OPINION OF MR ADVOCATE-GENERAL REISCHL

DELIVERED ON 28 APRIL 1977 (*1)

Mr President,

Members of the Court,

Article 6 of Regulation No 804/68 of the Council on the common organization of the market in milk and milk products (OJ, English Special Edition 1968 (I), p. 176) provides that ‘special measures may be taken for butter held in public storage’ (that is, intervention butter) ‘which cannot be marketed on normal terms during a milk year’. A similar provision is contained in Article 7a of Regulation No 985/68 of the Council laying down general rules for intervention on the market in butter and cream (OJ, English Special Edition 1968 (I), p. 256) as amended by Regulation No 750/69 of the Council (OJ, English Special Edition 1969 (I), p. 204).

This was the basis for Regulation No 1259/72 of the Commission on the disposal of butter at a reduced price to certain Community processing undertakings (OJ, English Special Edition 1972 (II), p. 559). It is aimed at encouraging the use of butter in the food industry, namely in the production of bakers' wares and ice-cream where for price reasons it is not usually used. The regulation, as amended, in so far as is relevant for the present proceedings, by Regulations No 2815/72 of the Commission (OJ, English Special Edition 1972, 30-31 December, p. 5), No 677/73 (OJ L 65 of 10. 3. 1973, p. 16), No 1237/73 (OJ L 128 of 15. 5. 1973, p. 1) and No 576/74 (OJ L 70 of 13. 3. 1974, p. 24) provides as follows:

The butter is to be sold by means of a standing invitation to tender; during the period of validity of that invitation, individual invitations to tender are to be issued to which interested parties may respond with tenders. On the basis of this a minimum selling price is to be fixed which is to take into account the price for other fat which would otherwise be used by the processing undertakings concerned. Offers above the minimum price are considered. Successful tenderers must process the butter they have purchased, or cause it to be processed, within a period of six months from taking it over. Before taking the butter over the purchasers must pay the reduced price. In addition they must lodge a deposit which is fixed on the basis of the difference between the market price (as a rule no doubt the intervention price) and the minimum selling price of the butter. Except in cases of force majeure the processing deposit is released only when the successful tenderer has furnished proof that the conditions laid down in Article 6 of Regulation No 1259/72 have been fulfilled, that is, according to the view of the Commission and the Bundesanstalt für wirtschaftliche Marktordnung, contested by the applicants, that the butter has been duly processed within the time-limit. Article 18 of Regulation No 1259/72 further provides that this proof is to be furnished by the production of a document drawn up by the selling Member State. In the Federal Republic of Germany it is a document of the customs office which checks the processing.

In 1974 the first plaintiff in the main action purchased butter at a reduced price from the stocks of the German intervention agency and in so doing lodged a processing deposit. The second plaintiff with whom the first plaintiff had apparently formed a company under the German Civil Code processed the butter into concentrated butter and sold it to other undertakings which were to process it into products within the meaning of Article 6 (1) (c) of Regulation No 1259/72, namely fine bakers' wares and edible ices or powder for the preparation of edible ices. According to the findings of the customs officials the purchasers from the second plaintiff did not in Case 99/76 complete the processing into concentrated butter within the prescribed time-limit and in Case 100/76 did not altogether do so in the proper manner. Since the appropriate German agency, the aforesaid Bundesanstalt für landwirtschaftliche Marktordnung, took the view that this meant that the conditions of Regulation No 1259/72 of the Commission were not fulfilled the processing deposit which had been lodged was in part forfeited.

Both undertakings are contesting the matter before the Verwaltungsgericht Frankfurt. They take the view that forfeiture of the deposit is not justified because they have fulfilled their obligations in that the second plaintiff processed the butter into concentrated butter and resold it upon the terms required by Article 6 (1) (e) of Regulation No 1259/72. They claim that in such a case it must suffice for the purchaser to produce a certificate of proper processing; properly interpreted the deposit should be forfeited only where the purchaser of the butter has himself infringed Regulation No 1259/72 of the Commission. This is however obviously not the position in the present cases, for the plaintiffs were not responsible for the infringements with regard to the further processing of the concentrated butter since it was not possible for them to check that the concentrated butter was processed into the final products within the meaning of Article 6 (1) (c) of Regulation No 1259/72 properly and in due time.

The Verwaltungsgericht Frankfurt before which the matter was brought sees certain difficulties in the interpretation of the Community provisions which are relevant to the decision of this question. For various reasons it has doubts as to whether the view of the law taken by the Bundesanstalt für landwirtschaftliche Marktordnung is correct. In the event of this view of the law being regarded as correct the Verwaltungsgericht further queries whether such an extensive liability of the successful tenderer to the extent of his deposit for the success of the processing is compatible with the superior legal principle of proportionality. Further it seems to the Verwaltungsgericht doubtful whether the Commission had any authority under the abovementioned basic regulations laid down by the Council to introduce a processing deposit at all.

By orders dated 9 September 1976 the Verwaltungsgericht stayed the proceedings which were pending and referred the following questions to the Court of Justice for a preliminary ruling:

‘(a) Are the first subparagraph and second subparagraph down to the end of indent (a) of Article 18 (2) of Regulation (EEC) No 1259/72 of the Commission of 16 June 1972 on the disposal of butter at a reduced price to certain Community processing undertakings (OJ, English Special Edition 1972 (II), p. 559) as amended by Regulation (EEC) No 1237/73 of the Commission of 10 May 1973 (OJ L 128/1 of 15. 5. 1973) to be interpreted as meaning that the proof required to enable the deposit to be released is only regarded as having been furnished if it is clear from the document to be issued by the national authority under the second subparagraph down to the end of indent (a) of Article 18 (2) of Regulation No 1259/72, that the successful tenderer — who does not himself carry out processing within the meaning of Article 6 (1) (c) of Regulation No 1259/72 — has fulfilled his obligations under Article 6 (1) (a), (b), (d) and (e) of the regulation mentioned above, or is the release also in such a case always conditional upon the processed goods, as evidenced by the beforementioned document, complying with the conditions prescribed in Article 6 (1) (c)?’ (There is added in Case 99/76 the following: ‘in particular with the condition that they must have been produced within the time-limit of six months prescribed in the last three lines of Article 6 (1) (c)?’);

‘(b) If the second alternative mentioned in (a) above is accepted is the first subparagraph of Article 18 (2) and the second subparagraph thereof down to the end of indent (a) of the beforementioned regulation compatible with superior rules of Community law and in particular with the principle of proportionality?’

The cases may be dealt with together since by order dated 10 November 1976 they were joined for the oral procedure including the opinion. My views are as follows:

With regard to the question whether in a case in which the successful tenderer does not himself manufacture processed products within the meaning of Article 6 (1) (c) it is sufficient for the release of the processing deposit for it to be proved that the concentrated butter has been resold subject to the appropriate requirements as to processing or whether even in this case it depends on whether the processed products in fact comply with the requirements of Article 6 (1) (c), that is, have particular characteristics and have been manufactured within the period laid down, it seems to me, and let me say this immediately, that only the second interpretation is correct.

The wording of the relevant provisions indicates this.

Article 18 (2) of Regulation No 1259/72 as amended by Regulation No 1237/73 provides that in a case such as the present where all the processing operations have been carried out in the selling Member State the processing deposit shall be released where the successful tenderer has furnished proof by the production of documents drawn up by the selling Member State that the conditions referred to in Article 6 of the regulation have been met. Article 6 (1) speaks of the obligation of the successful tenderer to cause the butter purchased to be processed into concentrated butter and in the course thereof to have certain ingredients incorporated. It further mentions the obligation of the successful tenderer to have the concentrated butter processed only into certain specified products, namely fine bakers' wares, edible ices and powder for the preparation of edible ices, and in conclusion clearly lays down that the processing must be concluded within a period which is now six months from taking over. From this it follows that the term ‘conditions’ within the meaning of Article 18 involves the processing actually being done within the relevant time-limit. This is covered by the supervision by the Member State mentioned in the provision and the same must be attested by the certificates which it has to draw up.

As the Commission has demonstrated, the correctness of this interpretation is moreover supported by the clearly apparent meaning and purpose of the regulation. As we have seen, it is intended to relieve the butter market by reducing the butter mountain. It is necessary therefore that the butter released should be processed for the purposes provided for, that is, that it should not come on to the normal butter market where it would necessarily lead to increased intervention. It is also apparent that the said time-limit must be respected. First this ensures that only such quantity is purchased as the tenderer in fact can process. In this way as many purchasers as possible have access to the goods and the laying-up of speculative stocks is prevented. Secondly the time-limit is important because it enables the outcome of the measure to be checked within a period which may be easily reviewed and this permits the action to be directed precisely and any necessary corrective measures made. In this way also the necessary checks can be made within a reasonable time and the administrative burden on the Member States kept within limits.

This cannot be met by referring, as the plaintiffs have done, to the recitals in the preamble to Regulation No 1259/72 where it is stated: ‘Whereas a system of supervision should be set up to ensure that the butter is not diverted from its destination’; and where it continues: ‘Whereas this supervision must operate from the time the butter is removed from storage until it is processed’. It is apparent to me that such a brief and not very precise reference in the recitals to a regulation cannot have the same weight in interpretation as arguments to be derived from the body of the regulation and from its meaning and purpose. The words quoted are certainly no authority for saying that the regulation is concerned with supervising only the first stage of processing and that the further fate of the concentrated butter obtained from the butter, that is, the attainment of the actual purpose of the measure, can be disregarded.

In the same way Article 6 (1) (e) of Regulation No 1259/72, where it is stated that the successful tenderer has ‘to lay down that, for any subsequent resale of this product’ (namely the butter purchased or the concentrated butter) ‘the same requirements as those referred to under (c) and (d) shall form part of the contract of sale’, is no authority against the interpretation advocated by the Commission and the Bundesanstalt. Of course it must be admitted that if this interpretation of the regulation is accepted the question may well be asked whether this provision does not appear superfluous, so that it would be possible to assume that on the resale of the goods it is sufficient to pass on the obligation to process and there is no responsibility for the carrying out of the processing. Against this however it may be said that such a release of the purchaser from his obligations is obviously not compatible with the said meaning and purpose of the regulation. There would not then be sufficient guarantee that the processing would actually take place and there would be all kinds of scope for frustration of the regulation by the intervention of further purchasers. This again could be dealt with only if the intervention agency concerned with the sale had the possibility of taking action against the subsequent purchasers. This however is not provided for. It is apparent from the structure of the regulation that the successful tenderer is the sole party to the contract with the intervention agency and that according to Article 10 (5) of Regulation No 1259/72 rights and obligations arising out of the invitation to tender are not transferable. Obviously this course was adopted to save the intervention agency from having to proceed, in order to achieve the objective of the regulation, against numerous processors on a very uncertain legal basis. Article 6 (1) (e) must therefore properly be understood as intending to strengthen the hand of the intervention agency, since the successful tenderer cannot object that he is not in a position to insist on maintenance of the obligations, and also that it is intended to improve the position of the successful tenderer who can hold any purchaser liable for the forfeiture of the processing deposit. It would be mistaken on the other hand to read this provision as meaning that on the resale of the butter it would be sufficient for the release of the processing deposit to show that the processing obligation has been passed on by contract to the purchaser.

Accordingly it can be said in answer to the first question that under Article 6 of Regulation No 1259/72 the successful tenderer has the obligation to have the butter processed in the manner specified and within the period specified. Since, no matter whether the successful tenderer does the processing himself or resells, this is the decisive condition for the grant of the reduced price, only when it is fulfilled can the processing deposit, which is the difference between the normal market price and the price tendered, be released.

In the event of the first question being answered in this manner the order of reference raises the further question whether there is any legal foundation in the relevant regulations of the Council for the rules made by the Commission with regard to the deposit. Further it should be considered whether their validity may be objected to on the grounds that they are not compatible with the superior legal principle of proportionality.

(a)

In view of what has become apparent in the proceedings consideration of the first issue should cause no special difficulties.

It is true that Articles 6 and 7 of Regulation No 985/68 of the Council laying down general rules for intervention on the market in butter and cream have provided for a special deposit only when butter is put on sale for export and to cover tenders and not for a processing deposit such as is at issue here, but it is not at all necessary to have any such special power to lay down rules on deposits in the context of Regulation No 1259/72.

As we have seen, the processing deposit is nothing other than part of the agreed terms of payment. The agreed price is the market price subject to a reduction in the event of the processing conditions' being complied with. In fact with the butter the successful tenderer is receiving the consideration at market value for the payment which was basically agreed. The figures which the plaintiff has adduced in no way alter the correctness of this finding for they disregard the fact that a certain period is necessary for the processing, that is, for dealing with the butter, and that accordingly as far as the market price is concerned regard must also be had to the price trend during this period.

If however the processing deposit can be regarded as part of the terms of payment, then reference may be made to the said Article 6 of Regulation No 804/68 and Article 7a of Regulation No 985/68 in which special measures are provided for in respect of which the Commission may adopt implementation provisions. The Commission has power under this and under Article 5 of Regulation No 985/68 to fix terms of sale and prices. This is a sufficient legal basis in my opinion for the introduction of the deposit rules applicable on the sale of butter at a reduced price; it was not necessary to have a special power specifying the deposit rules as such.

(b)

As far as concerns the question whether the rules are not in accord with the principle of proportionality because they amount to creating liability for the acts of third parties with whom the successful tenderer is not in a direct contractual relationship and whom he cannot control, the following brief observations may be made:

It is above all important to note that the butter which the successful tenderer receives, as already mentioned, represents the consideration at market value for the payment he makes and that he can freely dispose of this butter. It then does not seem inequitable to require of him the market price in accordance with the purchase agreement which he has freely entered into if the conditions of the purchase — processing of the butter into specific products within a particular period — are not respected. Forfeiture of the deposit is not, as the plaintiff thinks, a kind of penalty, but nothing other than the vindication by the intervention agency of appropriate rights under the contract.

In addition it should not be overlooked that the purchasers for whose conduct the successful tenderer is liable are bound vis-à-vis the latter to carry out the processing. This is expressly provided for in the repeatedly-mentioned Article 6 (1) (e) of Regulation No 1259/72. I cannot see how it is impossible for the successful tenderer to obtain effective indemnity from his subpurchasers in the event of the deposit's being forfeited. Under German law there is a very pertinent regulation of 26 March 1974, paragraph 15 of which, as the Bundesanstalt has rightly stressed, facilitates such claims to indemnity vis-à-vis purchasers.

In these circumstances the liability of the successful tenderer, for which the regulation provides, can scarcely be regarded as a disproportionate sanction. It cannot be claimed that the only system of deposit which is valid is one which makes the successful tenderer liable only for his own acts. It must certainly be said of the relevant regulation of the Commission and its system of deposit that it is simply required to secure the objective of the rules; the intervention agencies themselves have no possibility of requiring third parties who have purchased the butter to fulfil their obligations and it cannot be conceived that such possibilities, which would involve an unreasonable burden on the administration, should be provided for the future.

3.

In view of all this I propose that the questions of the Verwaltungsgericht Frankfurt should be answered as follows:

(a) Before the processing deposit lodged under Regulation No 1259/72 may be released proof must in each case be furnished by the successful tenderer that the processing of the butter he has acquired for this purpose has been duly carried out within the time-limits.

(b) The proceedings have revealed no grounds for casting doubt on the validity of the first subparagraph of Article 18 (2) of Regulation No 1259/72 and the second subparagraph thereof down to the end of indent (a).

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(*1) Translated from the German.