DELIVERED ON 23 MAY 1978 (*1)

Mr President,

Members of the Court,

1.The problem of the applicability to existing contracts of new Community provisions which detrimentally affect the position of one of the contracting parties has already given rise to numerous cases before the Court of Justice concerning various situations and subject-matters; the most common subject-matter is that of the Community rules relating to agriculture.

In the present proceedings — in a case in which, as we shall see, the party which has suffered damage seeks to resolve the question by having recourse to the general principle of the protection of legitimate expectations — the question arises in the troubled sector of monetary compensatory amounts.

I shall begin by recalling that under Article 3 of Regulation (EEC) No 974/71 of the Council the Commission is obliged to alter the monetary compensatory amounts whenever the difference between the official parity of the national currency in question and the arithmetic mean of the spot market rates of the currency calculated each week by the Commission in respect of the currencies of the Member States which form part of the so-called ‘monetary snake’ changes by at least one point from the percentage taken as a basis for the preceding determination.

In the last week of September 1976 the Commission found that the pound sterling, which from the middle of the month had been subject to heavy pressure on the exchange markets (which had already necessitated an increase from their previous level of the monetary compensatory amounts for the United Kingdom), had suffered a subsequent substantial devaluation as against the currencies in the ‘snake’. The amount of that devaluation gave rise once again to the obligation for the Commission pursuant to the aforesaid provision to alter the monetary compensatory amounts applicable to trade with Great Britain. However, as these amounts had reached the fairly high level of 30 % the Commission preferred not to adopt immediately an increase corresponding to the percentage of the subsequent devaluation and instead proposed that the Council should adopt as a matter of urgency a measure to alter the parity of the ‘green’ pound and thus of the relationship between the British currency and the unit of account in which ‘uniform’ agricultural prices within the Community are expressed.

The devaluation of the ‘green’ pound should have enabled the monetary compensatory amounts applicable for the United Kingdom to remain unchanged at the level of 30 %. At the same time the Commission adopted Regulation No 2405/76 of 1 October 1976 (published in the Official Journal of 4 October 1976) in which it provided that ‘as a precautionary measure’ and pending an urgent decision on the matter by the Council the monetary compensatory amounts fixed with effect from 27 September 1976 for the pound sterling and the Irish pound would be maintained. That regulation entered into force on Monday 4 October.

Within the Council British opposition prevented the acceptance of the Commission's proposal that a new parity for the British ‘green’ pound should be fixed, but the analogous proposal in respect of the Irish pound was accepted.

In consequence of that decision and pursuant to objections raised by importers of agricultural products in the United Kingdom the Commission then decided to increase immediately the monetary compensatory amounts applicable to trade with that country by means of Regulation No 2424/76 of 5 October 1976 which entered into force on the following day but which could, on request, be applied with effect from 4 October. The last-mentioned possibility was provided in order to benefit importers of agricultural products in the United Kingdom who clearly had an interest in having the new amounts applied from the beginning of the week in accordance with the normal practice relating to the date on which measures altering the compensatory amounts take effect. On the other hand, the Commission held that it was not appropriate to specify that the measure should have universal application as from 4 October (and, as I have said, preferred to provide that the regulation was to enter into force on 6 October) in that this would have resulted in the new amounts having retroactive effect and would have increased the burden on exporters of British agricultural products.

2.Between 29 September and 6 October 1976, thus both before and after the enactment by the Commission of the aforesaid Regulation No 2405/76 of 1 October which ‘froze’ the monetary compensatory amounts which were already in force, the British Beef Company concluded several contracts for the sale of consignments of meat which were to be exported from the United Kingdom in the course of the week beginning 4 October. In agreeing on the prices for those consignments the said company relied on the forecasts made by the Meat and Livestock Commission (the competent national authority for meat) which were notified to it subject to reservation by a telex message of 29 September and which were confirmed by a telex message of 1 October, according to which the aforesaid measure ‘freezing’ the amounts would remain in force for the whole of that week.

In consequence of the increase in the monetary compensatory amounts provided by the aforesaid Regulation No 2424/76 of 5 October and also of the Commission's refusal to exempt from that regulation British meat exporters who had concluded contracts before the regulation was notified to them, the British Beef Company brought proceedings against the Intervention Board for Agricultural Produce. Before the High Court of Justice, Queen's Bench Division, Commercial Court, the plaintiff alleged that on its true construction Regulation No 2424/76 should be held not to be applicable to exports carried out in implementation of contracts concluded before the publication of the regulation. In the alternative, the plaintiff claimed that in so far as the regulation is held to be applicable to the said exports it is invalid because it infringes the general principle of protection of legitimate expectations.

Accordingly, the British court referred the following questions to the Court of Justice for a preliminary ruling:

‘(1) Whether upon the true interpretation of Commission Regulation (EEC) No 2424/76 of 5 October 1976 that regulation does not apply to exports effected in execution of contracts concluded prior to the date on which it was promulgated;

(2) Whether on the above-mentioned grounds or on any of them the aforesaid regulation is invalid in so far as it purports to apply to such exports.’

3.As regards the first of those questions it is necessary to ask first whether Regulation No 2424/76 may in any way be interpreted as providing that existing contracts are excluded from the increase in the monetary compensatory amounts.

No article making such a provision is contained in the text of that regulation. Evidence to the contrary may be inferred from the preamble, which states that the ‘freeze’ implemented by Regulation No 2405/76 was introduced as a precaution pending a decision to be taken urgently by the Council (that is, the decision on the devaluation of the ‘green’ pound proposed by the Commission) and that as that decision was not taken the monetary compensatory amounts should therefore be fixed on the basis of the difference recorded for the pound sterling during the period from 22 to 28 September 1976 (that is, in accordance with the provisions of Regulation No 974/71 of the Council). That clearly implies that once the reason for the ‘freeze’ had become less pressing the Commission intended to return to the normal position, and moreover considered that it was under an obligation to do so. Thus in the operative part of the regulation the fixing of the date of entry into force as Wednesday 6 October and the clause providing that it could apply on request from 4 October are far from normal; but for that very reason another express provision would have been necessary in order, if necessary, to exempt existing contracts, as that would also have constituted an exceptional factor In conclusion, the very wording of Article 2 of the regulation in question and the context within which the measure is placed leave no doubt that the regulation was intended to apply to all exports effected as from 6 October 1976. even if they were in execution of contracts concluded on dates prior to the promulgation of the regulation.

It remains to be seen whether, in the absence of any express provision in the regulation, it is perhaps possible to invoke a general principle of interpretation to the effect that existing contracts are excluded from the scope of new and less favourable regulations. However, the principle which has been generally recognized and consistently applied by the Court of Justice is in fact quite different: regulations amending legislative provisions apply, unless otherwise provided, to the future consequences of situations which arose under the former provisions (most recently expressed in the judgment of 4 July 1973 in Case 1/73 Westzucker GmbH v Einfuhr- und Vorratsstelle fir Zucker [1973] ECR 723).

The question of the other unwritten rule of respect for vested rights remains open — but in my opinion this is implicit in the very formulation of the aforesaid principle. It is in this context that the judgment of the Court of Justice of 18 March 1975 in Case 78/74 (Deuka v Einfuhr- und Vorratsstelle Getreide [1975] ECR 422 at p. 433) should be understood with regard to the protection of situations which stabilized before the adoption of a regulation which reduced the amount of the denaturing premium for common wheat (see also the observations concerning this point of Mr Advocate General Trabucchi in his opinion on Case 74/74 CNTA v Commission [1975] ECR at p. 557).

In the circumstances envisaged in that judgment the undertaking concerned, before the adoption of the amending provision, had already notified the competent intervention body of the denaturing operations which it intended to carry out in accordance with its agreements. That notification therefore conferred on those agreements an official and certain nature and could be regarded as being capable of attributing to the undertaking, as regards the actions of the intervention agency, a right to the application of the amounts applying at that time. In accordance with that line of thought it was possible to state that in accordance with the principle of legal certainty, in the absence of specific provision by the legislative body, the amending regulation was not applicable as against persons who had already made provision for making notification in good time, in particular because in interpreting a provision it is not possible to presume that the legislative body intended to override acquired rights. In that way the position of the party concerned was protected while the amended regulation was upheld. The same reasoning is expressed still more clearly, on grounds and in circumstances which were very similar, in the judgment of the Court of Justice of 25 June 1975 in Case 5/75 Deuka v Commission ([1975] ECR 759).

In the present instance there are no grounds for talking of acquired rights, as in fact has been admitted by counsel for British Beef.

In conclusion, therefore, there exists no justification for interpreting Regulation No 2424/76 in the manner indicated by the first question from the English court.

4.I shall now turn to the problem raised by the second question. It is necessary to determine whether, by failing to exempt from the increase in monetary compensatory amounts those exporters who had concluded sales contracts before the date on which the regulation in question was promulgated, the latter breached the general principle of law whereby the Community institutions must protect the legitimate expectations of the parties concerned in so far as that is compatible with the safeguarding of overriding requirements of public interest.

That principle has been applied by the Court of Justice in favour of the parties who sought to rely on it in three cases of legislative amendments: I recall the judgment of 5 June 1973 in Case 81/72 (Commission v Council [1973] ECR 575), the judgment of 14 May 1975 in Case 74/74 (CNTA v Commission [1975] ECR 533) and the judgment of 25 June 1975, which I have cited above, in Case 78/74 (Deuka v Commission [1975] ECR 759).

However, the cases are rather more numerous in which the Court of Justice in regard to the same problem has ruled against the applications of firms relying on the principle of protection of legitimate expectations.

I recall the judgment of 4 July 1973 in Case 1/73 (Westzucker, loc. cit.), the judgment of 27 May 1975 in Case 2/75 (Einfuhr- und Vorratsstelle fur Getreide und Futtermittel v Mackprang [1975] ECR 607), the judgment of 10 December 1975 in Joined Cases 95 to 98/74, 15 and 100/75 (Cooperatives Agricoles de Cereales v Commission and Council [1975] ECR 1615), the judgment of 17 March 1976 in Joined Cases 67 to 85/75 (Lesieur Cotelle v Commission [1976] ECR 391).

the judgment of 31 March 1977 in Joined Cases 54 to 60/76 (Compagnie Indus-trielle et Agricole du Comté de Loheac v Commission and Council [1977] ECR 645), the judgment of 26 January 1978 in Joined Cases 44 to 51/77 (Union Malt and Others v Commission [1978] ECR 57) and of 1 February 1978 in Case 78/77 (Lübrs v Hauptzollamt Hamburg-Jonas, which has not yet been published).

The important thing therefore is the general criterion which emerges from this extensive case-law. In my view it can be expressed in the following terms: no legitimate expectation may be placed in the maintenance of rules, nor therefore it is possible to claim the protection of such an expectation, if the possibility of legislative amendments is reasonably foreseeable at the time when a contractual obligation is entered into, where it is in relation to the performance of that undertaking that exemption from the intervening detrimental change in the rules is sought.

Having said that, it becomes essential to determine whether, in a case having the characteristics described by the national court, traders were able to foresee a measure such as that which caused the plaintiff in the main action to invoke the defence of its alleged legitimate expectations.

5.I have already emphasized that the basic provision relating to compensatory amounts (Regulation No 974/71 of the Council, Article 3) is characterized by an obligation imposed on the Commission to alter the said amounts in accordance with any currency fluctuation exceeding a specified percentage.

In a wider context, the Court of Justice has referred to the ‘duty of the Community institutions to modify the system whenever this appears necessary in order to ensure that it performs its corrective function’ (the afore-mentioned judgment of 10 December 1975 Cooperatives Agricoles de Cereales v Commission and Council). This is quite in accordance with the logic of the system as it should always be borne in mind- that the system was established not to protect the individual interests of traders but to prevent the difficulties which monetary instability might cause to the functioning of the common organizations of the market, that is, in order to protect a general interest (see primarily the judgments of 15 May 1975 in Case 74/74 CNTA, loc at., and of 17 March 1976 in Joined Cases 67 to 85/75 Lesieur Cotelle, loc. cit.).

It is evident that the effective discharge of the functions assigned to the system of compensatory amounts demands that modifications be made with great speed.

The Commission has, on occasion, derogated from that basic rule, but only for exceptional reasons, as occurred in respect of certain sudden variations in the monetary exchange rates caused by speculative movements, in so far as the rates recorded during one week could not be considered representative of the real situation in respect to the currency subjea to speculative pressure (see Regulation No 1356/76 of 11 June 1976 (Official Journal L 153 of 1976, p. 39) and Regulation No 283/78 of 10 February 1978 (Official Journal L 41 of 1978, p. 25).

Regulation No 2405/76 of 1 October 1976 which maintained at the existing level the compensatory amounts applicable to trade in agricultural products coming from and going to Great Britain, although the conditions laid down by Article 3 of Regulation No 974/71 for the compulsory modification of such amounts were fulfilled, thus constitutes an exceptional derogation from the aforesaid basic rule. However, as distinct from the two cases of derogation referred to above, in which the preceding level of compensatory amounts was purely and simply confirmed and was thus intended to remain in force for the whole of the following week, Regulation No 2405/76 clearly stated in its preamble that the preceding level was maintained as a precautionary measure pending an urgent decision on the matter by the Council.

Traders in the sector could not be unaware of either the objeaive or the aleatory nature of that decision. No guarantee could be given that the Council would accept the Commission's proposal, quite apart from the fact that the opposition of the British Government had already been anticipated by the press. On the other hand, if that proposal was rejected no reliance could be placed on the possibility that the Commission would further delay complying with its specific obligation under the aforesaid Article 3 of Regulation No 974/71 to fix a new level of monetary compensatory amounts for exports from and imports into the United Kingdom. Taking account of the urgent nature of the Commission's proposal and of the purely precautionary nature of Regulation No 2405/76 it was logical to expect that the Council's decision, whether positive or negative, would be taken extremely quickly and it was to be foreseen that if the decision was negative it would probably be followed by the immediate fixing of new monetary compensatory amounts. The least that may be said is that it would not be justifiable to exclude altogether that latter possibility.

It is true that when the Commission alters the level of the compensatory amounts it normally provides that the application of the new amounts is to take effect from the beginning of the week following the adoption of the provision making the amendment. It is also true, however, that the correlation of the compensatory amounts to the actual exchange situation must be checked each week and that the difference recorded in the rates each week compared with the preceding level must, if the conditions set out in the said Article 3 are fulfilled, be reflected in the level of the compensatory amounts applicable from the beginning of the week following the week in which the rate was recorded. When, as in the present instance, for exceptional reasons the Commission does not immediately comply with this basic rule and decides instead to suspend action temporarily in anticipation of an alternative solution proposed to the Council there evidently exists an anomalous situation which is clearly characterized as such in relation to the persons concerned. The anomaly is inherent in the measure ‘freezing’ the previous rates which, as I have said, constitutes a derogation from the system laid down by the said Article 3 of the basic regulation; such a measure cannot be regarded as being equivalent to a provision which merely confirms an existing situation. Accordingly, in such an exceptional situation and in respect of a regulation which expressly provides that it is of a purely transitional nature, it is not opportune to make reference to the normal practice whereby the determination of the compensatory amounts remains applicable for a whole week.

Nor, in the present case, does it appear to me relevant to refer to the criterion whereby it is unjustifiable to adopt with immediate effect and without notice a legislative provision which detrimentally affects the performance of existing contracts when no absolute public interest stands in the way of the introduction of transitional measures. This criterion, which was invoked by British Beef, has indeed been applied by the Court of Justice, though not with regard to the validity of legislative measures but with regard to the noncontractual liability of the Community, and in particular in respect of an exporter who had obtained advance fixing of refunds, thereby assuming in relation to the Community an irrevocable undertaking, guaranteed by a security, to carry out the operations which were relevant for the purposes of the application of monetary compensatory amounts (Case 74/74 CNTA loc cit. at p. 549). The situation which we are considering in the present instance is quite different.

It is also necessary to bear in mind that if the Commission had maintained the ‘freeze’ for the whole of the week beginning 4 October, in spite of the obligation imposed upon it by Article 3 oi the aforesaid basic regulation, it would have run the risk of being held liable for any damage suffered by British importers of agricultural products who would not have benefited from an increase in the compensatory amounts such as to compensate for the greater difference between the real exchange value of their currency and the fictitious relationship between it and the European unit of account.

Finally, much argument was devoted in the course of the proceedings to the assurances supplied by the Meat and Livestock Commission in its telex messages of 29 September and 1 October. Apart from the fact that the first message was subjea to confirmation and that the second, while giving that confirmation, stated at the same time that the situation was ‘unclear’, it must be said that before entering into export obligations traders in that sector should have reflected on the text of the aforesaid Commission Regulation No 2405/76 of 1 October 1976 and on the exceptional nature of the derogation contained therein from the basic provision. The faa that they were nevertheless satisfied with the forecast made by a national body in the sector (which was not acting on behalf of the Community) as to the probable course of events is not sufficient to render their expectation ‘legitimate’. From an objective point of view the situation was clearly very precarious and dependent on the Council's decision. The risk that the Council might not accept the Commission's proposal and that accordingly the temporary ‘freezing’ of the compensatory amounts would be discontinued was reasonably foreseeable. The expectation that the amounts in force would be maintained for the whole of the week commencing 4 October rested on very shaky foundations.

In conclusion, for the reasons set out above I propose that the Court of Justice should rule as follows in answer to the questions referred to it for a preliminary ruling by the High Court of Justice, Queen's Bench Division, Commercial Court, by judgment of 15 November 1977:

1.Commission Regulation No 2424/76 of 5 October 1976 should be interpreted as meaning that it also applies to exports effected in performance of contracts concluded prior to the date on which the regulation was promulgated;

2.No factor has been disclosed of such a kind as to affect the validity of the said regulation.

*

(1) Translated from the Italian.