C-11/57

JUDGMENT OF THE COURT 26 JUNE 1958 1

Société d'Électro-Chimie, d'Électro-Métallurgie et des Arteries Électriques d'Ugine v High Authority of the European Coal and Steel Community

Case 11/57

Summary

1. Procedure — Application for annulment — General decision — Undertaking as applicant — Misuse of powers — Admissibility [Cf. paragraph 1, summary in Case 10/57 of 26 June 1958]

2. Financial arrangements — Indirect means of action [Cf. paragraph 3, summary in Case 8/57 of 21 June 1958]

Société d'électro -CHIMIE; d'électro -Métallurgie et des Aciéries Élec­ triques d'Ugine , a limited company governed by French law, having its re­ gistered office in Paris, represented by its Vice-Chairman and Managing Director, René Perrin, assisted by Professor Jean Rault, Advocate at the Cour d'Appel, Paris, with an address for service in Luxembourg at the offices of the Chambre Syndicale de la Siderurgie Francaise, 49 boulevard Joseph-II,

applicant,

1 — Language of the Case: French.

JUDGMENT OF 21. 6. 1958 - CASE 11/57

and

High Authority of THE EUROPEAN Coal and STEEL Community , represented by its Legal Adviser, Gerard Olivier, acting as Agent, assisted by Andre de Laubadere, Professor in the Faculty of Law, Paris, with an address for service in Luxembourg at its office at 2 place de Metz,

Issues of fact

1. — Facts their contributions at the supplementary rate.

In Decision No 2/57 which, inter alia, ex­ The applicant states that a system of alloca­ tends the application of Decisions No 26/55 tion combined with penalties must allow and No 3/56, the same arrangement pro­ those to whom it applies to avoid such pen­ vides for the equalization of the prices of alties by their own actions. The system in imported ferrous scrap and domestic scrap question is discriminatory and unfair be­ and the effecting of economies in scrap. It cause it requires certain of those to whom it requires, in addition to contributions at the applies to choose between incurring the basic rate, contributions at a supplementary penalties or basically altering their industri­ rate imposed in terms of the proportion of al strategy. It is unusual and unfair for an scrap consumed in existing plant in excess additional charge to be imposed upon cer­ of the amount of scrap consumed during a tain industries and not upon others as a re- reference period in the past. In order to take sult of a factual situation existing before the account ofall individual situations each un­ system was introduced, and which for geo­ dertaking is permitted to choose its refer­ graphical and technical reasons cannot be ence period (six months from seven consec­ altered.

utive months between 1 January 1953 and It should be noted that the Ugine works 31 January 1957). manufactures special alloy steel exclusively Article 8 of the decision imposes upon un­ by electric furnaces charged with ferrous dertakings a gradually increasing contribu­ scrap and in addition with ferrous alloys. tion whilst Article 9 permits undertakings This undertaking was modernized ten years which have reduced the specific input of ago and planned a 30% increase in produc­ their plant or their production processes, to tion in the future which it took into consid­ reduce or even completely to eliminate eration in calculating the profitability of the

investments made. The geographical situa 'dismiss the proceedings instituted against tion of the undertaking precludes the use of Decision No 2/57 in that it does not involve liquid pig-iron and technical reasons rule misuse of powers affecting the applicant, out the use of solid pig-iron in its furnaces. with all the consequences thereof in law, in The Moustiers works produces very low particular with regard to the settlemen of carbon stainless steel by means of ferro- fees, costs, and any other expenses.' chromium produced in the works.

In the sion may affect certain individual interests. present case the misuse of powers was not The High Authority effected a balance with directed against the applicant since Deci those interests as was required, taking a sion No 2/57 is a general decision adopted broad view of the general interest of the in the common interest of all the undertak Community. If all individual interests had ings in the Community and the applicant been taken into account, it would have been does not allege that, when the High Au impossible to arrive at a solution. Whilst it thority adopted this decision, instead of is true that certain steel works producing pursuing an objective in the general inter special steel are in practical terms unable to est, it really pursued a particular objective of effect economies in scrap, they nevertheless its own. Since the applicant complains of benefit from higher selling prices for their the different effect of the application of the steel in relation to the prices for ordinary general rules in Decision No 2/57 depend steel and thus this charge is relatively light. ing on whether or not it is possible to effect economies in the use of scrap, it may to this extent be adversely affected by the provi II — Conclusions of the parties

rate. It follows from this that the alleged The defendant contends that the Court misuse of powers has certainly affected the should: applicant adversely.

2. Whether the submissions constitute sults reveal the true objective pursued by complaints of misuse of powers. the author of the impugned measures. In the present case the applicant has put for The defendant states that four complaints ward the actionable consequences of the de have been put forward on the basis of Arti cision complained of in order, first, to est cle 53 of the Treaty in relation to Articles 3, ablish that the High Authority was of ne 54, 59 and 65 respectively of the Treaty. The cessity aware of the damage which it would complaint in relation to Article 65 is based cause and, secondly, in order to show that upon a manifestly mistaken interpretation it did not act in the common interest and of the wording of Article 53. If the classic thus that the High Authority, even if it did distinction between the concept of motive not act deliberately, at any rate through a and that of object is applied to the remain serious lack of foresight or of care pursued ing three groups in the application, they an objective other than that for which the may be classified as follows: power to make financial arrangements was conferred upon it under the Treaty. (a) two complaints of misuse of powers, one in relation to Article 59 and the other in B — Substance relation to Article 54;

Fur ble with the Treaty, in particular with Arti ther Article 53 (b) requires that the relevant cle 65 thereof. These constitute two kinds financial arrangements should be compati of limits. First, the financial arrangement ble with the Treaty, and in particular with made by the High Authority must be enact Article 65. As soon as it is established that., ed in the common interest of consumers of the High Authority, under the pretext of at ferrous scrap. Secondly, it must pursue an taining an objective apparently in accor objective which is not incompatible with dance with the tasks laid down in Article 3, the specific objectives set out in Article 3 in was really pursuing objectives affecting the relation to the activities and powers of the applicant which are expressly opposed to its High Authority. tasks, it is thereby proved that the High Au In the present case it cannot be disputed thority has committed a misuse of powers that those two limits have been exceeded. affecting the applicant, not an infringement The High Authority argues in vain that the of the Treaty. financial arrangement in question was With regard to the alleged confusion be made in the common interest of consumers tween the concepts of objective and of re of ferrous scrap. A mere remark in the state sult the applicant replies that the admissi ment of reasons does not constitute evi bility of the application depends upon proof dence, still less proof. A binding measure of a lawful interest and for this reason it is imposing a penalty on all manufacturers of necessary to establish the damage caused in special steel in respect of all new plant, espe any proceedings for annulment based upon cially when the measure affects a category misuse of powers. It is justified in giving as of products which cover privileged require the results the consequence of the contest ments, cannot be considered as genuinely ed measure to the extent to which those re- enacted in the common interest.

Moreover, the objectives of the contested other than those laid down for it by the measures are at variance with most of the Treaty. The arguments submitted in the ap specific objectives laid down in Article 3 for plication do not really call in question the the activities of the High Authority. objective pursued by the High Authority, rather the effects of the decision with regard (a) The principle of equal access to the to the applicant undertaking. sources of production (Article 3 (b)) is ex The defendant then criticizes the explana cluded from the High Authority's reasons tions put forward by the applicant regarding since it: the general scope of Article 3 and concludes

contradict the objectives of Article 65 (Ar ticle 6 (3) of the decision). They are more (c) With regard to subparagraphs (d) and restrictive than is necessary for their pur (g) the objectives to which they relate can poses. not be isolated and considered apart from the context of the article as a whole. The ob (c) Protection of employment (Article 3 jectives of Article 3 must be properly recon (e)) is precluded from the reasons for the ciled and the objective of subparagraph (a) High Authority's action since through the takes precedence over the others. contested measures it is hampering fact ories' production and causing unemploy

JUDGMENT OF 21. 6. 1958 — CASE 11/57

works. The High Authority, through its re The applicant states that if it is technically course to the power conferred upon it by impossible for manufacturers of special Article 53 (b), wished to avoid the formal steels to effect the slightest economies in ities and limits which Article 54 places ferrous scrap the establishment of the sup upon its actions with regard to investment. plementary rate and of the system of re The defendant replies that the contested de funds cannot in such circumstances be con cision did not have as its specific objective, sidered as proper procedures for attaining or as a decisive reason, the influencing of the alleged objective and must rather be investments, rather a regular supply to the considered as measures of a financial or fis Common Market at a reasonable price. As cal nature the real objective of which is to with all arrangements concerning prices, allocate products.

The contested encing investments. This provision does no measures in fact set up a double market more than give effect to the principle of which is capable of preventing an important supplementary taxation on increased con category of consumers from obtaining their sumption of ferrous scrap in relation to a supplies. This amounts to a measure of al reference period prior to Decision No 2/57. location and can only be carried out by re The High Authority granted a notional ref course to Article 59 which contains essen erence consumption in respect of plant put tial guarantees for the undertakings. into operation in the course of the reference The defendant replies that the complaint is period selected by the undertakings and unfounded.

So far as producers tention of these was to allow steel manufac of special steel are concerned, ferrous scrap turers to adjust to the new situation by constitutes an extremely small element of seeking supplies on the market in pig-iron. the cost price. The applicant wrongly complains that the Nor can the complaint be admitted with re High Authority exceeded the limits of the gard to misuse of procedure. A proper view power conferred upon it under Article 53 of the concept of indirect means of action and of trespassing upon subject-matter re on production within the meaning of Arti served for the procedures laid down in Ar cle 57 required the High Authority to adopt ticle 54 because, as the defendant has alrea the procedure for the financial arrangement dy stated, indirect means of action on pro laid down in Article 53 with regard to the

According to the applicant's statutes, it constitutes a private undertaking gov­ erned by French law having as its object the production of steel within the ter­ ritories referred to in the first paragraph of Article 79 of the Treaty. Accordingly it has capacity to institute proceedings against decisions and recommendations of the High Authority before the Court of Justice in accordance with the provisions of Articles 33 and 80 of the Treaty. Pursuant to the provisions of the second paragraph of Article 33, the Treaty per­ mits the undertakings referred to in Article 80 to institute proceedings for the an­ nulment of general decisions of the High Authority which they consider to in­ volve a misuse of powers affecting them. Decision No 2/57 is a general decision establishing a principle having the force of law, which imposes generalized principles for its application and sets out the legal consequences thereof. The applicant asserts that it was adversely affected by the contested provisions be­ cause of the extreme difficulty for it in effecting economies in ferrous scrap and, consequently, because it is obliged to pay the supplementary contribution if it in­ creases its consumption of bought scrap. In this connexion it formally alleges that it has been affected by misuse of powers on one or more occasions and produces a relevant statement of reasons leading it to believe that there has been a misuse of powers on one or more occasions. The purpose of the arguments upon which it relies is to obtain a declaration that, when the High Authority adopted the con­ tested decisions, it exercised the powers conferred upon it under Article 53 (b) of the Treaty for purposes other than those for which they were conferred upon it, both through serious disregard for certain of the objectives referred to in Article 3 and through the clear intention of attaining objectives specifically governed by Articles 54 and 59 whilst avoiding the special procedures laid down in those ar­ ticles.

The equalization arrangements and refunds do not directly affect prices but rather the factors contributing to the formation of prices. In this way those factors, with­ out preventing prices from being freely fixed, modify the level at which they are fixed. The financial arrangements provided for in Article 53 affect by such alter­ ations in the level of prices the other characteristic features of the state of the mar­ ket and in particular the supply of and demand for the relevant products. These arrangements thus constitute powerful and effective intervention procedures at the disposal of the High Authority, but are nevertheless 'indirect' within the meaning of Article 57 of the Treaty as distinct from the direct means of action through establishment of production quotas (Article 58) or the allocation of re­ sources (Article 59). The High Authority, by using the financial arrangements provided for in Article 53, is in a position to exercise a broad influence on the market in coal and steel whilst it must be borne in mind that Article 53 restricts the application of such arrangements to the procedures 'necessary for the performance of the tasks set out in Article 3 and compatible with this Treaty, and in particular with Article 65'. The express reference made to Article 3 does not release the High Authority from its duty to observe the other articles of the Treaty and in particular Articles 2, 4 and 5 which, together with Article 3, must always be observed because they es­ tablish the fundamental objectives of the Community. Those provisions are bind­ ing and must be read together if they are to be properly applied. These provisions can stand by themselves and accordingly, in so far as they have not been adopted in any other provision of the Treaty, they are directly applicable. If they have been adopted or are governed by other provisions of the Treaty words relating to the same provision must be considered as a whole and applied together. In practice it will always be necessary to reconcile to a certain degree the various objectives of Article 3 since it is clearly impossible to attain them all fully and simultaneously as those objectives constitute general principles which must be observed and har­ monized as far as possible; on the other hand such financial arrangements must be instituted without infringing the provisions of Article 58 and of Chapter 5 of Title III of the Treaty. Decisions prior to Decision No 2/57 were concerned to equalize the prices of im­ ported ferrous scrap and domestic scrap. Decision No 2/57 continues this system but adjusts it and supplements it with new provisions intended to affect at the

(a) Pursuant to Article 53 (b) of the Treaty the High Authority may, with the unanimous assent of the Council, itself make any financial arrangements which it recognizes to be necessary for the performance of the tasks set out in Article 3. The exercise of the powers thus conferred upon the High Authority is subject to the conditions set out in Articles 2 to 5 concerning the establishment, adminis­ tration and guidance of the Common Market. Pursuant to Article 2 of the Treaty the Community has as its task to contribute to economic expansion, growth of employment and a rising standard of living in the Member States. The means prescribed for the attainment of those objectives consists in the establishment of a Common Market on the conditions laid down in Article 4 concerning the abolition of obstacles to trade. Pursuant to Article 2 the Community is obliged progressively to bring about conditions which will of themselves ensure the most rational distribution of production at the highest pos­ sible level of productivity while safeguarding continuity of employment and tak­ ing care not to provoke fundamental and persistent disturbances in the economies of Member States. To those ends the Community must ensure on the market the establishment, maintenance and observance of normal conditions of competition and, subject to observance of the priorities laid down by Article 57 of the Treaty in relation to its means of action, it must, in accordance with the provisions of Article 5, 'exert di­ rect influence upon production or upon the market only when circumstances so require'. In pursuing the objectives laid down in Article 3 of the Treaty the High Authority must permanently reconcile any conflicts between those objectives considered in­ dividually and, when such reconciliation proves unattainable, must grant such temporary priority to one or other of them as appears necessary having regard to the economic facts or circumstances in the light of which, in carrying out the tasks entrusted to it under Article 8 of the Treaty, it adopts its decisions.

Pursuant to the provisions of Article 57 of the Treaty in the sphere of production, the High Authority is required to give preference to the indirect means of action at its disposal, in particular to intervention in regard to prices. As has previously been stated, such means of action must be regarded as including the financial ar­ rangements provided for in Article 53 since they influence prices in particular through compensation for and correction of factors which contribute to their for­ mation. Since those arrangements contribute to the formation of prices they alter the price-level on the market and thereby influence the effects which the price- level produces on the direction of production, and thus on the structure of the means of production. Such arrangements thus provide the High Authority with the means to modify the effects of 'normal competitive conditions' whilst ensur­ ing, in accordance with the requirements of Article 5 of the Treaty, the mainte­ nance and observance of these conditions. By making appropriate use of this pow­ erful means of intervention the High Authority is largely capable, provided that the circumstances require it, of bringing about the required reconciliation between the objectives listed in Article 3 of the Treaty in carrying out the task with which it is entrusted under the Treaty. The powers which have thus been conferred on the High Authority are however limited by the specific provisions set out in Title III of the Treaty. In particular these powers would be used for an objective other than their legal purpose if it ap­ peared that the High Authority had applied them with the exclusive, or at any rate the decisive, purpose of evading a procedure especially prescribed by the Treaty in order to deal with the circumstances with which it is required to cope. At the time when the contested decisions were adopted the market in ferrous scrap was widely recognized as being characterized by a severe shortage of Com­ munity supplies, by mounting difficulties in imports and by large-scale and rapid increases in the price of foreign scrap. This situation arising from those economic facts and circumstances cannot in any event be regarded as prima facie excluding intervention by the High Authority to counter the consequences at variance with the requirements of Article 3 of the Treaty which this situation might have in­ volved. Furthermore the High Authority's appraisal of the situation in the light of which the contested provisions were adopted does not by itself show that the authors of the said measures were inspired by an unlawful motive. Accordingly the Court does not consider that the circumstances were such as to rule out, at that time, action by the High Authority on the market in ferrous scrap with a view to affecting indirectly means of production using scrap.

to permit undertakings to adapt themselves progressively to the conditions there­ by created for them, in particular the choice by each undertaking of its own ref­ erence period, the period of six months during which payment of the contribution at the supplementary rate is suspended, the graduated nature of the rate, the al­ location of a reference consumption and a specific input reference for plant which began operations during the year following the entry into force of the decision to­ gether with the allocation of a specific input reference without a time-limit for all plant beginning operations after the expiry of this latter period. Through those measures the High Authority provided the scheme for the equalization of the prices of imported ferrous scrap, which it had previously established, with condi­ tions intended to prevent a fall in the price of ferrous scrap resulting from equal­ ization from encouraging producers in the Common Market to increase their con­ sumption of scrap. Thus defined the decisive aim of the contested provisions constitutes lawful in­ direct action, within the meaning of Article 57, applied to the market in ferrous scrap in order to ensure, bearing in mind the facts and circumstances then ob­ served, regular supplies to the Common Market. The said aims are thus in accor­ dance with the provisions of Article 3 (a) and the latter part of (d), the second paragraph of Article 2 and the third subparagraph of the second paragraph of Article 5 of the Treaty.

JUDGMENT OF 21. 6. 1958 — CASE 11/57

The supplementary rate established under Article 3 (1) (b) of the contested deci­ sion applies generally and entirely to any consumption of bought scrap in excess of that relating to a reference period. The discretion conferred upon the undertak­ ings subject to the scheme themselves to select, within specially prescribed tem­ poral limits, the period most favourable to them does not, however, mean that the criterion used for distinguishing between them thus loses its objective nature, without which it would appear arbitrary. Indeed the factual differences which this situation entails for undertakings stem from their dissimilar operating conditions and not from any legal inequality inherent in the decision. The graduation of the contested supplementary rate laid down by the provisions of Article 8 is based exclusively on the successive periods for the application of Decision No 2/57. The graduation is thus general and absolute, objectively based upon the wish progressively to provide encouragement, by influencing prices, to steel undertakings consuming ferrous scrap to economize in using it so as to avoid its unconsidered exhaustion.

The refunds of the proportion of the equalization contribution calculated at the supplementary rate, which were established pursuant to Article 9 of the disputed decision, are granted on a purely objective basis, the reduction of the specific input coefficient of ferrous scrap for each type of plant and manufacturing process using that material. The varying effects which the application of that article produces on the persons concerned, by reason of varying operating conditions and technical problems which, for certain categories of plant, may reduce or even exclude en­ titlement to refunds cannot render the rule inequitable in law — which is excluded by the nature of the criterion adopted.

zation of production may lawfully be sought within the framework of a general action on the basis of reconciling the objectives of Article 3, if necessary granting such priority to one or other of them as appears necessary having regard to the si­ tuation arising from the economic facts or circumstances observed at the time of the intervention.

(0 The 'indirect means of action' in relation to production prescribed in Article 57 are to be distinguished from the 'direct influence' referred to in the third sub­ paragraph of the second paragraph of Article 5 not by the aims pursued but by the

JUDGMENT OF 21. 6. 1958 — CASE 11/57

methods appropriate to attain them. Indirect means of action, by affecting, espe­ cially as a result of the financial arrangements under Article 53, certain of the fac­ tors which play a part in forming prices, create conditions which encourage un­ dertakings freely and willingly to choose the behaviour desired by the High Au­ thority for the accomplishment of the tasks with which it is charged under the Treaty. On the other hand direct influence, such as the allocation of resources for which provision is made in Article 59, is not concerned with how producers would behave if they acted freely but directly prescribes, on pain of fines, as is stated in Article 59 (7), the behaviour which the High Authority considers necessary with regard to the situation with which the Treaty requires it to cope. The two procedures, indirect and direct, are intended to modify the structures to which, unless modified by intervention, individual behaviour would give rise. The procedures thus both constitute procedures for economic intervention but the for­ mer create the right conditions to encourage producers freely to adopt the behav­ iour which the common interest, referred to in Article 3, requires of them whilst the latter impose upon undertakings in the same common interest behaviour other than that which they would be prompted to adopt by the actual circum­ stances.

SOCIÉTÉS ÉLECTRIQUES D'UGINE v HIGH AUTHORITY ECSC

Although the High Authority wished at the same time to 'promote a policy of us­ ing natural resources rationally and of avoiding their unconsidered exhaustion', an objective laid down in Article 3 (d) of the Treaty, it also had to take into account the conditions appropriate to various categories of consumers and thus modify the application of the supplementary contribution imposed on the latter in accordance with the variations in their consumption of ferrous scrap. This modification en­ tailed the gradual elimination of the effects of equalization, or even in certain cases their abolition.

The contested scheme was thus intended above all to ensure a regular supply to the market and to promote a policy of using resources rationally. Nevertheless there are no grounds for asserting that, by according temporary priority to certain of the aims set out in Article 3, and consequently only partially reconciling all of the aims set out therein, the High Authority used the powers given it under the Treaty for purposes other than those for which they were conferred. Since misuse of powers has not been established this complaint must be rejected.

2. The complaint of misuse of powers with regard to Article 59 of the Treaty in that the financial arrangement was used for the purpose of allocation.

JUDGMENT OF 21. 6. 1958 — CASE 11/57

tutes sufficient proof in law that in this respect the system may be treated as equi­ valent to the allocation for which provision is made in Article 59 and Annex II. In the contested measures the High Authority was concerned to deal with a si­ tuation marked by extreme scarcity of ferrous scrap; in applying for this purpose the powers conferred upon it under Article 53 (b) of the Treaty it was acting in accordance with the provisions of Article 59 which provide that recourse shall only be had to the special procedure of quantitative allocation, even if a case of serious shortage has been duly found, if the means of action provided for in Article 57, amongst which the financial arrangements referred to in Article 53 must be clas­ sified, do not permit sufficiently effective action. Furthermore, whilst the contested provisions are intended progressively to in­ crease the cost of ferrous scrap in proportion to the quantities consumed and to graduate that cost so that it varies in terms of the type of plant and manufacturing processes using scrap, the applicant has failed to establish that the financial burden which this entails for the relevant undertakings is determined in such a way that the arrangement complained of must be considered as equivalent to a direct and specific arrangement for quantitative allocation or for regulating the level of their activity. Furthermore, although the system set up does not constitute a system of alloca­ tion, even on the view that such a system might display certain characteristics of indirect allocation it would be necessary to prove that the objective of the contest­ ed decisions was to attain this allocation by means of Article 53 (b), through the expedient of a financial arrangement and contrary to the stated objective of effect­ ing economies in ferrous scrap and ensuring a regular supply of scrap to the mar­ ket, or else, to prove that the High Authority had been motivated by a wish to evade Article 59 or that, through a serious misconception, it had failed to recog­ nize that the contested arrangement amounted to an arrangement under Article 59. Since this has not been sufficiently proved in law misuse of powers has not been established.

Costs

Under Article 60 of the Rules of Procedure of the Court the unsuccessful party shall be ordered to bear the costs. In the present case the applicant has been un­ successful with regard to the substance of the case and the defendant has been unsuccessful as regards admissibility. In accordance with the second paragraph of the said article the applicant must thus be ordered to bear four-fifths of the costs of the proceedings and the defendant to bear one fifth.

Upon reading the pleadings; Upon hearing the parties; Upon hearing the opinion of the Advocate-General; Having regard to Articles 2, 3, 4, 5, 33, 46, 47, 48, 53, 54, 57, 58, 59, 65 and 80 of the Treaty and Annex II thereof; Having regard to the Protocol on the Statute of the Court of Justice; Having regard to the Rules of Procedure of the Court of Justice and the rules of the Court on costs,

THE COURT

hereby:

Declares that the application is admissible but unfounded and consequently dismisses the application for the annulment of the provisions contained in Articles 3 (1) (b), 4 (3), 5, 6, 8 and 9 of Decision No 2/57 of the High Au­ thority dated 26 January 1957;

President Judge-Rapporteur A. Van Houtte

Registrar

OPINION OF MR ADVOCATE-GENERAL LAGRANGE

(see p. 288)