk production.

12 The first modification of the system of transfer of reference quantities was effected by Regulation (EEC) No 590/85, (7) which maintained the principle of linking quotas to holdings but introduced two exceptions intended to alleviate economic and social difficulties. It allowed the Member States to assign reference quantities relating to a holding to an outgoing lessee whose lease was due to expire and who intended to continue milk production elsewhere and to a departing producer in the event of transfer of land to public authorities or for purposes of public use.

13 Regulation (EEC) No 2998/87 (8) further relaxed the principle linking reference quantities to holdings by authorizing temporary transfers of individual reference quantities not used during a milk year. The Member States could limit such temporary transfers to certain categories of producers taking into account the milk production structure in the regions or collecting areas concerned.

14 Regulation (EEC) No 1546/88 (9) laid down a new set of detailed rules for the application of the additional levy system and repealed Regulation No 1371/84. Article 8 of Regulation No 1546/88 still allows the temporary transfer of quotas and Article 7 governs questions relating to their transfer, retaining and extending the previous rules. Article 7 provides as follows:

`For the purposes of applying Article 7 of Regulation (EEC) No 857/84 and without prejudice to paragraph 3 thereof, the following rules shall apply to the transfer of reference quantities granted to producers and purchasers in application of formulas A and B and of reference quantities granted to producers selling for direct consumption:

1. Where an entire holding is sold, leased or transferred by inheritance, the corresponding reference quantity shall be transferred in full to the producer who takes over the holding.

2. Where one or several parts of a holding is sold, leased or transferred by inheritance, the corresponding reference quantity shall be distributed among the producers operating the holding in proportion to the areas used for milk production or according to other objective criteria laid down by Member States. Member States may disregard transferred parts the area of which used for milk production is less than a minimum size which they shall determine.

3. The provisions of points 1 and 2 and of the fourth subparagraph shall be applicable under the various national rules, in other cases of transfer which have comparable legal effects as far as producers are concerned.

4. In the event of the application of the second subparagraph of Article 7(1) of Regulation (EEC) No 857/84, concerning the transfer of land to the public authorities and/or for public use, and Article 7(4) of the said regulation, concerning rural leases which are due to expire and which cannot be extended on similar terms, all or part of the reference quantity corresponding to the holding or to the part of the holding which is the subject of the transfer or of the said lease shall be put at the disposal of the producer concerned if he intends to continue milk production, provided that the sum of the reference quantity thus made available to him and the quantity corresponding to the holding which he takes over or on which he continues milk production does not exceed the reference quantity which was available to him before the land was transferred or before the lease expired.'

15 The application of temporary transfers of quotas was continued under Regulations (EEC) Nos 3879/89 and 1630/91. (10) A further derogation from the principle of linking reference quantities to holdings was made as a result of German unification by Regulation (EEC) No 3577/90, (11) which allowed Germany to authorize a single transfer of reference quantities without transfer of the corresponding land, although for a reduced period and within the limits of a framework programme.

16 The additional levy system was simplified and clarified by the adoption of Regulation (EEC) No 3950/92, (12) which to a certain extent consolidated the previous provisions and extended the application of the scheme for seven years as from 1 April 1993. Regulation No 3950/92 repeals Regulation No 857/84 and therefore lays down fresh provisions on the system of transfer of reference quantities. As stated in the recitals in the preamble to Regulation No 3950/92, the mobility of reference quantities is still governed by the principle of linking reference quantities to holdings, but it is indicated that: `in order to continue restructuring milk production and improving the environment, certain derogations to the principle linking reference quantities to holdings should be extended, and Member States should be authorized to continue implementing national restructuring programmes and to organize some degree of mobility for reference quantities within a given geographical area, on the basis of objective criteria'.

17 These aims are implemented in Articles 6, 7 and 8 of Regulation No 3950/92. Article 6 allows the Member States to authorize, if they think fit, temporary transfers of individual reference quantities and to lay down conditions for effecting them. Article 7(1) lays down the principle of linking reference quantities to holdings in the following terms:

`Reference quantities available on a holding shall be transferred with the holding in the case of sale, lease or transfer by inheritance to the producers taking it over in accordance with detailed rules to be determined by the Member States taking account of the areas used for dairy production or other objective criteria and, where applicable, of any agreement between the parties. Any part of the reference quantity which is not transferred with the holding shall be added to the national reserve.

The same provisions shall apply to other cases of transfers involving comparable legal effects for producers.'

18 Article 7(1) also provides for a derogation from that general rule in the event of transfer of land to public authorities and/or in the public interest, and Article 7(2) provides for such a derogation in the event of expiry of rural leases. Apart from these derogations from the application of the principle of linking reference quantities to holdings, already permitted in the previous rules, Article 8 of Regulation No 3950/92 allows, to promote restructuring of milk production and environmental improvement, three additional exceptions to the basic principle governing the transfer of quotas. The Member States which decide to apply them may:

- `provide, in the case of land transferred with a view to improving the environment, for the allocation of the reference quantity available on the holding concerned to the departing producer if he intends continuing milk production;

- determine, on the basis of objective criteria, the regions or collection areas within which the transfer of reference quantities between certain producer categories without transfer of the corresponding land is authorized, with the aim of improving the structure of milk production;

- authorize, upon application by the producer to the competent authority or the body designated by that authority, the transfer of reference quantities without transfer of the corresponding land, or vice versa, with the aim of improving the structure of milk production at the level of the holding or to allow for extensification of production'.

19 The transfer of reference quantities must always be carried out between producers and must be related to a dairy holding. Both concepts are therefore defined in identical terms in Article 12 of Regulation 857/84 and Article 9 of Regulation No 3950/92. (13) Thus `producer' means `a natural or legal person or group of natural or legal persons farming a holding located within the geographical territory of the Community:

- selling milk or other milk products directly to the consumer, and/or

- supplying the purchaser.'

A holding is defined as `all the production units operated by the producer and located within the geographical territory of the Community'.

20 With regard to the system of transfer of reference quantities, Article 7 of Regulation No 857/84 and the rules supplementing it and, even more, Articles 6, 7 and 8 of Regulation No 3950/92 allowed the Member States a relatively wide discretion to apply, to a greater or lesser extent, the derogations from the principle of linking reference quantities to holdings. The national measures adopted by France for the application of the additional levy system were Decree No 84-661 of 17 July 1984, (14) repealed by Decree No 91-157 of 11 February 1991, (15) and particularly, as far as this case is concerned, Decree No 87-608 of 31 July 1987 on the transfer of reference quantities. (16)

21 The most important aspects of the French rules on transfer of milk quotas are as follows:

- The additional levy system is implemented by the Office National Interprofessionnel du Lait et des Produits Laitiers (Onilait).

- Quota transfers require administrative authorization from the Préfet of the département in which the holding is situated.

- When dairy holdings are combined, as a result of sale, lease, donation or transfer by inheritance, with the subsequent aggregation of reference quantities, a percentage of the quotas of the holding transferred is deducted to be added to the national reserve of reference quantities whenever the total quota exceeds the threshold of 200 000 litres. The percentage retained to add to the national reserve is 50% of the reference quantity transferred when the quota of the transferee prior to the aggregation exceeded 200 000 litres, and 50% of the quantity in excess of the threshold of 200 000 litres if the reference quantity of the transferee prior to the transfer was below that threshold.

- Where a dairy holding is broken up into one or more parts by sale, lease, donation or transfer by inheritance, the same criteria are applied as in the case of aggregation of holdings as regards transfer of reference quantities and the percentages deducted to add to the national reserve. However, when the part of the holding transferred is less than 20 hectares, the corresponding part of the reference quantities passes automatically to the national reserve.

- When the producer who takes over a holding does not continue milk production the reference quantities assigned to the holding are absorbed by the national reserve.

- Temporary transfers or leasing of quotas are not allowed.

22 It may be seen that the French State has restricted as far as possible, within the discretion allowed it by the Community rules, the `private' mobility of quotas and has favoured a system of redistribution of quotas controlled by the authorities by means of the national reserve of reference quantities.

23 As the events leading to the main proceedings giving rise to the questions referred to the Court of Justice took place in the milk years 1992/93 and 1993/94, the Community rules on quota transfer which must be considered are both Article 7 of Regulation No 857/84 with the provisions amending it and the new rules laid down in Articles 6, 7 and 8 of Regulation No 3950/92, which are broadly similar.

The first question

24 By its first question the Tribunal de Grande Instance de Morlaix is asking the Court to determine whether the setting up of sociétés en participation by milk producers constitutes a covert form of quota-leasing which is incompatible with the Community rules or whether on the contrary they are to be regarded as a structural adjustment of milk production within the meaning of Article 1 of Regulation No 856/84.

25 The société en participation in French law is, as the national court states, a form of association which, by its nature, lacks legal personality, is not effective against third parties and need not be disclosed. Since Law No 78-9 of 4 January 1978, the société en participation has been governed by Articles 1871 to 1872-2 of the French Civil Code, which regards it as a contract of association with important special features. (17)

The main characteristic of the société en participation is that it lacks legal personality because it is not entered in the register of companies according to the first paragraph of Article 1871, whether or not it is undisclosed; disclosure is not compulsory, and in most cases such sociétés are undisclosed. The consequences of the lack of legal personality of the société en participation are inter alia as follows: it has no corporate name or registered office, it has no capacity to sue or be sued and it has no corporate assets or liabilities. As it has no assets of its own the members continue to own the contributions they make to the société unless there is a provision for joint ownership or for management by one of the members, normally the manager, of the assets contributed to the société in its relations with third parties.

26 The use of a contractual entity such as a société en participation in the milk sector raises difficulties in view of the considerable part played by the State. Recourse to such a société is attractive for producers since it does not involve a transfer of the holding or, consequently, a transfer of the reference quantities linked to it, which would be subject to the obligation to hand over a percentage to the national reserve. The first of the questions raised by the national court requires an examination of the compatibility of the use of sociétés en participation with the Community rules on the transfer of milk quotas.

27 As I stated previously, the transfer of reference quantities is governed by the principle that they are linked to holdings, which is embodied in Article 7 of Regulation No 857/84 and in the provisions amending or supplementing it and retained in Article 7 of Regulation No 3950/92. Those rules make the transfer of quotas conditional upon the transfer of the milk undertaking by sale, lease or inheritance. That list is not exhaustive and quotas may be transferred when producers employ, for transfer of the title to the holding, legal devices which entail legal effects comparable to those already mentioned, as is the case with donation, provided for by Decree No 87-608.

28 The transfer of reference quantities by one of those procedures, which are expressly accepted, requires, under the French rules, an administrative authorization from the Préfet of the département in which the holding is situated. In addition, a percentage of the reference quantities is normally deducted from quotas transferred and added to the national reserve used by the French State for redistributing quotas among producers in order to restructure and improve milk production. On the other hand, where an owner abandons milk production, reference quantities assigned to his holding revert automatically to the national reserve.

29 The list, contained in the Community and French measures, of the ways in which the title to holdings may be transferred is not exhaustive and, as the French Government has stated, do not impose any requirement with regard to the legal form of agricultural holdings. Neither the Community rules nor the French rules on milk quotas therefore prevent in principle the setting up of sociétés en participation for the management of dairy holdings, since they are legal entities accepted by French law and governed by Articles 1871 to 1872-2 of the Code Civil. However, the use of such a société must comply with the requirements imposed by the Community rules and French rules as regards the transfer of reference quantities and it cannot be used as a means of evading the basic rule that reference quantities are linked to holdings unless there is some arrangement in one of the derogations allowed in that respect.

30 In this connection I should like first to point out that the establishment of a société en participation does not entail a transfer of the members' dairy holdings to the société, which has no legal personality and can therefore have no corporate assets. Consequently I think that members' quotas cannot in principle be transferred to the société because that would be contrary to the principle of linking quotas to holdings, embodied in Community rules as the decisive criterion for transfer of milk quotas. In fact a société of this kind constitutes a contrivance to circumvent that principle whenever one of the members produces the reference quantities assigned to the others, because that leads to covert quota-leasing. As the French Government states, by setting up that kind of société, a producer can covertly transfer his quota while retaining it in name and thus acquire a financial advantage, whilst the member managing the société can de facto aggregate the reference quantities without acquiring the corresponding land and without having to suffer the deduction of a percentage of the quotas in favour of the national reserve.

31 The importance of the principle of linking quotas to holdings has been confirmed by the Court, which declared in Case C-98/91 Herbrink, (18) restating its previous case-law, (19) that `the entire system of reference quantities is characterized by the principle laid down by Article 7(1) of Council Regulation No 857/84 and by Article 5 of Commission Regulation (EEC) No 1371/84 ... as superseded subsequently by Article 7 of Commission Regulation (EEC) No 1546/88; according to that principle, a transfer of land in respect of which a reference quantity has been allocated necessarily entails the transfer of the reference quantity itself'.

As the Commission has stated in its observations, the linking of quotas to land expresses the Community legislature's intention to make reference quantities non-negotiable between individuals in order to prevent a concentration of quotas in the hands of certain producers, which would favour intensive holdings. In my view, that legislative choice was intended to avoid a concentration of production and to encourage the occupation of land for use for milk production. Once quotas had been imposed for all production in the milk sector by means of the system of reference quantities, the only way of achieving both objectives was to prohibit `private' mobility of quotas and to organize a mechanism for transfer or mobility of a `public' nature, which in France takes the form of controlling all quota transfers by Onilait and redistributing the quotas between producers by means of the national reserve.

In practice, significant problems have arisen with the application of that system of administrative control of production and transfer of reference quantities, because producers wish at all costs to obtain more reference quantities to link to their production without at the same time acquiring the corresponding land. A certain `black market' in quotas therefore grew up by means of recourse to various legal devices, particularly company-like associations which producers hope will enable them to obtain more reference quantities without adding more land to their holdings. (20) Such practices are an attempt to evade the application of the principle of linking quotas to land, and the French Ministry of Agriculture Circular No 7051 of 14 November 1991, to which the national court refers in this case, is an example of what is being done to counter them.

32 Since the establishment of sociétés en participation intended to conceal transfers of milk quotas is contrary to the principle of linking quotas to holdings we must consider whether any provision is made for that form of association in any of the derogations from that principle which have been gradually accepted by Community legislation. Such derogations are based on the need to deal with difficult economic and social situations and on the requirements of structural adaptation of milk production. According to Article 1 of Regulation No 856/84, the general objectives of the additional levy are to curb the increase in milk production and to permit its structural development and adjustment, but the derogations resulting from that second objective have been laid down mainly in the amended version of Article 7 of Regulation No 857/84, supplemented by Article 7 of Regulation No 1546/88, and in Article 7 of Regulation No 3950/92.

33 In my view, sociétés en participation, set up in order to allow a member to avail himself of the reference quantities of one or more other members, constitute a covert form of quota-leasing for which no justification is to be found in any of the derogations accepted by Community rules which allow reference quantities to be transferred independently of transfer of the holding.

34 Article 7 of Regulation No 857/84 and the supplementary provisions allowed four derogations, namely: temporary transfers of quotas, outgoing tenants who continue their milk production, departing producers in case of transfer of land to public authorities and/or in the public interest and transfer of quotas in the territory of the former German Democratic Republic. The establishment of a société en participation involving transfer of quotas is appropriate only in the event of temporary transfers of reference quantities. The Community rules offered the Member States the option of accepting or rejecting such quota-leasing operations and France has not authorized them in its domestic legislation. Moreover the Community rules accepted transfer of quotas on very restrictive terms: the transfer must be partial and restricted to a period of 12 months and the transferor must be able to take over the production of his reference quantities in their entirety in the following year.

35 Article 8 of Regulation No 3950/92 retains the previous derogations from the principle that quotas are linked to holdings and allows the Member States to authorize derogations in the three following circumstances: where the land of departing producers is transferred to improve the environment, where regions or collection areas are determined within which the principle does not apply to certain producer categories, and where administrative authorization is granted upon application by the producer. In principle a société en participation designed to disguise a transfer of reference quantities cannot be justified by any of these derogations either.

36 Finally, I should like to point out that the fact that sociétés en participation designed to disguise quota transfers are incompatible with the Community rules on transfer of reference quantities is entirely in accord with the case-law of the Court in this matter, which links the enjoyment of a reference quantity to direct and effective milk production and prevents disposing of the quota for profit.

In its judgments in Case C-44/89 Von Deetzen II and in Case C-2/92 Bostock (21) the Court of Justice stated clearly that `the right to property thus safeguarded within the Community legal order does not comprehend the right to dispose, for profit, of an advantage, such as the reference quantities allocated in the framework of the common organization of a market, which does not derive from the assets or occupational activity of the person concerned'. The Court therefore took the view in the Von Deetzen II judgment that the return to the Community reserve, in the case of transfer, of special reference quantities allocated to SLOM producers by Regulation No 764/89 was justified by the need to prevent such producers from seeking the allocation of a special reference quantity in order, not to resume the marketing of milk on an enduring basis, but to derive from that allocation a purely financial advantage by realizing the marketable value which the reference quantities had acquired in the meantime.

37 Those considerations lead me to the view that the answer to this first question must be as follows: the establishment of sociétés en participation does not involve a necessary structural adjustment for the purposes of Article 1 of Regulation No 856/84 and, in so far as it constitutes a covert transfer of reference quantities, is incompatible with Article 7 of Regulation No 857/84, as amended, with Article 7 of Regulation No 1546/88, which supplements it, and with Article 7 of Regulation No 3950/92.

The second question

38 In this question the national court asks whether Article 12(c) of Regulation No 857/84 and Article 3a of Regulation No 764/89 require actual resumption of production by the person concerned.

39 An answer to this question is necessary only if the producers concerned, Mr Kergus and EARL de Kerlast, are SLOM producers. Regulation No 764/89 was adopted by the Council following the judgments in Case 170/86 Von Deetzen I and in Case 120/86 Mulder (22) in order to grant special reference quantities to such producers and therefore affects only that class of producer. According to the information provided by the French Government, Mr Kergus, the transferor of the reference quantities at issue, is not a SLOM producer, nor apparently is EARL de Kerlast. In principle, therefore, an answer to this second question is not necessary to enable the national court to give judgment in the question pending before it.

The third question

40 With this last question the national court is asking whether the disparity of treatment imposed by a Member State as between a société en participation and a partial `GAEC' (groupement agricole d'exploitation en commun - collective farming grouping) confined to dairy farming, with regard to the use of both forms of association in transfers of milk quotas, is contrary to Article 40(3) of the EC Treaty. That difference in treatment was provided for in two Ministry of Agriculture circulars intended for the implementation of Community rules on transfer of reference quantities on French territory.

41 The national court refers to two circulars, one of 1989 and the other of 1991. The 1989 circular in fact is concerned exclusively with the situation of SLOM producers and is of no relevance to this question. Ministry of Agriculture Circular No 7051 of 14 November 1991, DEPSE/SDSA C 91, (`the 1991 circular'), on the other hand, is relevant for this purpose, as is Circular No 7008 of 25 March 1993, DEPSE/SDSA C 93, (`the 1993 circular'), which is not mentioned by the national court in its question.

42 The 1991 circular calls the attention of the competent national authorities to the emergence of legal practices, referred to as `contrivances', spreading in France and designed to evade the Community rules linking quota transfers to the transfer of the corresponding land. Amongst such fraudulent practices the circular mentions the establishment of civil-law associations, particularly de facto partnerships and sociétés en participation, to which the participants contribute their quotas without transferring the land, the conclusion between two producers of simultaneous contracts for lease of the herd and for performance of services for milking, and the leasing of reference quantities, which is not permitted in France. The circular expresses the view that transfer of quotas between producers by means of an entity set up without transfer of the land is illegal because it is contrary to the principle of linking quotas to land. The setting-up of an entity of this kind is void because its object is illegal. Finally the 1991 circular indicates the legal machinery to be used to counter such fraudulent practices. With regard to sociétés en participation the local authorities responsible for authorizing quota transfers are informed that they must refuse such authorization even in cases in which the members transfer the land because such sociétés have no legal existence and are not effective against third parties, and because the members retain the title to their respective milk quotas. For their part, dairies purchasing milk must require farmers to produce administrative authorization for the transfer of quotas and, if they do not, must refuse the aggregation of the reference quantities so that they attribute the quantities of milk purchased from each producer to his individual quota.

43 In addition, the 1993 circular proposes to producers a form of association, the partial GAEC confined to dairy farming, which may be used by producers who wish to pool their dairy farming activities on a long-term basis with the object of improving their production and working conditions. The partial GAEC confined to dairy farming allows its members to combine their quotas without the need to transfer the corresponding land and therefore constitutes an exception to the rule of linking quotas to land, which the 1993 circular accepts, whilst requiring compliance with a series of conditions intended to prevent it from becoming a means of covert quota-leasing or a transfer of reference quantities.

44 A GAEC is a civil-law association of farmers working jointly in conditions comparable to those existing in a family-type holding. GAECs are subjected to a considerable degree of control by the public authorities (requiring administrative authorization for their establishment), they are working associations in which the work of their members is crucial and they are groupings akin to companies, on which the authorities confer certain privileges. (23) They may be total, if the members pool all their holdings and all their work, or partial, if the members contribute only part of their holdings and carry out only one of their agricultural operations jointly.

45 Partial GAECs confined to dairy farming are described in the 1993 circular as a form of association by which producers pool cows, materials, buildings and animal feed whilst retaining their land and the milk quotas allocated to them. The GAEC therefore aggregates the reference quantities of its members and may produce milk to a volume equal to the sum of all their individual quotas. Only farmers actually producing milk who have quotas and personally perform another type of agricultural work may form part of a partial GAEC confined to dairy farming. The members take part personally in the actual work of the GAEC's milk production. Finally, the 1993 circular specifies clearly the status of the reference quantities within the partial GAEC.

46 Having explained the different treatment extended by the 1991 and 1993 ministerial circulars to sociétés en participation and to partial GAECs confined to dairy farming, it now remains for me to consider whether Article 40(3) of the Treaty applies to that situation.

47 It may be remembered that according to the second subparagraph of Article 40(3) the common organization of agricultural markets to be established in the framework of the common agricultural policy `shall exclude any discrimination between producers or consumers within the Community'. The Court has consistently held that `the prohibition of discrimination laid down in that provision is merely a specific enunciation of the general principle of equality which is one of the fundamental principles of Community law; that principle precludes comparable situations from being treated in a different manner unless the difference in treatment is objectively justified'. (24)

48 That prohibition of discrimination applies to the Community rules on the common organization of the market in milk and milk products and also to the rules adopted by the Member States in the framework of that common organization of the markets. That statement is based on the case-law of the Court of Justice according to which `the requirements flowing from the protection of fundamental rights in the Community legal order are also binding on the Member States when they implement Community rules and ... the Member States must therefore, as far as possible, apply those rules in accordance with those requirements'. (25)

A specific application of that general criterion, expressly accepted, occurs in relation to the application of the principle of non-discrimination contained in Article 40(3) of the Treaty since, according to well-established case-law, it may be deduced that `Article 40(3) of the Treaty covers all measures relating to the common organization of agricultural markets, irrespective of the authority which lays them down. Consequently, it is also binding on the Member States when they are implementing the said common organization'. (26) Thus the Graff judgment applied that provision to the rules on the method of calculating the reference quantity adopted by Germany in implementation of the Community rules on the additional levy system.

49 In the case now under consideration, the possible breach of the principle of non-discrimination referred to by the national court lies in the difference in treatment meted out by the 1991 and 1993 French circulars as between producers associated in partial GAECs confined to dairy farming and those associated in sociétés en participation. Whilst transfer of quotas without transfer of the corresponding land is allowed to partial GAECs confined to dairy farming, sociétés en participation are considered to be legal instruments unsuitable for an association of dairy-farming operations, since they are regarded as constituting a source of possible fraud in breach of the principle of linking quotas to land.

50 My view is that the French circulars do not infringe the second subparagraph of Article 40(3) of the Treaty since the difference in treatment between partial GAECs confined to dairy farming and sociétés en participation concerns situations which are not comparable. As the Commission states, one formula is accepted, whilst the other is prohibited, on account of the difference in the legal status of the two formulas, clearly laid down by national law. There is no doubt that the form of association in a partial GAEC constitutes a more appropriate legal instrument for the management of milk undertakings and the reference quantities allocated to them than the sociétés en participation for the following reasons amongst others:

- GAECs have legal personality, whilst sociétés en participation do not.

- The establishment of partial GAECs requires administrative authorization and their subsequent conduct is subject to frequent administrative checks, whilst sociétés en participation are normally undisclosed, which prevents their being recognized by the authorities and by third parties.

- A partial GAEC requires all the producers to retain control over the milk-producing activities which they pool and to pursue their work within the GAEC. The member managing a société en participation, however, generally runs the milk production without the participation of other members.

51 Article 8 of Regulation No 3950/92 introduced, moreover, fresh derogations from the principle of linking quotas to holdings. One of them allows the Member States to authorize, upon application by the producer to the competent national authority, the transfer of reference quantities without the corresponding transfer of the land, or vice versa, in order to improve the structure of milk production or to allow for extensification of production. The authorization of partial GAECs confined to dairy farming contained in the 1993 circular, is, in my view, justified by that derogation.

52 In all the circumstances, the prohibition of discrimination contained in Article 40(3) of the Treaty does not preclude a Member State from authorizing the management of milk-producing holdings by means of partial GAECs whilst prohibiting the establishment of sociétés en participation for the same purpose.

Conclusion

53 Having regard to the foregoing considerations, I suggest that the Court should answer the questions referred to it for a preliminary ruling by the Tribunal de Grande Instance de Morlaix as follows:

(1) The establishment of sociétés en participation does not involve a necessary structural adjustment for the purposes of Article 1 of Regulation No 856/84 and the creation of that type of association, in so far as it constitutes a covert transfer of reference quantities, is incompatible with Article 7 of Regulation No 857/84, as amended, with Article 7 of Regulation No 1546/88, which supplements it, and with Article 7 of Regulation No 3950/92.

(2) The second subparagraph of Article 40(3) of the EC Treaty does not preclude a Member State from prohibiting the establishment of sociétés en participation whilst authorizing the establishment of partial GAECs for the management of milk-producing holdings.

(1) - OJ 1984 L 90, p. 13.

(2) - That abbreviation stands for: Staking van de Levering van Melk en Zuivelprodukten en Omschakeling van het Melkveebestand (Suspension of deliveries of milk and milk products and conversion of dairy herds).

(3) - Council Regulation (EEC) No 1078/77 of 17 May 1977 introducing a system of premiums for the non-marketing of milk and milk products and for the conversion of dairy herds (OJ 1977 L 131, p. 1).

(4) - Council Regulation (EEC) No 764/89 of 20 March 1989 amending Regulation (EEC) No 857/84 adopting general rules for the application of the levy referred to in Article 5c of Regulation (EEC) No 804/68 in the milk and milk products sector (OJ 1989 L 84, p. 2).

(5) - Council Regulation (EEC) No 856/84 of 31 March 1984 amending Regulation (EEC) No 804/68 on the common organization of the market in milk and milk products (OJ 1984 L 90, p. 10).

(6) - Commission Regulation (EEC) No 1371/84 of 16 May 1984, laying down detailed rules for the application of the additional levy referred to in Article 5c of Regulation (EEC) No 804/68 (OJ 1984 L 132, p. 11).

(7) - Council Regulation (EEC) No 590/85 of 26 February 1985 amending Regulation (EEC) No 857/84 laying down general rules for the application of the levy referred to in Article 5c of Regulation (EEC) No 804/68 in the milk and milk products sector (OJ 1985 L 68, p. 1).

(8) - Council Regulation (EEC) No 2998/87 of 5 October 1987 amending Regulation (EEC) No 804/68 on the common organization of the market in milk and milk products (OJ 1987 L 285, p. 1).

(9) - Commission Regulation (EEC) No 1546/88 of 3 June 1988 laying down detailed rules for the application of the additional levy referred to in Article 5c of Regulation (EEC) No 804/68 (OJ 1988 L 139, p. 12).

(10) - Council Regulation (EEC) No 3879/89 of 11 December 1989 amending Regulation (EEC) No 804/68 on the common organization of the market in milk and milk products (OJ 1989 L 378, p.1) and Council Regulation (EEC) No 1630/91 amending Regulation (EEC) No 804/68 on the common organization of the market in milk and milk products (OJ 1991 L 150, p. 19).

(11) - Council Regulation (EEC) No 3577/90 of 4 December 1990 on transitional measures and adjustments required in the agricultural sector as a result of German unification (OJ 1990 L 353, p. 23).

(12) - Council Regulation (EEC) No 3950/92 of 28 December 1992 establishing an additional levy in the milk and milk products sector (OJ 1992 L 405, p. 1).

(13) - In Article 9 of Regulation No 3950/92 the expression `within the geographical territory of the Community' has been replaced by `within the geographical territory of a Member State' in pursuance of Council Regulation (EEC) No 1560/93 of 14 June 1993 amending Regulation (EEC) No 3950/92 establishing an additional levy in the milk and milk products sector (OJ 1993 L 154, p. 30).

(14) - Journal Officiel de la République Française (`JORF') of 21 July 1984, p. 2373.

(15) - JORF of 13 February 1991, p. 2199.

(16) - JORF of 8 August 1987, p. 8727.

(17) - See Derruppé, J.: `Sociétés en participation', Juis-classeur, Traités des sociétés, vol. 3, fascicules 44-10, 44-20, 44 C and 44 D; Hamel, J., Lagarde, G., and Jauffre, A.: Traité de droit commercial, Tome I, vol. 2, Dalloz, Paris, 1980, pp. 196 to 205.

(18) - [1994] ECR I-223, at paragraph 13.

(19) - Judgments in Case 5/88 Wachauf [1989] ECR 2609, at paragraph 15, in Case C-177/90 Kühn [1992] ECR I-35 and in Case C-81/91 Twijnstra [1993] ECR I-2455, at paragraph 25.

(20) - See in this connection Boon-Falleur, A.: `Le point sur les quotas laitiers', Revue de droit rural, No 184, June/July 1990, p. 297; Lemonier, E.: `Dix ans de quotas laitiers', Revue de droit rural, No 226, October 1994, p. 393, and Petit, Y.: `Organisations communes de marchés', Répertoire Dalloz de droit communautaire, 1995, pp. 14 and 15.

(21) - [1991] ECR I-5119, at paragraph 27, and [1994] ECR I-955, at paragraph 19, respectively.

(22) - [1988] ECR 2355 and [1988] ECR 2321 respectively.

(23) - In this connection see Dupeyron, C.: `G.A.E.C. (Groupement agricole d'exploitation en commun)', Juris-classeur, Traité des sociétés, Vol. 8, fascicules 179-7-A and 179-7-B.

(24) - Judgment in Case C-351/92 Graff [1994] ECR I-3361, at paragraph 15. See also the judgments in Joined Cases C-267/88 to C-285/88 Wuidart and Others [1990] ECR I-435 and in Case C-177/90 Kühn and Case C-98/91 Herbrink, previously cited.

(25) - Judgments in Case 5/88 Wachauf and in Case C-2/92 Bostock, previously cited, at paragraphs 19 and 16 respectively.

(26) - The judgment in Case C-351/92 Graff, previously cited, at paragraph 18. See also the judgment in Joined Cases 201/85 and 202/85 Klensch [1986] ECR 3477, at paragraph 8.