delivered on 23 October 1990 (*1)

My Lords,

1.This case raises the question whether the Community legislation on the conversion scheme for dairy cows empowers the authorities of a Member State to require the partial reimbursement of the conversion premium by a farmer who, immediately before he was accepted into the scheme, sold some of his most productive cows and replaced them with inferior ones.

2.On 29 March 1979, Mr Eddelbüttel applied to the defendant authority, the Bezirksregierung (district administration) Lüneburg, the defendant in the national proceedings, to join the conversion scheme, stating in his application form that he kept 24 dairy cows and that he had marketed 113059 kg of milk in the previous twelve months. On the same day, the local Chamber of Agriculture marked and registered 26 head of dairy cattle, comprising 14 dairy cows, 10 in-calf heifers and two immature animals. By decision of 27 April 1979, the defendant approved Mr Eddelbüttel's application with effect from 29 March 1979. By decision of 15 May 1979, the defendant paid him the first instalment of the premium, amounting to DM 40390.31 or 60% of the total premium of DM 67317.19, calculated on the basis of milk deliveries of 113059 kg. Subsequently, however, the defendant discovered that on 28 March 1979, one day before he had applied to join and had been accepted into the scheme, Mr Eddelbüttel had sold 10 of his most productive cows and purchased 10 inferior beasts, probably cull cows, which had then been sold and slaughtered on 9 April 1979.

3.The defendant took the view that under the conversion scheme the amount of the premium was linked to the capacity of the herd at the time of acceptance into the scheme, and that a reduction in the premium was therefore required. It revoked its earlier decisions and adopted new decisions giving the quantity of milk qualifying for premium as 65951 litres (i.e. 14/24 of the original quantity) and granting an initial payment of DM 23993.68, i.e. 60% of a recalculated total premium of DM 39989.48. It also demanded reimbursement, with interest, of the excess amount of the first instalment already paid to Mr Eddelbüttel, i.e. DM 16396.63. After his administrative appeal was rejected, Mr Eddelbüttel brought legal proceedings to challenge the lawfulness of the defendant's decision.

4.It will be recalled that, with a view to reducing surplus milk production, Council Regulation (EEC) No 1078/77 (OJ 1977 L 131, p. 1 —‘the Council Regulation’) introduced a system of premiums for producers who undertook for a specified period not to market milk or milk products (the non-marketing premium) or to cease milk deliveries and convert their dairy herds to meat production (the conversion premium). The conversion undertaking lasted four years (Article 3(2)) and the amount of the conversion premium was calculated in proportion to the producer's milk deliveries in the 12 months preceding the month of application (Article 4(2) of Regulation No 1078/77, as amended by Council Regulation (EEC) No 1041/78, OJ 1978 L 134, p. 9).

5.Article 3(1) of the Council Regulation (as amended by Regulation No 1041/78) provides that ‘To obtain the conversion premium, the producer must satisfy the competent authorities:

—that he has delivered at least 50,000 kg of milk or the equivalent in milk products during the 12 calendar months preceding the month of application, that he still has an appropriate number of dairy cows on his holding,

—that he has at least 15 dairy cows, including in-calf heifers, on his holding. This condition must be satisfied on the date of approval of the application; failing this, the premium shall be reduced accordingly.’

6.Commission Regulation (EEC) No 1391/78, laying down amended rules for application of the system of premiums (OJ 1978 L 167, p. 45 —‘the Commission Regulation’), provides in Article 1(3) that ‘In determining the quantity of milk on which the premium will be calculated:

the quantity of milk ... shall... be reduced proportionally:

—as provided for in Articles 2(1) and 3(1) of Regulation (EEC) No 1078/77, where the number of dairy cows kept on the holding as recorded on the date of approval of the application is less than the appropriate number for the quantity of milk in question;

7.The national court of last instance, the Bundesverwaltungsgericht (Federal Administrative Court) considered that the issue to be determined was whether — and to what extent — replacement of dairy cows prior to the application had an adverse effect on entitlement to the premium. In its view, the Community legislation did not resolve the issue and indeed appeared to be contradictory. On the one hand, Article 1(3) of the Commission implementing regulation appeared to provide for a reduction of the premium in the plaintiff's case. On the other hand, he appeared to be entitled to the full amount of the premium under the second limb of Article 3(1) of the (superior) Council Regulation because at the time of approval of his application he had at least 15 dairy cows, including in-calf heifers, on his holding. Accordingly, the national court referred the following question for a preliminary ruling:

8.‘Is the first indent of Article 1(3)(b) of Commission Regulation No 1391/78 to be interpreted as meaning that in determining the quantity of milk a reduction may be made in circumstances where Article 3(1) of Council Regulation (EEC) No 1078/77 (as amended by Council Regulation (EEC) No 1041/78), cited in that indent, makes no provision for a reduced premium? If that is so, how is the word “appropriate” in the first indent of Article 1(3)(b) of Regulation (EEC) No 1391/78 to be interpreted?’

9.Mr Eddelbüttel argues that there is no ground for a reduction in the premium. In his view, the conditions for entitlement to premium are set out in Article 3(1) of the Council Regulation. He argues that his entitlement to the full amount of the premium arises under the second limb of Article 3(1), which merely requires that the producer has at least 15 dairy cows on the date of approval, and that the Commission regulation cannot go against the clear wording of the basic regulation. He also argues that the reduction of the premium in circumstances not expressly foreseen by the legislation is contrary to the objectives of the scheme in that it will discourage producers from taking part.

10.The Commission argues that it is a clear requirement of the Community legislation that the quantity of milk on the basis of which the premium is calculated should correspond to the capacity of the herd at the time of acceptance into the scheme. It points out that Mr Eddelbüttel's entitlement to premium arises under the first indent of Article 3(1) of the Council Regulation and that there is therefore no question of a discrepancy between the Council and the Commission Regulations. It adds that its view is supported by the purpose of the premium and the objective of the scheme itself.

11.In my view, the Commission's approach is clearly correct. In the first place, I am satisfied that the concern of the national court as to a possible inconsistency between the relevant provisions of the Commission and Council Regulations is without foundation. Article 3(1) of the Council Regulation provides two alternative bases of eligibility for the conversion premium: the producer can either show that he has delivered at least 50000 kg of milk or milk equivalent during the previous 12 months and that he still has an appropriate number of dairy cows on his holding (the first indent), or that he has at least 15 dairy cows, including in-calf heifers, on his holding (the second indent). That the two bases for eligibility are alternative is confirmed by the wording of the French and German language versions of the last sentence of Article 3(1) which indicate that ‘the corresponding condition’ (‘la condition correspondante’; ‘die betreffende Bedingung’) must be fulfilled on the date of approval.

12.Where a producer's eligibility for premium arises under the first indent of Article 3(1), i.e. on the basis of the quantity of milk delivered, then pursuant to the last sentence of Article 3(1) he must also satisfy the authorities, at the time of approval of his application, that he has an appropriate number of dairy cows on his holding. Failing that, the premium is to be reduced pursuant to the same provision. Article 3(1) of the Council Regulation and Article 1(3) of the Commission Regulation are thus perfectly consistent with each other.

13.I would add that the French and German language versions of the last sentence of Article 3(1), by indicating that the corresponding condition must still be satisfied on the date of approval (‘la condition correspondante doit être encore remplie ... ’; ‘die betreffende Bedingung muß noch ... erfüllt sein’), further support the argument that under the Council Regulation any change in the composition of the herd will affect entitlement to premium.

13.The effect of the last sentence of Article 3(1), as the Commission points out, is to ensure that when a producer enters the conversion scheme a quantity of milk equivalent to that on which the premium is based will actually be withdrawn from the market. This is plainly in keeping with the purpose of the premium, namely compensation for loss of revenue from milk production (see the third recital to the Council Regulation) and with the overall objective of the conversion scheme, namely the reduction in excess milk production and the restoration of market balance (see the first and sixth recitals to the Council Regulation). Where a producer, just before his acceptance into the scheme, disposes of some of his most productive cows for consideration, and replaces them with inferior animals so that the capacity of the herd is reduced, then it is clear that the amount of the premium must also be reduced since otherwise he will be over-compensated and the Community will not get value for money. Moreover, on the assumption that the productive cows continued to produce milk elsewhere, a reduction in the premium in such a case is plainly in accordance with the objective of reducing milk production.

14.It is for the national court to determine whether, on the facts of this particular case, the authorities were correct to reduce the premium. From the order for reference it appears that Mr Eddelbüttel based his application for the premium on the quantity of milk delivered by him, i.e. 113059 kg. It therefore appears that his eligibility for the premium arose under the first indent of Article 3(1) of the Council Regulation, with the result that it was incumbent on him to satisfy the authorities on the date of approval that he still kept an appropriate number of dairy cows. Failing that, a reduction in the premium was required both under Article 3(1) of the Council Regulation and Article 1(3) of the Commission Regulation.

15.It is in my view also open to the national court to consider an alternative possibility, namely that Mr Eddelbiittel was not entitled to any premium at all because he misled the authorities as to the scale of his entitlement to premium. From the order for reference it appears to be common ground that just before entering the scheme he sold 10 of his best cows and replaced them with inferior animals. Mr Eddelbiittel allowed the 10 replacement cows to be marked and registered with the others. At no time did he indicate to the authorities that the capacity of his herd had been reduced. From the case file it appears that the public prosecutor's department considered that there was insufficient evidence to prosecute Mr Eddelbüttel for fraud. None the less, on a strict view of the Community legislation, it might be said that he had forfeited his entitlement to premium.

16.In this connection, it should be noted that Article 4(2)(e) of the Commission Regulation requires that the producer's application should include a declaration stating that he is aware of the rules governing the premium system. In addition, Article 9(1) of the Commission Regulation provides that where the producer fails to prove to the satisfaction of the competent authority that he has complied with the obligations laid down in Articles 2 or 3 of Regulation No 1078/77, the Member State concerned shall take all necessary steps to recover any sums already paid in respect of that premium.

17.It is true that there is no provision in the Community legislation which specifically obliges a producer to inform the authorities if, prior to approval, he makes relevant changes to his herd. It is also true that the drafting of Article 3(1) of the Council Regulation is not as clear as it might be (although in my view the German text is clearer than the English one). None the less, the fact that the level of the premium was fixed by reference to previous production, and the fact that the purpose of the scheme was to reduce milk production, should be sufficient to put a producer on notice that a change in the capacity of the herd would affect entitlement and should be notified to the authorities. It is for the national authorities and national courts to consider, on the basis of all the facts and any relevant provisions of national law, whether the premium should be forfeited in full, instead of being merely reduced.

18.The second part of the national court's question asks how the term ‘appropriate’ in Article 1(3)(b) of the Commission Regulation is to be interpreted. This question presupposes that a reduction in the premium, rather than any more far-reaching sanction, is appropriate, and I will deal with it on that basis.

19.Having regard to what has been said above concerning the objectives of the premium and of the scheme as a whole, it is in my view plain that the term ‘appropriate’ means appropriate to the quantity of milk on which the calculation of the premium is based. This interpretation is (once again) confirmed by the more specific French and German language versions. Whereas the English text of Article 1(3)(b) refers merely to ‘... the appropriate number for the quantity of milk in question’, the other two versions refer to ‘... le nombre de vaches approprié à la quantité de lait précitée’ and to ‘... die Anzahl Milchkühe, die für die obengenannte Milchmenge angemessen ist.’ In practical terms, this means that it is necessary to show that the dairy herd kept by the producer at the time of approval is in fact capable of producing that quantity. In other words, account must in principle be taken of the individual yield (actual or potential) of each cow.

20.It appears from the order for reference that the difficulty which arose in the case of Mr Eddelbüttel was that it was not possible to determine the precise capacity of the herd at the time of approval because Mr Eddelbüttel did not respond to the defendant's request to produce evidence of the milk yield of the 10 inferior cows which replaced the 10 productive ones sold on the day before he entered the scheme: indeed, since Mr Eddelbüttel ceased marketing milk on 30 March 1979 and the 10 inferior cows were slaughtered only 10 days later, such proof was presumably not available. Moreover, of the 14 animals remaining in the herd at that time, 10 were in-calf heifers whose potential production could only be estimated.

21.The real issue is therefore how to determine whether the number of cows is ‘appropriate’ in a case where the capacity of some or all of the herd cannot be established. Since the conversion scheme was closed to new applicants at the end of the 1980/81 milk year (Council Regulation (EEC) No 1365/80, OJ 1980 L 140, p. 18), that question is unlikely to affect any further cases. In any event, it is in my view sufficient for the Court to give general guidance on this issue, leaving it to the national court to determine the precise method of calculation.

22.The response of the national authorities to this problem was to leave the 10 cull cows out of account and to reduce the quantity of milk qualifying for premium to 14/24 of the original amount. This method assumed that the 14 animals remaining in the herd after the 10 high-yielding ones were sold were capable of producing 14/24 of the original quantity, an assumption which, in the absence of concrete supporting evidence, was perhaps rather generous to Mr Eddelbüttel. None the less, although this method of calculation was somewhat rough-and-ready, the view might well be taken that it produced the right result in this case.

23.The Commission in its writen observations suggests that where the capacity of an individual cow or in-calf heifer cannot be determined it should be taken to be the average delivery for the country or region concerned, plus 10%. According to the Commission, average production per dairy cow in Germany in 1976 was 3715 kg; increased by 10%, this gives rise to a figure of 4086 kg. The Commission adds that this was the method which it proposed in a Note of 14 July 1977 which was circulated to Member States through the Management Committee for milk and milk products. This method appears sensible and workable; however, if applied to the 10 cull cows (whose production can be assumed to have been below rather than above average), it would result in an outcome which would certainly be over-generous to Mr Eddelbüttel.

24.Accordingly, I am of the opinion that the Court should give the following answers to the questions put by the national court:

(1)Where, in order to obtain the conversion premium, a producer has, in accordance with Article 3(1) of Council Regulation No 1078/77, satisfied the competent authorities that he has delivered at least 50000 kg of milk or equivalent in milk products during the 12 calendar months preceding the month of application, Article 1(3)(b), first indent, of Commission Regulation No 1391/78 must be interpreted as meaning that in determining the quantity of milk on which the premium is to be based a reduction may be made in circumstances where the number of dairy cows kept on the holding on the date of approval of the application is less than the appropriate number for the quantity of milk in question.

(2)The first indent of Article 1 (3)(b) of Commission Regulation No 1391/78 must be interpreted as meaning that the number of dairy cows kept on the holding on the date of approval of the application must be capable, actually or potentially, of producing the quantity of milk on which the premium is to be based.

*1 Original language English-