C-36/73

Netherlands Minister of Transport and Waterways,

respondent,

on the interpretation of Articles 2, 4, 5 and 10 of Regulation No 1191/69 of the Council of 26 June 1969 on action by Member States concerning the obligations inherent in the concept of a public service in transport by rail, road, and inland waterway,

THE COURT

composed of: R. Lecourt, President, A. M. Donner and M. Sørensen, Presi­ dents of Chambers, P. Pescatore (Rapporteur), R. Monaco, J. Mertens de Wilmars, H. Kutscher, C. Ó Dálaigh and A. J. Mackenzie Stuart, Judges,

Advocate-General: H. Mayras Registrar: A. Van Houtte

I — Facts and procedure Regulation No 1191/69 to be discharged from all its public service obligations, The facts and procedure may be viz. the obligation to operate, the summarized as follows: obligation to carry and tariff obligations, in respect of all passenger traffic on By decision of 13 May 1965 on the railways which it was licensed to harmonization of certain provisions operate. affecting competition in transport by On 30 December 1971, after a sustained rail, road and inland waterway (OJ p. exchange of correspondence, the 1500), the Council of the EEC Minister of Transport and Waterways specifically decided, on the question of issued a decree (No V-l/071130) com­ State intervention, that the public service municating his decision, in order to obligations which Member States impose ensure the provision of adequate on transport undertakings should be transport services, to maintain, over the maintained only insofar as is essential in whole of the Netherlands railway order to ensure the provision of system, the obligations of the adequate transport services and subject Netherlands Railway Company to to payment of fair compensation for the operate and to carry in relation to financial burdens thereby devolving passenger traffic, and to fix at upon such undertakings. 230 760 931 florins, for the year 1972, By Regulation No 1191/69 of 26 June the compensation due to the company 1969 on action by Member States for the financial burdens resulting from concerning the obligations inherent in maintenance of its public service the concept of a public service in obligations. transport by rail, road and inland In a letter of 29 June 1970, the waterway (OJ L 156, p. 1), of the Netherlands Railway Company applied Council specifically provided that the to the Secretary of State for Transport competent authorities of the Member and Waterways to be relieved of all its States should be able, on application public service obligations, viz. the from transport undertakings concerned, obligation to operate, the obligation to to terminate certain obligations inherent carry, and tariff obligations, in respect of in the concept of public service and all railway goods traffic it was licensed involving specified economic disadvan­ to carry. On 24 June 1970, the company tages for the undertakings on which they had specifically applied to be discharged were imposed; where a public service from the obligations to operate and to obligation is maintained, in whole or in carry in relation to bulk-loaded railway part, the national authorities are under goods traffic. an obligation to grant compensation to On 30 December 1971, the Minister of the undertaking concerned on the basis Transport and Waterways issued a of common procedures laid down in the decree (No V-1/071128) communicat­ Regulation. ing his decision to terminate, with effect By letter of 16 June 1970 the from 1 January 1972, the company's Netherlands Railway Company applied obligations to operate and to carry in to the Secretary of State for Transport respect of bulk-loaded railway goods and Waterways under Article 2 of traffic over the whole network.

On the same date, 30 December 1971, in relation to goods, is the decision the Minister of Transport and Waterways of the Minister for Transport and sent a letter (No V-1/071127) to the Waterways of 30 December 1971, No Netherlands Railway Company com V-1071130 consistent with Article 10 municating certain decisions on the of the Regulation, correctly interpret subject of mail traffic and express freight ed? services; in the letter, the Minister The application from the Section for indicated that 'generally speaking, there Administrative Litigation of the Raad can be no question of a tariff obligation van State was registered at the Court of within the meaning of Regulation No Justice on 2 March 1973. 1191/69'.

Further the Court of Justice under the third observations were submitted on 8 paragraph of Article 177 of the EEC October 1973 by the Commission, on 12 Treaty for a preliminary ruling on the October by the appellant in the main following questions: action, and on 22 October by the 1. Is the view of the Minister of respondent in the main action. Transport and Waterways, adopted in After hearing the report of the these proceedings and underlying the Judge-Rapporteur and the opinion of the disputed decisions, that the appellant Advocate-General, the Court decided to has no tariff obligations within the open the oral procedure without meaning of Regulation (EEC) No preparatory inquiry. 1191/69 of the Council of the The oral observations of the parties in European Communities of 26 June the main action and of the Commission 1969, based on an incorrect were made at the hearing on 9 October interpretation of Article 2 and 1973. especially Article 2 (5) of this The Advocate-General delivered his

3. Insofar as compensation is calculated on the basis that equal account must be II — Observations submitted taken of passenger and goods traffic to the Court in a siruation where the obligations to operate and to carry are maintained The written and oral observations in relation to passenger services oper submitted to the Court can be ated by the appellant but terminated summarized as follows:

A — On the first question doubt, therefore, the Netherlands Railway Company is, in regard to The Netherlands Railway Company, passenger traffic, subject to a tariff appellant in the main action, maintains obligation within the meaning of that, in order to settle the main action, it Regulation No 1191/69. is essential to know whether the In any case, the obligations assumed by obligations imposed on the company by the company under Article 28 et seq. of Articles 28 et seq. of the Netherlands the Railways Law must be regarded as a Law of 9 April 1875 concerning the tariff obligation within the meaning of railways are to be regarded as a tariff Article 2 (5) of the Regulation simply obligation within the meaning of Article because the Minister of Transport can 2 (5) of Regulation No 1191/69; if so, refuse to approve tariff changes dictated the question arises whether, under by the commercial interests of the Article 6 (5) of the Regulation, the company; this applies both to passenger Netherlands Railway Company has not and to goods traffic. been discharged from this tariff

various special tariff provisions, in of, or refusal to modify, special tariff particular those covering certain provisions. categories of passenger, certain categories of goods or certain routes. This definition, which is not affected by These two forms of tariff obligation the second paragraph of Article 2 (5), were imposed on the Netherlands obviously does not cover all the types of Railway Company by Article 28 et seq. tariff obligation which could be imposed of the Railways Law. on transport undertakings; the Council expressly stated this in an interpretative As passenger transport by rail is declaration recorded in the minutes of its governed by the obligation to operate meeting of 26 June 1969. and to carry, maintained in force for the In order to create a tariff obligation whole Netherlands railway system by the Minister of Transport's decree of 30 within the meaning of the Regulation, all the conditions set out in the first December 1971, tariff policy in this field is largely determined by the competent paragraph of Article 2 (5) must be government authorities; in this context satisfied simultaneously; the Regulation they are not motivated solely by defines only one tariff obligation. considerations of commercial viability The fact that, under Article 28 of the but also by considerations of a political, Netherlands Railways Law, the tariffs social and economic nature.

JUDGMENT OF 27. 11.1573 — CASE 36/73

The second rates shall be contrary to the commercial paragraph of that Article specifies that interests of the undertaking and form obligations arising from 'measures taken part of special tariff provisions. with respect to transport rates and For there to be an obligation to carry, it conditions in general with a view to the is enough that the transport undertaking organization of the transport market or is obliged to accept and handle traffic at of part thereof do not constitute a tariff specified rates and that this obligation is obligation, and the approval referred to

The Commission of the European As regards the question referred, it is Communities contends that Article 28 of necessary to bear in mind that, according the Netherlands Railways Law, which to the preamble to Regulation No provides for passenger and goods 1191/69, the annual accounting system transport rates to be submitted for has a bearing on the right of transport approval by the Minister of Transport undertakings to compensation for the and Waterways, does not create a tariff maintenance of one or more public

NEDERLANDSE SPOORWEGEN v MINISTER VERKEER EN WATERSTAAT

In providing that economic disadvan­ transport undertaking to have the benefit tages making themselves felt over a of compensation for economic disadvan­ period of time greater than a year must tages of a purely temporary character. be assessed on the basis of a statement of Maintenance of a public service the annual economic disadvantages, the obligation for a year can nevertheless second paragraph of Article 5 (1) does give rise to compensation. This happens not, any more than the Regulation as a when the commercial interests of an whole, in any way exclude the possibility undertaking require an operation to be that the economic disadvantages may immediately discontinued whereas the extend over a period of only one year competent authority insists on its being and create a corresponding right to maintained for a further year. In such a compensation. The Regulation was in no situation, the economic disadvantages way intended to take the right to can clearly not be determined on the compensation away from an undertaking basis of all the costs which would have which, because of the imposition or to be taken into account in assessing a maintenance of one or more public long-term economic disadvantage; more service obligations suffers, or has particularly, the calculation of costs suffered, economic disadvantages within could not take account of the interest the meaning of the first and second and depreciation factors and in this way paragraphs of Article 5 (1) for one year make allowance for replacement of only. Although there is no obligation to durable means of production, except in do so, compensation can be paid on an the rare case where replacement cannot annual basis; the same must apply to the be avoided, even for a period of one economic disadvantages which give rise year. to it. The Commission emphasizes that, under Incidentally, the idea of 'long-term the second paragraph of Article 5 (1) of economic disadvantages' is very vague: Regulation No 1191/69, the economic would a period of two years be enough disadvantages attendant upon an to justify a compensation payment or obligation to operate or to carry shall be would the period have to be at least determined 'on the basis of a statement, three or four years? actualized if necessary, of the annual The Minister of Transport points out economic disadvantages ...'. The state­ that, whilst a public service obligation ment normally shows the revenue and

costs of a service over several years and case, regardless of these specific costs, as takes account of the useful life of plant long as one of the two kinds of rail and stock necessary for the operation service continues to be operated. concerned. It is necessary to actualize the Determining the compensation due statement in circumstances where there under Section IV of Regulation No is no need to have regard to 1191/69 raises the question whether the developments over several years, as common cost should be allocated to the would be the case when the undertaking two types of traffic or only one of them. had ascertained that the public service In this connection regard must be paid obligation would not be maintained for to the fact that passenger transport is

A case, like The Netherlands Railway Company the present, in which passenger transport points out that maintenance of its public is provided in order to maintain public service obligations in relation to service obligations, while termination of passenger traffic and, meanwhile, their such obligations enables the goods termination in relation to goods traffic service to be abandoned, calls for make it necessary for the Court of application of the differential method of Justice to rule on the question whether calculating the cost of goods transport; the compensation due to the Company for this type of traffic, therefore, only must be calculated on the basis that specific costs are taken into account. passenger traffic must be regarded as the Passenger transport must be taken as the production unit primarily responsible for production unit mainly responsible for costs (the so-called 'differential method the costs during the period under of calculation') or on the basis that equal consideration; the so-called common account must be taken of passenger and costs must of necessity be committed for goods traffic. the benefit of passenger traffic and are In calculating the compensation to be therefore allocable to this type of paid, account must be taken, on one transport. A decision to terminate goods

NEDERLANDSE SPOORWEGEN v MINISTER VERKEER EN WATERSTAAT

costs, on the one hand, and, on the From this it follows that the answer to other, the reduction in revenue from the third question is that the Minister of passenger traffic which would result if Transport's decision is incompatible the obligation to operate and to carry with Article 10 of Regulation No during the period in question were 1191/69, correctly interpreted, because, terminated. while providing for the maintenance of The same would apply if the economic the obligation to operate and to carry in disadvantages were calculated on the relation to passenger traffic and at the basis of the formula laid down in the same time for termination of these

JUDGMENT OF 27. 11. 1973 — CASE 36/73

with the alternatives set out in the first costs to passenger transport alone. and third paragraphs of Article 5 (1). Otherwise, the carriage of goods by rail could be effected at excessively low rates It follows from the wording of the third and the competitive position in relation paragraph of Article 5 (1) that where to other forms of transport would be transport of a more than incidental distorted. character is involved, the Regulation requires apportionment of the total costs According to the Commission the main in order to determine the economic action is concerned with obligations to disadvantages attendant upon maintain­ operate and to carry affecting one or ing the public service obligation, and the more categories of the passenger or compensation for it. This is the situation goods traffic in a network, within the covered by the second paragraph of meaning of the third paragraph of Article 10 (1), under which the amount Article 5 (1) of Regulation No 1191/69. The financial burdens are therefore of compensation has to be equal to the difference between the costs allocable to assessed in accordance with the third, fourth and fifth paragraphs of Article 5 that part of the undertaking's activities (1); the level of compensation is deter­ affected by the public service obligation mined by applying the second paragraph and the corresponding revenue. It is true of Article 10 (1). that, under the Regulation, the question how the common costs should be Although the obligations to operate and to carry have been terminated as regards allocated is left open. goods traffic, the remaining financial The Railway Company's argument is burdens cannot be wholly allocated to based on a false assumption; in reality, passenger traffic alone; compensation the goods service is maintained and, in could be legitimately calculated on this those circumstances, it is impossible to basis only if goods traffic had in fact allocate the whole of the infrastructure been discontinued.

4 An answer to this question appears to be necessary to enable the national court to determine the respective legal rights of the parties in the administrative procedure instituted under Section II and, particularly, Articles 4 and 6 of Regulation No 1191/69.

5 In this connexion, the appellant in the main action regards itself as bound by a 'tariff obligation' within the meaning of Regulation No 1191/69 on account of Article 28 of the Netherlands Railways Law, which provides in general terms that tariffs for passenger and goods transport shall be submitted for approval by the Minister of Transport.

6 In the applications which gave rise to the disputed decisions, the appellant in the main action asked to be relieved of the said obligation.

7 As the Minister for Transport has not ruled on the application, the appellant regards itself as having been relieved of the obligation involved because the competent authorities failed, within the prescribed time limits, to take a deci­ sion as required by Article 6 (5) of the Regulation.

8 The Minister of Transport, on the other hand, believes that the provisions of Article 28 of the Railways Law do not constitute a 'tariff obligation' within the meaning of Regulation No 1191/69 and that therefore there was no need for him to rule on the application submitted by the appellant insofar as it purported to relate to a tariff obligation.

9 From the foregoing it is clear that the question of interpretation raised by the national court is whether the general obligation imposed by law on transport undertakings to submit their tariffs for approval by public authority comes within the meaning of the words 'tariff obligation' in Article 2 (5) of Regulation No 1191/69.

14 The second question asks whether Articles 4 and 5 of Regulation No 1191/69 must be interpreted as meaning that 'economic disadvantages' within the meaning of the Regulation can arise only when they make themselves felt over a long term, or, at the very least, over more than a year.

15 This question arose over an application made by the appellant in the main action under Regulation No 1191/69 with a view to obtaining compensation in respect of one year — 1972 — for the economic disadvantages it claims to have incurred as a result of public service obligations in handling parcels traffic, notwithstanding that, in the following year, this type of transport was provided by another undertaking.

NEDERLANDSE SPOORWEGEN v MINISTER VERKEER EN WATERSTAAT

16 In the appellant's view, the Regulation does not rule out the possibility of economic disadvantages extending over a period of only a year and accordingly giving rise to compensation under the Regulation.

17 On the other hand, without ruling out the possibility that economic dis­ advantages could be established on the basis of results in a single financial year, the Minister of Transport normally requires these disadvantages to be shown as existing over a longer period of account.

18 Compensation for economic disadvantages worked out for a single year could only be given in association with disadvantages of a fundamental nature and not with purely temporary losses, and without prejudice to exploration by the competent public authority of improvements in operational procedures which could avoid the losses incurred.

23 The third question is whether, insofar as compensation is calculated on the basis that equal account must be taken of passenger and goods traffic in a situation where the obligations to operate and to carry are maintained in respect of passenger services operated by the appellant but terminated in relation to goods, the decision of the Minister to maintain the obligations to operate and to carry in relation to passenger traffic is consistent with Article 10 of Regulation No 1191/69.

24 It is clear from the evidence that the main action is concerned with the allocation, in calculating compensation for maintenance of certain public service obligations, of the 'total costs' within the meaning of the Regulation borne by the undertaking in a situation in which the public service obligations are maintained for passenger traffic but terminated for goods traffic.

25 In this connexion, the appellant in the main action believes that, in such a situation, the costs should in principle be allocated to the branch of operations for which the public service obligations have been maintained.

26 The Minister of Transport, on the other hand, considers that the costs in question must be distributed among the various categories of transport, each of them receiving its proportionate allocation.

27 In a situation where there has been partial termination of obligations to operate and to carry, the assessment of the financial burdens which termination of the obligation might eliminate must, under the third paragraph of Article 5 (1) of Regulation No 1191/69, be carried out 'by allocating among the various categories of traffic the total costs borne by the undertaking by reason of its transport activities'.

32 Consequently, any method of allocation based on the characteristics and volume of the activities in question, including allocation on a 'lump sum' basis, must be regarded as consistent with the Regulation.

Costs

33 The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable.

34 As these proceedings are, insofar as the parties to the main action are concerned, in the nature of a step in the action pending before the Section for Administrative Litigation of the Raad van State, the decision on costs is a matter for that court.

On those grounds,

Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur; Upon hearing the parties in the main action and the Commission of the European Communities; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Community, especially Article 177; Having regard to Regulation (EEC) No 1191/69 of the Council of 26 June 1969 on action by Member States concerning the obligations inherent in the concept of a public service in transport by rail, road and inland waterway;

3. In a case where public service obligations have been partially ter­ minated. Article 10 of Regulation No 1191/69 must be interpreted as meaning that, having regard to the characteristics and volume of the activities involved, there shall be an apportionment of the 'total costs' within the meaning of the Regulation between the transport activities in respect of which these obligations are maintained and those in which they are terminated. The Regulation does not exclude the use for this purpose of lump-sum allocations.

Lecourt Donner Sørensen Monaco Mertens de Wilmars

Pescatore Kutscher Ó Dálaigh Mackenzie Stuart

Delivered in open court in Luxembourg on 27 November 1973

A. Van Houtte R. Lecourt

Registrar President