C-19/61

3. Common financial arrangements — Undertaking — Concept (ECSC Treaty, Article 80)

4. Undertakings — Unity of economic activity — Separate legal personality — Groups of undertakings — Parent company and subsidiaries — Absence of legal unity (ECSC Treaty, Article 80)

5. Common financial arrangements — Equalization of ferrous scrap — Levy — Purchase of scrap — Broad interpretation of this criterion — Ineffectiveness of reservation clauses (ECSC Treaty, Article 53)

6. Discrimination — Concept (ECSC Treaty, Articles 3(b), 4(b))

1. Cf. Summary of the Judgment in 4. Cf. Summary of the Judgment in Joined Cases 17 and 20/61, No 1. Joined Cases 17 and 20/61, No 4. 2. Cf. Summary of the Judgment in 5. Cf. Summary of the Judgment in Joined Cases 17 and 20/61, No 2. Joined Cases 17 and 20/61, No 5. 3. Cf. Summary of the Judgment in 6. Cf. Summary of the Judgment in Joined Cases 17 and 20/61, No 3. Joined Cases 17 and 20/61, No 6.

In Case 19/61

defendant,

supported by

PHOENIX-RHEINROHR AKTIENGESELLSCHAFT, having its registered office in Düsseldorf, represented by E. W. Mommsen, Ironworks manager, Assessor, and W. Bruns, Director, assisted by H. Lietzmann, advocate of the Essen Bar, with an address for service in Luxembourg at the Chambers of Albert Woopen, 2 rue du Fort-Elisabeth, intervener,

Application for annulment of the Decision of the High Authority of 5 July 1961 notified to the applicant on 24 July 1961, rejecting a claim for exemption from the equalization contribution, THE COURT

composed of: A. M. Donner, President, O. Riese (President of Chamber), L. Delvaux, Ch. L. Hammes and A. Trabucchi (Rapporteur), Judges,

Advocate-General: M. Lagrange Registrar: A. Van Houtte

The defendant contends that, insofar as ing the business of a number of com the application is admissible, the Court panies engaged in the iron and steel should dismiss it as unfounded with all industry. As a general rule these com legal consequences in particular as panies were 100% owned by the parent regards costs. company (in some cases, more than 95%). B — Intervention procedure At the end of 1958 the following The intervener contends that the Court companies were amalgamated under the

Essener Steinkohlenbergwerke AG tains its previous conclusions and in addition claims that the Court should: This amalgamation was effected in accordance with the German Law of 12 — order the intervening party to pay the costs of the intervention November 1956 on the change of cor porate status of investment and miners' procedure. companies ('Gesetz über die Umwand II — Facts lung von Kapitalgesellschaften und bergrechtlichen Gewerkschaften'). Before the amalgamation, the first four The facts may be summarized as follows: companies mentioned above had been

countries. The Office commun des con interpreted the term 'own resources' sommateurs de ferraille (OCCF) (The as meaning 'scrap not bought' and as a Joint Bureau of Ferrous Scrap Con result had recorded all the tonnages sumers) and the Caisse de péréquation received from its subsidiaries as 'own des ferrailles importées (CPFI) (The resources'. Imported Ferrous Scrap Equalization In Application 23/58, the applicant m Fund) were responsible for managing it. that case, together with other under Under this scheme, the undertakings takings similar in structure, had objected referred to in Article 80 of the ECSC to the letter of 18 December 1957 Treaty were liable to pay the required (Official Journal of the ECSC of 1 contributions, the amount whereof was February 1958) in which the High calculated pro rata on the tonnages of Authority, replying to an enquiry from bought scrap consumed by each under the OCCF whether group scrap should taking over a prescribed period, whilst or should not be considered as 'own the consumption of 'own resources' was resources', stated that there was already not subject to this levy (Decision No a well-established view that the concept 2/57, Articles 3 and 4). of 'own resources' was allied to the legal

JUDGMENT OF 13.7.1962 — CASE 19/61

from the Secretary General of the High Risiko'). As a general rule, the character­ Authority of 21 July 1961 which it is istics of an undertaking and productive claimed confirms the second assumption activity coincide. But where control on since it sets out as the subject of the the one hand and productive activity disputed Decision only the rejection of the on the other are in the hands of separate applicant's request for exemption. It is legal persons, the concept of an under­ precisely because of this argument that taking can only be deemed to be realized the applicant has brought its action. for the purposes of the Treaty where,

MANNESMANN AG v HIGH AUTHORITY

within the framework of the official be annulled on the ground also that the organization, production and the factors concept of an undertaking on which it is which characterize the concept of an based is in direct contradiction to the undertaking are first combined in the previous attitude of the High Authority hands of a single entity. In this respect towards the applicant, a contradiction the applicant asserts that in several incompatible with the principles of good places (Articles 47, 54, 60, 65 and 66) administration.

capacity of an undertaking engaged in already decided that scrap supplied by iron and steel production. Moreover in one legally independent undertaking to the course of Case 23/58, the High another legally independent under­ Authority had never questioned the taking belonging to the same group is also capacity of the applicants as under­ bought scrap and therefore liable to takings, made up of parent companies, equalization. one of which was the Mannesmann The defendant goes on to state that, in company. Finally the applicant em­ spite of affiliation agreements, the com­ phasizes that the High Authority panies already affiliated to the applicant granted loans which under the Treaty possess considerable autonomy extern­ can only be granted to 'undertakings' ally and in relation to third parties within the meaning of Article 80, to the because they carry on business in their 'Charbonnages de France', expressly own names and incur responsibility for described by the High Authority in its all commercial liabilities. Moreover the Seventh General Report as an 'under­ administrative machinery of the sub­ taking' although it is not directly en­ sidiaries is not short-circuited even gaged in production and restricted to though general questions are dealt with controllinglegallyindependentcollieries. according to uniform principles and The disputed Decision ought therefore to though certain spheres of activity lie

JUDGMENT OF 13.7.1962 — CASE 19/61

contrary. The defendant denies having which the decisions were given. It states:

arbitrarily adopted this or that concept 1. The control, trading and risk have of an undertaking. In fact the decisions always remained wholly with the on scrap were taken before the authoriza­ applicant company; tions on concentration to which the applicant refers. It is clear from these 2. The applicant was in a position to decisions that the equalization charges incorporate the various legally in­ fell on individual undertakings con­ dependent companies by unilateral suming scrap. As regards authorizations decision and without consulting them. to form a concentration granted to the In those cases on which the Court of

applicant, the defendant observes that Justice has so far ruled on the other under Article 66 it is sufficient if any hand, no parent company could have single one of the undertakings concerned' incorporated subsidiaries by unilateral falls within Article 80 for the concentra­ act without consulting them. The extent tions to become subject to the authoriza­ of the legal person corresponded to the tion of the High Authority. Thus under­ organic limits created by the different takings not subject to the ECSC when owners.

contemplating the acquisition of an The defendant on the other hand contends ECSC undertaking are bound to seek that the principles enunciated by the the authorization of the High Authority. Court of Justice on the equalization of Nor does the grant of loans to the scrap, especially as regards the illegality 'Charbonnages de France' indicate that of the exemption of group scrap, can be the High Authority recognizes this applied to the applicant's case. In organization as a Community under­ this connexion it refers to the opinion taking; these loans have in fact been of the Advocate-General in Joined Cases made in favour of mining undertakings 32 and 33/58 in which he asserted that designated by name. Moreover the fact the difficulties raised by those applica-

of Justice, whilst fully conversant with another of its works. the facts of the German cases, formulated This result goes against the judgments in general terms the basic principles of the Court in Joined Cases 32 and from which the liability of group scrap 33/58 and Case 42/58 which makes the arises. existence of different treatment con­ ditional on its being applied to different (c) The complaint of discrimination circumstances of the parties concerned and only allows different systems if their different circumstances can be attributed (aa) The comparability of the position of to different conditions of production and the applicant with that of certain of not merely to differences in the 'legal, its competitors exempted from payment administrative or financial structure' of of the equalization contribution the groups. The applicant, starting from the premise The applicant refers to the general that the prohibition of discrimination principle of non-discrimination devel­ provided for in Article 4 of the ECSC oped by the Court from Articles 2, 3 (b), Treaty applies not only to undertakings 4 (b), 60 and 67 of the Treaty and for the purposes of Article 80 but generally maintains that from the Court's decisions to all producers, buyers and users in the it follows that the High Authority, in field of coal and steel — and that would choosing a criterion for the exemption be sufficient to demolish the objection from payment of the equalization con­ raised by the High Authority as to the tribution, could only choose one which admissibility of the complaint of dis­ would impose the levy on competing crimination — goes on to say that if the undertakings with comparable con­ High Authority was free to define the ditions of production to the same extent. levying of contributions as it thought The applicant stresses the direct com­ fit, it nevertheless had the duty to parability between itselfand the Phoenix- treat similar economic units in the same Rheinrohr company as to conditions of way, regardless of their legal form. production and points out the differences Legal form in no way determines the of treatment which the criterion for closeness of relations within the group; exemption chosen by the High Authority in fact with centralized organizations, involves and which operates to its economic, technical, personal, financial disadvantage as compared with the and functional, relationships can be Phoenix-Rheinrohr company. For a closer between undertakings constituting period of four and a half years it puts this several legal persons than between under­ difference at ten million dollars, meaning takings grouped into a single legal a difference of the order of 5 DM per person. Moreover the applicant states metric ton of crude steel produced or that its traditional methods of pro-

this is shown by the fact that shortly concept of the factory for calculating the after the passing of the Law of 11 premium. October 1957 on taxation of alterations Apart from the discrimination between in structure, the applicant put its main the applicant and similar undertakings subsidiaries under its own name. The which has already been stressed, the applicant kept its legal form because it formal criterion chosen by the High saw no reason to change it. Until 1957 Authority results in its accepting as own it was free, particularly as regards the arisings even scrap recovered in an quantities recovered in its tube factories, activity which does not enter into the to treat these scrap arisings as own concept of steel production provided arisings. that the factory producing scrap is Moreover, although it is true that the operated by the same legal person which Court has declared that certain effects operates the steel-works using this scrap of an administrative act are inevitable (for example, Renault and FIAT). and therefore permissible, it must not This exemption is contrary to the be forgotten that the Court has also judgment of the Court in Joined Cases laid down in Case 15/57 that the High 32 and 33/58, which restricts the Authority may adversely affect the possibility of exemption to own arisings interests of third parties 'only after re-used 'in the steel production cycle'. carefully considering all interests in­ Again, this criterion leads to imposition volved' and taking care 'as far as of the levy on scrap recovered in first- possible' to restrict the foreseeable harm heat rolling mills which, with a view to to third parties. In Case 14/59 the the rational utilization of heat, work in Court laid down also that an intervention a close technical relationship with the by the High Authority may not affect steel-works producing the steel and the competitive position of those involved re-using the scrap since steel-works and more adversely than appears necessary rolling mills are constituted as two after a thorough examination of the legal persons, even though they are interests involved and in any event 100% integrated. may not affect it substantially. The defendant first disputes the admissi­ In view of the conditions prevailing bility of this complaint. It observes that, within the Community iron and steel while the equalization scheme existed, it industry, if the High Authority wished was the affiliated steel producing com-

panies which were subject to the con unit by its clarity and precision, whilst tribution, and not the applicant parent the application of economic criteria company. Only the position of the involves the risk of creating confusion subsidiaries can therefore be taken into and subjecting other undertakings to account in determining whether or not illegal discrimination. there is discrimination. As the applicant Moreover according to the defendant the does not raise the complaint of discrimin principle of equality of treatment cannot ation with regard to the subsidiaries, be carried to extremes: on the contrary the Court cannot go into this question. it is quite proper, as the Court has As regards the justification for this already decided, to accept the inequality complaint the defendant observes that of the effects of a reasonable and objective the effects complained of by the applicant criterion, because otherwise a prudent do not result from the Decisions of the and efficient management would not be High Authority but are rather the practicable; inequality of this nature consequence of resolutions made by the could not be considered as infringing the applicant itself before the Common principle of equality (Rec. 1958, pp. 187 Market came into operation, with a to 189; 1958-1959, pp. 477 et seq.).

The by interested parties who choose a given Court opposes rather the defining of a legal form, in this case voluntary retention vague and nebulous limitation based on of the group structure, have no grounds the legal, administrative and financial for demanding that this legal form should structure of industrial groups. not be taken into account whenever its As to the applicant 's complaint that the application is capable of operating to High Authority failed to show the their disadvantage. difference between the position of the The defendant observes that the criterion applicant and that of its competitors of the legal person, used to determine which constituted a single legal person, the scrap assessable, and accepted by the defendant contends that it is upon the Court and by the High Authority the applicant who alleges discrimination alike, is clear and objective, so that in that the burden of proof lies. law all undertakings consuming scrap It maintains further that when a general are treated on the same footing. In measure taken by the High Authority is these circumstances exemption from the at issue, the prohibition of discrimination equalization contribution of the scrap shows that the measure must not be at issue would constitute discrimination arbitrary and must not adversely effect as regards undertakings operating in the conditions of competition.

JUDGMENT OF 13.7.1962.— CASE 19/61

It refers to between certain figures taken from the the concept of the production cycle used balance sheet of the Mannesmann group by the Court in Joined Cases 32 and on the one hand and the Phoenix- 33/58 and stresses that this concept Rheinrohr company on the other during includes only scrap recovered in raw the period when the equalization of pig iron or crude steel production or in scrap was in force shows Mannesmann their processing, and re-used for pro to be in a particularly favourable duction of raw pig iron or crude steel. position, so much so that any suggestion Moreover none of the differences alleged that the applicant's competitive capacity to exist by the intervener concerns has suffered serious adverse effects can conditions of production within the

The applicant the Mannesmann company at the time also observes that, even if the differences of the Equalization Fund. of an economic nature invoked by the The intervener observes that there is no intervener did not exist, the latter would element of discrimination solely by still be exempt from the levy as a single reason of the difference between its legal person whilst the applicant would own legal structure and that of the be subject to it. That again shows that applicant during the material period in these differences are irrelevant. this case and denies that it is in a comparable position to the applicant (bb) The criterion of output even at the economic level.

short-term fluctuations in the economy conditions of production and the con-

MANNESMANN AG v HIGH AUTHORITY

crete factors of output. Whilst in the equalization contributions, this does cases so far decided the criterion of the not accord with the effective results of the

As the High Authority 33/58 and Case 42/58 — the position of declares, the contribution was only the applicant is essentially different. In levied on scrap acquired on a commercial spite of legal autonomy, the profitability basis, that is to say, bought on the of the applicant did not depend on market. Even after the system, which the individual profitability of each of had operated on a voluntary basis, had the different affiliated companies; the been replaced by its Decision No 22/54, applicant was in a position to make the High Authority let it be understood calculations on the basis of what is that, as regards the demarcation between

was collected only on scrap bought on (cc) The aims of the equalization system, the market is wrong as appears from the and the action taken by the High 'Second General Report on Community Authority Activity' (p. 104), in which it is stated that the equalization charge also fell on 'a certain proportion of the scrap The applicant states that, even if it be constituting the consumers' own re admitted that in accordance with the sources'. Thus, when the compulsory general aims and principles of the Fund was established, the charge on equalization scheme exemption of own own resources was expressly abolished, resources constitutes an exception to this being a further indication of the the rule whereby all consumers of intention of the authors of the equalization

scrap are liable as such to pay the

JUDGMENT OF 13.7.1962 — CASE 19/61

petence disputed scrap by reason of the differ ences already stressed between its own The applicant states that, in giving its case and those on which the Court has opinion in accordance with the basic so far ruled, maintains nevertheless that, Decisions, the Council of Ministers if the Court is of opinion that the disputed could only assume that the term 'under scrap cannot be exempted, discrimina taking' must be understood in the sense tion can only be avoided by levying the in which the High Authority had under contribution on its competitors. stood it until then, bringing into it In this connexion it refers to the judg parent companies of which the applicant ment of the Court in Joined Cases 32 was one at the time of the equalization and 33/58 in which it sees a hint of the system. If, in taking the general Decisions, possibility that by way of exception the the High Authority had wished to legal person should not be taken as the abandon this concept of undertaking it basic criterion for exemption when should have done so expressly.

In these do not permit of a levy affecting all circumstances, according to the applic scrap users in the same way, the applicant ant, the question arises whether a defect states that these Decisions are then of form of which cognizance must be themselves discriminatory and therefore taken by the Court of its own motion, contrary to the Treaty and that the must not involve annulment of the disputed Decision applying them should disputed Decision. therefore be annulled. The defendant states that this objection is The defendant maintains on the contrary inadmissible because the Treaty re-

it, does not rely on the invalidity of IV — Costs such retention but says that the propriet­ In the event of the Court's dismissing ary relationship is irrelevant. the applicant's application on the ground The applicant stresses that the attitude that the scope of the disputed Decision of the High Authority towards it is is restricted to dismissing the request for contradictory because on the one hand exemption without touching on the it seeks to apply a strictly formal concept principle of the actual liability for the of ownership but on the other hand, as contribution, the applicant maintains its soon as the undertakings affected by it conclusions as to costs on the basis of invoke this concept, it seeks to override the arguments set out above under the the formal legal position. The applicant heading 'Preliminary observations'. asserts moreover that the argument of the The defendant has opposed this request High Authority disputing the validity of stating that dismissal of the request for the retention of ownership according to exemption by the applicant implies that German law does not accord with the its group scrap is in principle assessable. prevailing opinion of legal writers in V — Procedure Germany. The defendant considers that the reference The procedure followed the normal to a clause retaining ownership is course.

irrelevant because it is contrary to the By an application presented on 3 January logic of any scrap equalization scheme 1962, the Phoenix-Rheinrohr company to allow individual undertakings to asked to intervene in support of the declare at will that the whole of their defendant:

On the substance of the case

I — Submission based on infringement of the Treaty or of the rules of law relating to its application

1. The concepts of 'undertaking' aad 'purchase' for the purposes of the application of the equalization scheme for scrap

The applicant maintains that scrap moving between its subsidiaries is own resources, within the meaning of the basic Decisions, of one and the same undertaking constituted by the parent company which engaged in production through the intermediary of its subsidiaries, being stripped of the essential characteristics of an undertaking.

In support of its argument, the applicant emphasizes the very wide powers enjoyed by the parent company in relation to its subsidiaries which are stripped of all autonomy. The national law of Member States in certain circumstances treats groups constituted by the parent company and its subsidiaries as analogous to undertakings; this is especially so in the case of German fiscal law. In the present case moreover there were contracts whereby the profits and losses or the activities of the subsidiaries were taken over in toto by the parent company.

On this point the applicant invokes certain passages, taken out of context, from the judgments of the Court in Joined Cases 32 and 33/58 (Rec. 1958- 1959, pp. 300 et seq.) Case 42/58 (Rec. 1958-1959, pp. 399 et seq.) and Joined Cases 42 and 49/59 (Rec. 1961, pp. 141 et seq.) and maintains that the illegality of the exemption of group scrap laid down by those judgments does not apply to it because they referred to 'Konzerne' (concerns) which were not completely integrated.

To define scrap subject to the equalization levy the High Authority, in its Decisions Nos 22/54 et seq., took as its criterion the purchase of the scrap by the undertaking consuming it.

As the Court recognized in its judgment in Joined Cases 42 and 49/59 (Rec. 1961, p. 155), this criterion must be broadly interpreted. Purchase need not necessarily fulfil all the conditions required by the appropriate national civil law for the validity and effectiveness of a contract of sale but must rather be applied to every transfer effected by the undertaking consuming it when that undertaking receives scrap from an outside source at a price to be fixed.

To define the scope of this criterion the concept of an undertaking must be studied more closely.

An undertaking is constituted by a single organization of personal, tangible and intangible elements, attached to an autonomous legal entity and pursu­ ing a given long term economic aim.

According to this concept the creation of every legal entity in the field of economic organization involves the establishment of a separate under­ taking; a particular economic activity cannot be regarded as forming a single unit in law when the legal effects of that activity must be separately attributed to several distinct legal entities.

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It follows that, in order to determine the movements of scrap subject to equalization, it is not the group as a whole which must be looked at but each of the several legal persons individually constituting the undertakings.

This conclusion does not run counter to the fact that German fiscal law has

adopted different criteria.

The explanation for this difference is that the sole purpose of fiscal law is to bring in revenue to the State budget by taxing the increased wealth presumed to arise from the movement of goods, whilst the equalization scheme is intended to maintain stability in the scrap market and to this end it imposes

MANNESMANN AG v HIGH AUTHORITY

a levy directly on every movement of scrap between different undertakings even when from the economic standpoint such movement does not constitute a true transfer of wealth.

In these circumstances this plea of the applicant must be rejected.

3. On the question whether the disputed scrap can be considered as 'bought scrap'

The applicant maintains that the disputed scrap cannot be regarded as bought ferrous scrap in so far as the possibility of purchase with regard to quantities of scrap used since 23 December 1957 has been precluded by the retention of ownership by Mannesmann Hüttenweke AG.

It must be said at the outset that, at the time of transfer of scrap from one subsidiary to another, a price was always fixed, even after 23 December

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1957. If it were to be admitted, as is claimed by the applicant, that the issue was one of book prices fixed independently of the market, the very fact that each subsidiary fixes a book figure for its transfers of scrap to other sub­ sidiaries indicates that there is a transfer of ownership.

It follows that the arguments invoked by the defendant in this respect must also be rejected.

4. The complaint of discrimination

The applicant accuses the defendant of having infringed Articles 3 (b) and 4 (b) of the Treaty on the ground that the formal concept of an undertaking

MANNESMANN AG v HIGH AUTHORITY

used by the High Authority for the purposes of equalization led to discrimina­ tion against it by putting it in an unfavourable position in relation to compet­ ing undertakings.

The defendant raises a preliminary objection to the admissibility of this complaint because the applicant has not invoked it in relation to the sub­ sidiary companies, whilst it was precisely these, and not the applicant parent company, which produced the steel and were therefore charged with the contribution.

For the High Authority to be accused of discrimination it must be shown to have treated like cases differently thereby subjecting some to disadvantages as opposed to others without such differentiation being justified by the existence of substantial objective differences.

On the other hand in this case in spite of identical circumstances as regards production, the applicant by reason of its legal structure incorporating

JUDGMENT OF 13.7.1962 — CASE 19/61

several undertakings was not in a similar position to that of its competitors who formed a single legal entity. This difference is of importance in law and is therefore capable of justifying different treatment.

In these circumstances it is of no avail to examine the points of identity, the similarities and the differences of detail existing between the applicant and the Phoenix-Rheinrohr company.

It is sufficient to observe that that company cannot be in a situation comparable to that of the applicant for the purposes of the application of equalization charges for the very reason that its various activities take place within the framework of a single undertaking.

MANNESMANN AG v HIGH AUTHORITY

to serious uncertainties, would have hindered the smooth working of the equalization scheme and would have provided a source of possible discrimination.

Moreover, in establishing financial arrangements to safeguard the stability of the market, it rests with the High Authority to choose the system which it deems most likely to serve the common interests. It is open to the Court to censure this choice only if it appears that the High Authority has exceeded the objective limits to its activity outlined by the Treaty. This is not so in the present case.

In the circumstances the applicant has not proved that the criterion adopted in the basic Decisions is either irrelevant or purely arbitrary or that in itself it involves discrimination.

Therefore the complaint of illegality raised by the applicant against the basic Decisions and based on the allegation that to be compatible with the Treaty these Decisions should have charged all use of scrap with equalization even as regards scrap recovered and re-used within a single legal person, except for scrap produced by the steel-works and re-used by it, cannot be accepted.

Consequently the complaint of discrimination raised by the applicant should be dismissed.

Justice of the European Communities the unsuccessful party shall be ordered to pay the costs.

The applicant has failed in its application.

The applicant has claimed that the defendant should be ordered to bear the costs, even if the Court dismisses its application on the ground that the disputed Decision is restricted in its scope to rejecting the request for exemption without touching on the principle of the liability for the contribu­ tion. However this is not so in the present case.

The applicant must therefore bear the costs, including those of the intervener.

On those grounds,

Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur; Upon hearing the parties; Upon hearing the opinion of the Advocate-General; Having regard to Articles 2, 3, 4, 15, 33, 36, 53 and 80 of the Treaty establishing the European Coal and Steel Community; Having regard to the Protocol on the Statute of the Court of Justice of the European Coal and Steel Community; Having regard to Decisions Nos 22/54, 14/55, 2/57 and 16/58 of the High Authority; Having regard to the Rules of Procedure of the Court of justice of the European Communities;

A. Van Houtte A. M. Donner Registrar President