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Court of Justice of the European Communities (including Court of First Instance Decisions)
You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Germany v Commission (Agriculture) [2000] EUECJ C-245/97 (14 December 2000)
URL: http://www.bailii.org/eu/cases/EUECJ/2000/C24597.html
Cite as: [2000] EUECJ C-245/97

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IMPORTANT LEGAL NOTICE - The source of this judgment is the web site of the Court of Justice of the European Communities. The information in this database has been provided free of charge and is subject to a Court of Justice of the European Communities disclaimer and a copyright notice. This electronic version is not authentic and is subject to amendment.

JUDGMENT OF THE COURT (Sixth Chamber)

14 December 2000 (1)

(EAGGF - Clearance of accounts - 1993 financial year - Promotion of milk products)

In Case C-245/97,

Federal Republic of Germany, represented by E. Röder, Ministerialrat at the Federal Ministry of the Economy, and C.-D. Quassowski, Regierungsdirektor at the Federal Ministry of Finance, acting as Agents, Referat EC2, 108 Graurheindorfer Straße, Bonn (Germany),

applicant,

v

Commission of the European Communities, represented by K.-D. Borchardt, of its Legal Service, acting as Agent, and I. Brinker, of the Brussels Bar, with an address for service in Luxembourg at the office of C. Gómez de la Cruz, also of the Legal Service, Wagner Centre, Kirchberg,

defendant,

APPLICATION for the partial annulment of Commission Decision 97/333/EC of 23 April 1997 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1993 on the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) (OJ 1997 L 139, p. 30) in so far as it refused to charge to the EAGGF the sums of DEM 608 583.40, representing expenditure on promoting milk, and DEM 485 466.68 for failure to comply with deadlines for payments to farmers under a scheme for the temporary set aside of arable land,

THE COURT (Sixth Chamber),

composed of: C. Gulmann, President of the Chamber, V. Skouris (Rapporteur) and J.-P. Puissochet, Judges,

Advocate General: N. Fennelly,


Registrar: H.A. Rühl, Principal Administrator,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 11 November 1999, at which the Federal Republic of Germany was represented by C.-D. Quassowski and the Commission by K.-D. Borchardt and by R. Karpenstein of the Hamburg Bar,

after hearing the Opinion of the Advocate General at the sitting on 16 December 1999,

gives the following

Judgment

  1. By application lodged at the Court Registry on 7 July 1997 the Federal Republic of Germany brought an action pursuant to the first paragraph of Article 173 of the EC Treaty (now, after amendment, Article 230 EC) for the partial annulment of Commission Decision 97/333/EC of 23 April 1997 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1993 on the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) (OJ 1997 L 139, p. 30, hereinafter 'the contested decision) in so far as it refused to charge to the EAGGF the sums of DEM 608 583.40, representing expenditure on promoting the sale of milk, and DEM 485 466.68 for failure to comply with deadlines for payments to farmers under a scheme for the temporary set aside of arable land.

  2. At the hearing, the Federal Republic of Germany withdrew the part of its application relating to the sum of DEM 485 466.68 for failure to meet payment deadlines after the Commission accepted that that head of Germany's claim was well founded and assured it that it would adopt measures as soon as possible to amend the contested decision accordingly.

    The relevant legislation

  3. Article 2 of the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities (OJ 1977 L 356, p. 1), as amended by Council Regulation (Euratom, ECSC, EEC) No 610/90 of 13 March 1990 (OJ 1990 L 70, p. 1), (hereinafter 'the Financial Regulation) provides as follows:

    'The budget appropriations must be used in accordance with the principles of sound financial management, and in particular those of economy and cost-effectiveness. Quantified objectives must be identified and the progress of their realisation monitored.

    Member States and the Commission shall cooperate to ensure the adequacy of systems for decentralised management of Community funds. Such cooperation shall include the prompt exchange of all necessary information.

  4. Article 8(1) and (2) of Council Regulation (EEC) No 729/70 of 21 April 1970 on the financing of the common agricultural policy (OJ, English Special Edition, 1970 (I), p. 218) provides as follows:

    '1. The Member States in accordance with national provisions laid down by law, regulation or administrative action shall take the measures necessary to:

    - satisfy themselves that transactions financed by the Fund are actually carried out and are executed correctly;

    - prevent and deal with irregularities;

    - recover sums lost as a result of irregularities or negligence.

    The Member States shall inform the Commission of the measures taken for those purposes and in particular of the state of the administrative and judicial procedures.

    2. In the absence of total recovery, the financial consequences of irregularities or negligence shall be borne by the Community, with the exception of the consequences of irregularities or negligence attributable to administrative authorities or other bodies of the Member States.

    The sums recovered shall be paid to the paying authorities or bodies and deducted by them from the expenditure financed by the Fund.

  5. The first subparagraph of Article 9(1) of Regulation No 729/70 provides that:

    '1. Member States shall make available to the Commission all information required for the proper working of the Fund and shall take all suitable measures to facilitate the supervision which the Commission may consider it necessary to undertake within the framework of the management of Community financing, including inspections on the spot.

  6. Article 1(1) of Commission Regulation (EEC) No 465/92 of 27 February 1992 on the implementation of measures to promote awareness of the health and nutritional value of milk and milk products (OJ 1992 L 53, p. 8) provides as follows:

    '1. Measures to promote an awareness of the health and nutritional value of milk and milk products for human consumption shall be financed under the conditions laid down in this Regulation.

    Essentially these measures shall be aimed at target groups such as medical staff, teachers and consumer categories selected on the basis of suitable objective criteria, for example, their age. The most effective means of information are to be used for these measures, including television.

  7. The first subparagraph of Article 2(1) of Regulation No 465/92 provides that:

    'The promotional measures referred to in Article 1:

    (a) with the exception of the measure referred to in Article 1(2)(b), shall be proposed by organisations with many years' experience of milk and milk product promotion, in particular as regards their nutritional value; only one proposal per Member State shall be considered for the measures referred to in Article 1(2)(a);

    (b) shall be carried out by the organisation which has made the proposal or submitted the tender[;] in cases where that organisation must use subcontractors, the proposal or tender must contain a duly-justified application for a derogation;

    (c) must:

    - make use of the means best suited to ensure maximum effectiveness of the measure undertaken,

    - take account of the particular conditions obtaining with regard to the marketing and consumption of milk and milk products in the Member State concerned,

    - ...

  8. Under Article 4(1)(b) and (c) of Regulation No 465/92:

    'Complete proposals or tenders shall include:

    ...

    (b) all details concerning the measures proposed together with detailed descriptions, giving reasons and indicating the time required for completion, the expected results and any third parties who may be involved;

    (c) a detailed presentation of the planned strategy for the whole programme; ...

  9. Article 4(2) of Regulation No 465/92 provides that the Commission must lay down selection criteria with which parties making proposals must undertake to comply and which must be attached to the contracts submitted for their signature.

  10. Article 6 of Regulation No 465/92 provides as follows:

    '1. The contract referred to in Article 5(1)(b) shall include the details referred to in Article 4(1) and (2) or make reference to them and supplement those details, where necessary, by additional conditions.

    2. The competent authorities shall:

    (a) send a copy of the contract to the Commission forthwith;

    (b) ensure compliance with the agreed conditions, in particular by means of on-the-spot checks.

  11. The second subparagraph of paragraph 6.1 of the standard form contract referred to in Regulation No 465/92 stipulates that the contractor and any subcontractors are to submit to the competent authority each month a report on work carried out. That report is to be accompanied by copies of supporting documents with details of costs actually incurred in the performance of the contract.

  12. Under paragraph 6.4 of the standard form contract

    'The Contractor shall submit to the Competent Authority, within four months of the final date laid down in paragraph 2, a detailed report on the utilisation of the Community funds allocated and on the foreseeable results of the measures in question, in particular concerning the trend in sales of milk and milk products. This report shall be accompanied by summary extracts from the supporting documents kept by theContractor relating to the expenditure actually incurred in the performance of this contract.

  13. Commission Regulation (EEC) No 585/93 of 12 March 1993 on the implementation of promotional and publicity measures in respect of milk and milk products (OJ 1993 L 61 p. 26) has as its purpose the promotion of more general campaigns to increase human consumption of milk and milk products.

  14. Leaving aside certain differences in the drafting, Article 2(1) of Regulation No 585/93 contains the same provisions as indents (a) and (b) of the first subparagraph of Article 2(1) of Regulation No 465/92, set out in paragraph 7 of the present judgment. The first two indents of Article 2(2) of Regulation No 585/93 are essentially the same as indent (c) of the first subparagraph of Article 2(1) of Regulation No 465/92, also set out in paragraph 7 above. That is also the case with indents (b) and (c) of Article 4(1) of Regulation No 585/93 and indents (b) and (c) of Article 4(1) of Regulation No 465/92, set out in paragraph 8 of the present judgment, and with Article 4(2) of Regulation No 585/93 and Article 4(2) of Regulation No 465/92, summarised in paragraph 9 above.

  15. Article 6 of Regulation No 585/93 provides as follows:

    '1. Contracts shall include the details referred to in Article 4 or make reference to them and supplement those details, where necessary, by additional conditions.

    2. The competent authorities:

    (a) shall send a copy of the contract to the Commission forthwith;

    (b) ensure compliance with the conditions of the contract, in particular by means of the following checks:

    - administrative checks and audits to verify the costs financed and compliance with financing rules,

    - checks to verify that measures are implemented in accordance with the provisions of the contract,

    - other on-the-spot checks, where necessary.

    Contracting parties must be subject to at least two inspections during the period of validity of the contract.

  16. Paragraphs 6.1 and 6.4 of the standard form contract annexed to Regulation No 585/93 contain obligations identical to those laid down in paragraphs 6.1 and 6.4 of the standard form contract provided for by Regulation No 465/92, except that the arrangements concerning interim reports laid down in the two regulations (hereinafter'the interim reports) differ slightly in that the former must be submitted on a quarterly basis and the latter on a monthly basis.

    Background

    Facts

  17. It is apparent from the documents before the Court that in 1992 and 1993 two campaigns for the promotion of milk were carried out in Germany in the context of Regulations Nos 465/92 and 585/93. In both cases the Bundesanstalt für Landwirtschaftliche Marktordnung (the German Federal Office for Agricultural Market Organisation, hereinafter 'BALM), which was succeeded by the Bundesanstalt für Landwirtschaft und Ernährung (the Federal Office for Agriculture and Food, hereinafter 'BLE), concluded contracts, on behalf of the Commission, for the promotion of sales of milk and milk products, with Centrale Marketinggesellschaft der deutschen Agrarwirtschaft mbH (hereinafter 'CMA).

  18. The contract for the first campaign, No 465/92-4 of 26 and 30 November 1992, was concluded pursuant to Regulation No 465/92. That campaign, to promote awareness of the health and nutritional value of milk and milk products, was aimed essentially at certain target groups, such as medical staff, teachers and certain specific consumer groups.

  19. The time-span for carrying out the campaign was initially two years, beginning on 30 November 1992. That was extended by the Commission so as to end on 22 May 1995. The promotion of awareness of the health and nutritional value of milk and milk products was carried out by a subcontractor of CMA's, the agency Dr H.H. Pöhnl, Medizinische Public Relations (hereinafter 'Pöhnl), by means of scientific papers delivered at information and training seminars.

  20. The extent, content and costs of, and detailed arrangements for those promotional activities were specified in Annex I to contract No 465/92-4 by reference to the proposal submitted to the Commission on 27 April 1992 and to supplementary letters of 8 and 21 May 1992. The campaign was approved by the Commission on the basis of those documents. The total expenditure for the campaign amounted to EUR 1 707 960 and, in accordance with Article 2(3) of Regulation No 465/92, Community financing was fixed at 100% of that sum.

  21. The second contract, No 585/93-3, was concluded on 5 and 13 August 1993 pursuant to Regulation No 585/93. The promotional and advertising measures were financed as to 90% by the Community; the remaining 10% was to be borne by CMA from its own resources. The contract was to run for a period of two years from 13 August 1993 to 14 August 1995.

  22. Whilst those contracts were in progress, Unit XX.C.1 of the Commission sent to the German authorities, for the purposes of carrying out an inspection visit, a voluminous catalogue of questions for those authorities to answer. After obtaining the answers sought, the Commission requested, by letter of 11 September 1994, that the interim reports also be sent to it.

    The accounts clearance procedure for the 1993 financial year

  23. Following an inspection carried out between 19 and 23 September 1994, the Commission informed the Bundesministerium für Ernährung, Landwirtschaft und Forsten (Federal Ministry of Food, Agriculture and Forestry, hereinafter 'the Ministry) by letter of 27 October 1994 that it had found the monthly and quarterly interim reports sent by CMA to BALM to contain insufficient information regarding the nature and scale of the work and the proper performance of the contractual obligations. The Commission added that the reports failed to quantify the objectives pursued by the promotional measures implemented in the press, on television and at exhibitions in terms of their effect on consumer behaviour, and the anticipated reaction in health-professional circles to literature on research results. Furthermore, according to the Commission, there was a complete lack of information on the relationship between attitudes to the advertising campaigns and consumer behaviour.

  24. By letter of 20 February 1995 the Ministry set forth its observations on the results of the inspection. In its letter it addressed in particular the points concerning 'the scope of the interim reports, 'the obligation to evaluate the results and the 'cost-effectiveness analyses. Bilateral discussions were held on 24 November 1995 on the conclusions drawn and observations made in relation to the clearance of the EAGGF Guarantee Section accounts for the 1993 financial year.

  25. By letter of 2 May 1996 giving formal notification of the Commission's conclusions, sent pursuant to Article 1(1)(a) of Commission Decision 94/442/EC of 1 July 1994 setting up a conciliation procedure in the context of the clearance of the accounts of the European Agricultural Guidance and Guarantee Fund (EAGGF) Guarantee Section (OJ 1994 L 182, p. 45), the Commission announced that the milk promotion campaigns should be subject to a correction of 2% for the year 1993, justifying that correction on two grounds: first, it alleged financial irregularity, on the ground that the interim reports on milk promotion measures submitted by CMA and BALM did not, in its view, reveal whether sufficient progress was being achieved through the operation of the contracts; secondly, it concluded in the second paragraph of its letter, headed 'cost-effectiveness, that no attempt had been made to break down spending on objectives by measure, for example advertising in magazines, on television and at exhibitions, and brochures showing the results of research into product quality. Furthermore, the Commission maintained that the reports provided little information on consumer attitudes to the various promotional campaigns and on the actual impact on consumption.

  26. At the request of the German authorities the Commission withdrew, by letter of 16 May 1996, the conclusions set forth in its formal notification of 2 May 1996. Given that the German authorities had been prevented from submitting their final reports on time by force majeure, namely the destruction of CMA's offices, it would, it wrote, grant an extension of time for submission of those reports.

  27. CMA's final report on contract No 465/92-4, enclosing the promotional documents, was sent by BLE to Directorate-General VI of the Commission under cover of a letter dated 8 July 1996. BLE sent the final report and CMA's evaluation report on contract No 585/93-3 to that same Directorate-General under cover of a letter dated 30 July 1996.

  28. On 26 November 1996 the Commission sent a further letter containing complaints identical to those formulated, with regard to the milk sector, in its formal notification of 2 May 1996.

  29. By letter of 9 December 1996 the German authorities drew the Commission's attention to the fact that it was already in possession of all of the reports required by the Community legislation. They also stated that the final reports submitted contained, inter alia, information regarding the 'cost-effectiveness analysis and consumer response. They called upon the Commission to review the reports submitted thoroughly and to inform them of any observations it might wish to make before drawing any final conclusions.

  30. The formal hearing of the Member States took place in Brussels on 3 March 1997 at the EAGGF Committee, after which, by letter of 10 March 1997, Unit XX.C.1 of the Commission sent a copy of its internal note addressed to Unit VI.A.1, from which it was clear that the opinion of the financial controllers rested more on an assessment of the risks arising from the way implementation of the contracts was being monitored than on the detailed final report submitted upon completion of the contracts.

    The summary report

  31. The complaints by reference to which the Commission justified the 2% correction for the campaigns in question were set out in its summary report of 15 April 1997 on the results of inspections concerning the clearance of the EAGGF Guarantee Section accounts for 1993 (Doc. No VI/5210/96 - consolidated version, hereinafter 'the summary report). The part concerning the campaigns in question is worded as follows:

    'The paying agency failed to monitor implementation of the contracts concerned and to ensure that the objectives of the programme were met:

    1. Financial Regularity

    The interim ... reports [submitted by CMA to BALM] did not show whether the contracts were progressing properly.

    2. Cost-effectiveness

    No attempt was made to break down spending on objectives by measure, for example advertising in magazines, on television and at fairs, and brochures showing the results of research into product quality. Little information was provided on consumer attitudes to the various promotional campaigns and on the actual impact on consumption.

    In view of the above mentioned failures to meet the requirements set out in the Regulations and in the contracts, a flat-rate financial correction of 2% of 1993 expenditure is proposed:

    Correction: item 2062 - DEM 608 583.40.

  32. The contested decision was adopted on 23 April 1997 on the basis of the summary report.

    The application for annulment and the arguments of the parties

  33. The German Government puts forward a single plea in law, arguing that the Commission's findings in its summary report concerning alleged inadequacies in the interim reports are not of a kind such as to warrant making the correction of DEM 608 583.40 prescribed by the contested decision. It submits that the reports were drawn up and the monitoring was carried out in compliance with the applicable provisions of Community law, from the point of view of their content, scope and number.

  34. The German Government takes the view that it is clear from the results of the campaign measures set out in the final reports that those measures, including all the intermediate stages of the campaign, fully attained the defined objectives. Consequently, the risk of being unable to make a correction during the performance of the contract due to the allegedly inadequate content of the interim reports is, in any event, a risk that failed to materialise.

  35. A risk of that kind, being purely abstract, cannot, it maintains, provide a proper basis for a correction, unless specific provisions of Community law are infringed. In this connection, the German Government argues that, in accordance with Community law, the wording of the contracts that BALM concluded with CMA corresponded exactly with the wording of the standard form contracts referred to in Regulations Nos 465/92 and 585/93. There was thus no irregularity in CMA's submission of the requisite interim reports; it submitted them in accordance with the requirements of the regulations.

  36. The German Government takes the view that the provisions of Regulations Nos 465/92 and 585/93 and of the relevant standard form contracts do not require the interim reports to include any quantitative assessment of the objectives pursued or information on public reaction to the various advertising campaigns or on their actual effect upon consumption.

  37. Furthermore, no such requirement can be inferred from Article 8 of Regulation No 729/70. First, the German Government relies on the principle of the primacy of a lex specialis and observes that Regulations Nos 465/92 and 585/93 define the monitoring requirements in considerable detail. Secondly, it emphasises that, in the instant case, there has been no irregularity or negligence within the meaning of Article 8, and thus no duty to provide information could have arisen.

  38. The Commission, on the other hand, takes the view that the correction is warranted on the ground that BALM failed in general properly to monitor the performance of the two contracts and that, in particular, it failed to ensure that the objectives of the advertising campaign were attained in the most effective manner. According to the Commission, it is immaterial whether or not the risk to Community funds arising from the absence of proper controls actually materialised. The absence of controls in itself amounts to an infringement of Article 8(1) of Regulation No 729/70, which must be applied in conjunction with Article 6(2)(b) of Regulations Nos 465/92 and 585/93.

  39. The fact that the performance of the contracts was inadequately monitored is, the Commission maintains, demonstrated first of all by the inadequacy of the interim reports, which failed to specify what progress had been made in implementing the contracts or the potential contribution of the measures taken to attaining the objectives pursued. Inclusion of such information in the interim reports is required under both Article 2 of the Financial Regulation and Article 8(1) of Regulation No 729/70. According to the Commission, a concise half-page report on the work carried out, including brief comments on its effect upon target audiences, might have sufficed.

  40. The Commission argues that, on the basis of the interim reports sent to BALM, it was unable to determine whether it was necessary to change the strategy for the promotional measures. This meant that, throughout the period when the contracts were being performed, there was a risk that inefficient measures might be taken, and Community funds thereby wasted.

  41. Secondly, the Commission observes that the fact that the content of the interim reports was inadequate ought in particular to have alerted BALM to be more punctilious in monitoring how CMA and its subcontractors performed the contracts in question. In the circumstances, BALM ought, in particular, to have carried out on-the-spot inspections as is required by Article 6(2)(a) of Regulations Nos 465/92 and 585/93. However, the German authorities carried out only two on-the-spot inspections while the contracts were being performed. Furthermore, the Commission takes the view that the correction at issue is also warranted by the fact that, during those inspections,BALM failed to assess the qualitative aspects of CMA's work with a view to ensuring that Community funds were being properly used.

  42. Thirdly, the Commission asserts that the invoices that BALM accepted from Pöhnl were not detailed and that it did not even check that the television advertisements in respect of which CMA produced those invoices were in fact broadcast.

  43. The German Government counters that argument by stating that the two inspection reports annexed to its application were mere samples and that a considerably greater number of on-the-spot inspections were carried out: 46 for one of the contracts, 306 for the other. It also proffers evidence to rebut the Commission's statements regarding the failure properly to check the subcontractors' invoices and whether or not the television advertisements were broadcast. Moreover, it maintains that the Commission is endeavouring, by those allegations, to broaden the scope of the dispute so as to include complaints that were not raised in its summary report for the 1993 financial year.

  44. The Commission, however, contends that those arguments raised by the German Government should be dismissed as having been made out of time in that the reason for making the correction at issue, as set out both in the letters of 27 October 1994 and 26 November 1996 and in the summary report, was in fact the shortcomings noted generally in the matter of monitoring. It also states that the criticisms made under the two headings 'Financial Regularity and 'Cost-effectiveness were made by way of specific examples of those shortcomings. It thus takes the view that it has not introduced any new complaints during the course of the proceedings before the Court.

    Findings of the Court

    The scope of the complaints set out in the summary report

  45. First of all, it is clear from the arguments of the parties set out at paragraphs 33 to 44 of the present judgment that the Federal Republic of Germany maintains that, according to the summary report, the correction at issue is solely attributable to the alleged inadequacies of the interim reports. The Commission, for its part, argues that the correction is attributable to the failure properly to monitor, generally, the implementation of the contracts and that this is also evidenced by three additional problems: the fact that the inspections carried out by BALM were too few and were inadequate in nature, the way in which the subcontractors' invoices were checked, and the failure to verify the expenditure incurred in respect of the television advertisements (hereinafter 'the additional complaints).

  46. Therefore, before considering Germany's claim for annulment, it is appropriate to establish the precise scope of the complaints set out in the summary report, which provided the basis for the Commission's decision to reduce by 2% the amount ofexpenditure to be borne by the EAGGF in respect of the milk promotion campaigns carried out in Germany pursuant to Regulations Nos 465/92 and 585/93.

  47. In this connection, it should be borne in mind first that, according to the case-law of the Court of Justice, the final and conclusive decision on the clearance of accounts must be taken at the conclusion of a specific procedure giving effect to the audi alteram partem rule, during which the Member States concerned must be provided with all the guarantees necessary for them to present their point of view (see, to that effect, Case C-61/95 Greece v Commission [1998] ECR I-207, paragraph 39).

  48. Secondly, according to settled case-law, decisions concerning the clearance of accounts do not require detailed reasons if the government concerned was closely involved in the process by which the decision came about and is therefore aware of the reason for which the Commission considers that it must not charge the sums in dispute to the EAGGF (see Case C-50/94 Greece v Commission [1996] ECR I-3331, paragraph 9, and Case C-54/95 Germany v Commission [1999] ECR I-35, paragraph 91).

  49. In light of that case-law, in order to establish the scope of the complaints set out in the summary report, it is appropriate to consider whether, notwithstanding the general terms of the report, the German Government was in a position to know, when the contested decision was being prepared, that the correction proposed by the Commission was based on the additional complaints not expressly set out in the report.

  50. In the instant case it is conceivable that the general finding in the summary report that 'The paying agency failed to monitor the implementation of the contracts concerned is based on problems other than those expressly mentioned under the two headings 'Financial Regularity and 'Cost-effectiveness. Therefore, it is appropriate to inquire into whether, during the accounts clearance procedure, the Commission's staff informed the German authorities that the proposed correction was also based on the additional complaints.

  51. In this connection it should first be observed that the prior exchanges of correspondence between the Commission and the German authorities did not allude to the additional complaints.

  52. The report on the inspection carried out between 19 and 23 September 1994, annexed to the Commission's letter of 27 October 1994, and the Commission's letters of 2 May 1996 and 26 November 1996 all set out the Commission's complaints regarding financial irregularity and the quantification of the objectives pursued by the promotional measures in terms similar to those used in the summary report yet without making any express mention of any of the additional complaints.

  53. Nor was any reference to the additional complaints made alongside the Commission's finding, set out in the internal note of which it sent a copy to the German authoritieson 10 March 1997, to the effect that the paucity of information in the interim reports ought to have prompted BALM to take corrective management action.

  54. Lastly, it should be added that, whilst 'Financial Regularity could possibly cover the additional complaints, the fact remains that in both the prior exchanges of correspondence and the summary report the Commission inseparably linked its complaint of financial irregularity to the inadequacy of the interim reports' content.

  55. That being so, it must be held that the contested decision is to be regarded as being based upon the two complaints expressly set out in the summary report under the headings 'Financial Regularity and 'Cost-effectiveness, and that the German Government's claim for annulment of that decision must be adjudged solely from that view-point. The Commission's arguments concerning the additional complaints, which it alleges are referred to in the findings set out in the summary report, have no bearing upon the present dispute.

    The validity of the correction prescribed by the contested decision

  56. In order to rule on the merits of the German Government's plea, the Court must establish whether the findings of the Commission in the summary report are of a kind such as to warrant the correction at issue in light of the applicable provisions of Community law.

  57. In particular, it must consider whether the Commission was right to regard the interim reports submitted by CMA to BALM as not satisfying the requirements of Community law on account of their failure to quantify the objectives pursued by the promotional measures and their lack of information on public reaction to the various advertising campaigns and on the actual effect of those campaigns upon consumption.

  58. In this connection, it should be observed first of all that Regulations Nos 465/92 and 585/93 contain no provisions concerning the submission of interim reports. Rather, it is the second subparagraph of paragraph 6.1 of the standard form contracts provided for by those regulations which stipulates that 'The Contractor and any subcontractors shall submit to the Competent Authority a report on work carried out and copies of supporting documents with details of costs actually incurred in the performance of this contract.

  59. It is clear from the documents before the Court that the interim reports submitted by CMA to BALM contained both an account of the facts and a financial section and that, in addition, they were accompanied by supporting documents collected over the period of time covered by the report. It is therefore clear that those reports satisfied the requirements of the aforementioned provision of the standard form contracts.

  60. Nevertheless, it is appropriate to consider whether, as the Commission maintains, other pieces of Community legislation, and in particular the Financial Regulation andRegulation No 729/70, imply that the interim reports must quantify the objectives pursued by the advertising campaigns and must provide information on public reaction to those campaigns and on their actual effect upon consumption.

  61. In this connection, it should be observed that Article 2 of the Financial Regulation provides that 'The budget appropriations must be used in accordance with the principles of sound financial management, and in particular those of economy and cost-effectiveness. Quantified objectives must be identified and the progress of their realisation monitored.

  62. Furthermore, according to case-law, Article 8(1) of Regulation 729/70 imposes on the Member States the general obligation to take the measures necessary to satisfy themselves that the transactions financed by the EAGGF are actually carried out and are executed correctly, even if the specific Community act does not expressly provide for the adoption of particular supervisory measures (see Case C-8/88 Germany v Commission [1990] ECR I-2321, paragraphs 16 and 17, Case 209/96 United Kingdom v Commission [1998] ECR I-5655, paragraph 43, and Case C-44/97 Germany v Commission [1999] ECR I-7177, paragraph 55).

  63. It is common ground that Article 2 of the Financial Regulation, read in conjunction with Article 8(1) of Regulation No 729/70, as interpreted by the Court, imposes a general obligation, applicable to all operations funded by the EAGGF, to observe the principle of cost-effectiveness and to ensure that quantified objectives are attained by means of all necessary measures, even where such measures are not laid down in specific Community rules.

  64. The regulatory framework governing the campaigns for the promotion of milk products in question expressly provides for a system of controls aimed at ensuring optimum cost-effectiveness and the attainment of quantified objectives.

  65. First of all, it is clear from the context of indent (c) of the first subparagraph of Article 2(1) of Regulation No 465/92 and from the first two indents of Article 2(2) of Regulation No 585/93 that the requirements set out therein, which demand the use of the means best suited to ensuring the maximum effectiveness of the measure undertaken and the taking into account of the particular conditions obtaining in the Member State concerned, relate to proposals submitted by interested organisations, and seek to ensure that only those proposals likely to result in success are taken up.

  66. Secondly, Article 4(1)(b) and (c) of Regulations Nos 465/92 and 585/93 calls for detailed proposals that justify the proposed measures, set out the results anticipated and define a detailed strategy for the whole programme, whilst paragraph 18 of the implementation criteria annexed to the standard form contract provided for by Regulation No 465/92 emphasises the need for a clear exposition in the proposal of the objectives pursued.

  67. Thirdly, it is clear from paragraph 6.4 of the two standard form contracts provided for by the two regulations that, once a campaign is completed, the contractor must submit a report on the foreseeable results of the measures implemented. Furthermore, paragraph 19 of the implementation criteria annexed to the standard form contract provided for by Regulation No 465/92 specifies that the final report must mention adherence to the original proposal, the attainment of the objectives set out therein and any developments in milk sales.

  68. It follows that, in the context of the measures provided for by Regulations Nos 465/92 and 585/93, the interim reports are submitted as part of a procedure in which evaluations of the likely and actual success of the contracting partner in attaining the promotional objectives are clearly required both in the initial and closing stages.

  69. Such a scheme, which is established by a set of precise Community rules and which requires that cost-effectiveness and the achievement of quantified results be monitored, is sufficient to ensure compliance with the general obligation to use Community funds in accordance with the principles of sound financial management and cost-effectiveness.

  70. That general obligation does not necessarily have to be applied with the same rigour at every stage of the implementation of Community-funded programmes and, from a practical point of view, probably cannot be so applied.

  71. Admittedly, within the framework of the scheme established by Regulations Nos 465/92 and 585/93, interim reports recording the reaction of target groups to the measures carried out might possibly help improve the effectiveness of its financial management.

  72. Nevertheless, it is important to bear in mind that the need to ensure legal certainty means that rules must enable those concerned to know precisely the extent of the obligations which they impose on them. The Commission thus cannot choose, at the time of the clearance of EAGGF accounts, an interpretation which departs from and consequently is not dictated by the normal meaning of the words used (see, to that effect, Case C-233/96 Denmark v Commission [1988] ECR I-5759, paragraph 38).

  73. It follows that, where particular Community rules already establish a system that adequately ensures sound financial management and the cost-effective use of the expenditure incurred, specific additional requirements that are not set out in the particular rules and that impose supplementary obligations on the competent bodies and their contractors cannot be inferred from the general rules applicable in the area in question.

  74. It must therefore be held that the interim reports submitted to BALM by CMA satisfied the requirements of Community law as regards their content.

  75. In light of those considerations, it must be held that the Commission was wrong to regard the interim reports submitted by CMA as failing to comply with applicableCommunity rules and, on that basis, to make a reduction of 2% of the expenditure underwritten by the EAGGF in respect of the campaigns for the promotion of milk carried out in Germany in pursuance of Regulations Nos 465/92 and 585/93.

  76. That being so, the Federal Republic of Germany's application must be upheld and, consequently, the contested decision must be annulled it so far as it refused to charge to the EAGGF the sum of DEM 608 583.40 representing expenditure incurred by the Federal Republic of Germany on promoting milk (budget item 2062).

    Costs

    77. 77. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for. Since the Federal Republic of Germany asked for costs and the Commission has been unsuccessful, the latter must be ordered to pay the costs.

    On those grounds,

    THE COURT (Sixth Chamber),

    hereby:

    1. Annuls Commission Decision 97/333/EC of 23 April 1997 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1993 on the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) in so far as it refused to charge to the EAGGF the sum of DEM 608 583.40 representing expenditure incurred by the Federal Republic of Germany on promoting milk (budget item 2062).

    2. Orders the Commission of the European Communities to pay the costs.

    Gulmann
    Skouris
    Puissochet

    Delivered in open court in Luxembourg on 14 December 2000.

    R. Grass C. Gulmann

    Registrar President of the Sixth Chamber

    1: Language of the case: German.

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