C-263/82

J U D G M E N T O F T H E C O U R T (FOURTH CHAMBER) 14 D E C E M B E R 1983 '

Klöckner-Werke AG v Commission of the European Communities

(Steel m a r k e t — Production quotas)

Case 263/82

ECSC — Production — System of production quotas — Basis and purpose — Quota exceeded by an undertaking — Necessity — Necessity based on the serious financial difficulties of the undertaking — Inapplicability of toe principle (ECSC Treaty, Art. 58)

It is impossible to entertain the concept can be invoked against the application of of necessity in relation to the quota the system, which would be destroyed if system provided for by Article 58 of the every undertaking could, by invoking ECSC Treaty, which is based on necessity because of serious financial solidarity between all Community steel difficulties, exempt itself from the undertakings in the face of a manifest restrictions and exceed at will the crisis and seeks an equitable distribution production quotas allocated to it. A of the sacrifices arising from unavoidable chain reaction would set in which would economic circumstances. No necessity lead to the collapse of the system and consisting in the continued existence and thus compromise the purpose of Article profitability of a particular undertaking 58 of the ECSC Treaty.

APPLICATION for a declaration that the Commission's individual decision of 13 August 1982 imposing a fine on the applicant for exceeding its production quota for rolled products of Group I for the second quarter of 1981 is void,

T H E C O U R T (Fourth Chamber)

composed of: T. Koopmans, President of Chamber, K. Bahlmann, P. Pescatore, A. O'Keeffe and G. Bosco, Judges,

Advocate General: G. Reischl Registrar: P. Heim

gives the following

JUDGMENT

1981, which amounted to an individual Klöckner claimed that the decision decision, informed the steel manu- imposing a fine on it should be declared facturer Klöckner-Werke, of Duisburg, void. It also requested, in an application of the reference-production figures and for the adoption of interim measures, production quotas allocated to it for the that the operation of the contested second quarter of 1981. decision should be suspended. By order of 11 November 1982 the President of the Court ordered that the operation of On 15 May 1981 that undertaking made the decision should be suspended on an application (Case 119/81) to the condition that the applicant lodged Court of Justice for a declaration that within 15 days a bank guarantee as that individual decision was void in so security for the payment of the fine; by far as it fixed the reference production order of 7 December 1982 the President and production quotas for rolled dismissed the application for variation products of Group I. The application of the first order to the effect that was based on a number of factors operation of the Commission decision allegedly vitiating both the contested should be suspended unconditionally individual decision and the general until judgment on the main application. decision on which it was based. By judgment of 7 July 1982 (Case 119/81, Klöckner-Werke AG v Commission, Upon hearing the report of the Judge- [1982] ECR 2627) the Court dismissed Rapporteur and the views of the the application as unfounded. Advocate General, the Court decided to open the oral procedure without any preparatory inquiry. By order of 4 May 1983 the Court assigned the case to the In the meantime Klöckner had exceeded Fourth Chamber. by 122 781 tonnes the production quota allocated to it for the said quarter in respect of rolled products in Group I. Accordingly, a complaint was addressed to the undertaking by letter No 000989 II — C o n c l u s i o n s of the p a r t i e s of 1 February 1982, inviting it, under Article 36 of the Treaty, to submit its observations. Klöckner submitted its The applicant claims that the Court observations by letters dated 11 February should: and 18 March 1982, supplemented by its representatives at a hearing on 15 April 1982. Not accepting the undertaking's 1. Declare the defendant's decision of excuses, the Commission, by an indi- 13 August 1982 void; and vidual decision of 13 August 1982 taken under Article 9 of Decision No 2794/80, imposed on it a fine of 10 129 432 ECU, 2. Order the defendant to pay the costs. equivalent to DM 23 909 916, payable within a period of two months from notification of the decision, with interest The Commission contends that the Court at 1% for each month of delay in should: payment from the expiiy of that period. 1. Dismiss the application; and By an application received at the Court Registry on 24 September 1982, 2. Order the applicant to pay the costs.

III — Submissions and argu- similar loss for the period of validity of m e n t s of t h e p a r t i e s Decision No 1696/82, which is in force at present. In view of the fact that in spite of exceeding the quotas the applicant suffered, by reason of the steel crisis, extremely heavy losses in the steel sector, it would not have been able to bear the additional deficit resulting from observance of the quotas and would have been forced into liquidation. In its sole submission in the application the applicant does not deny having exceeded the production quota allocated to it for Group I products but maintains that it was justified in so doing and that therefore no fine ought to be imposed on it. At the material time the applicant was confronted with a state of necessity, The applicant observes that the legal inasmuch as observance of the quotas principle according to which necessity would have entailed such high losses that exempts from punishment anyone who it would not have been able to survive. has infringed a legal interest in order to That was so because, amongst other protect a superior interest exists in the factors, the quotas allocated were ap- legal systems of all the Member States, preciably below the average level of so that it must also be recognized in utilization of the production capacity for Community law. In the present case the hot-rolled wide strip in the Community. applicant could not have avoided ruin except by increasing its turnover in order to reduce its losses, and it could increase its turnover only by producing and selling more than the quotas allocated to it provided for. Its conduct can therefore be described only as necessary and justified. Moreover, since the applicant The applicant emphasizes that it was the had challenged in time the individual quota system as a whole, in the form decision fixing its production quotas for established by the Commission, which the relevant quarter it had expected that led to its being allocated inadequate its claim would be allowed; further, the quotas which jeopardize its solvency; it is operation of the wide-strip mill requires only for technical reasons that the technical preparations lasting several applicant is able each time to submit only weeks, so that if the mill had not been one particular quarter to the Court for prepared in due time for production in consideration. If the applicant had excess of the quotas allocated, any observed the quotas fixed for the quarter success in the proceedings concerning in question it would have suffered a the level of the quotas would have been loss of several million marks. Further, futile. The applicant had in no way been according to two auditors' reports responsible for that state of legal uncer- annexed to the application, observance tainty which had contributed to inducing of the quotas during the period of it to increase its production. In any validity of Decision No 1831/81, namely event, the undertaking was not claiming from 1 July 1981 to 30 June 1982, would exemption from the quota system but ultimately have entailed an enormous simply a reasonable increase in the inad- deficit, to which would be added a equate quotas allocated to it, so that it

produced a quantity corresponding, on had not been damaged by Klöckner's the basis of a production capacity of excess production, a factor which ought 459 000 tonnes per month for its Bremen also to be taken into account in wide-strip mill II, to the average rate of comparing the conflicting interests. Nor utilization of mills of that kind in is there any risk of setting a dangerous Community steel works. precedent, since the other Community undertakings are not in a state of necessity comparable to that of Klöckner. The applicant maintains, further, that the interest which it sought to defend by exceeding the quotas, namely the existence of a well organized under- Finally, the applicant emphasizes that the taking employing 35 000 people, with the ruin which threatened it and justified it most modern plant and the most in exceeding the quotas would have been advanced technology in Europe, was irreversible. clearly more important than a purely formal interest such as the orderly functioning of the quota system. Moreover, the sacrifice which is being In its defence the Commission raises a asked of it is unjust, since it is preliminary objection to the admissibility appreciably heavier than that imposed on of the sole submission in the application. owners of other wide-strip mills in the According to the applicant, the necessity Community. If the quotas were observed lay in the fact that if it had observed the the rate of utilization of the production quotas allocated to it it would have had capacity of the applicant's mill would be to incur such high losses that it would not have been able to continue in very much lower than the Community business. average. Although the Court held in the aforesaid judgment of 7 July 1982 that it is not possible to infer from Article 58 of the ECSC Treaty a general right for undertakings to maintain a minimum If that were correct it would have to be level of employment, it did not, in concluded that to fix a quota which did Klöckner's view, settle the question not allow the survival of the undertaking whether there is such a right at the concerned would be unlawful. It follows, individual level, related to the specific in accordance with the first paragraph of situation of the undertaking. The Article 42 (2) of the Rules of Procedure, existence of such a right must be that that argument ought to have been recognized and constitutes an application raised in Case 119/81 concerning the of the concept of necessity. lawfulness of the individual decision fixing the production quotas allocated to Klöckner for the second quarter of 1981 and not in the present case, where it is out of time; furthermore, since the The applicant maintains that, in any judgment of the Court of 7 July 1982 event, the infringement which it found that the decision fixing the quota committed scarcely affected the general in question was lawful the applicant application of the quota system, since all cannot now rely on the defence of the other undertakings were able to sell necessity with arguments necessarily the whole of their production at the reopening the question of the lawfulness prescribed prices. Since the market was of that decision because the matter is res not disturbed, the other manufacturers judicata as a result of that judgment.

Recognition of a defence of necessity, as The impossibility of that person's pleaded by the applicant to justify escaping the said danger other than by exceeding its quotas, would moreover conduct objectively unlawful. deprive the quota system of any effectiveness. Such recognition would mean in practice allocating higher production quotas to any undertaking In the present case those conditions are which pleaded necessity. To compensate not satisfied. Moreover, the applicant's for that increase it would be necessary to argument cannot be accepted for reasons reduce the quotas of the other under- of a general nature. takings, but that would mean that more undertakings would no longer reach the threshold of profitability and would therefore in their turn be able to plead The Commission considers that recog- necessity and obtain higher quotas so nition of a defence of necessity on the that their production might become prof- ground that observance of the quota itable again. This process would develop system would threaten an undertaking's into a chain reaction and would existence is incompatible with the aim of necessarily lead to the collapse of the Article 58 of the ECSC Treaty, as quota system. defined by the Court in the judgment of 7 July 1982, namely to allow the Community to deal with a crisis in demand by adopting a quota system The Commission contends that, in any designed to distribute equitably over the event, necessity should be regarded as whole of the Community steel industry justification for unlawfully exceeding the consequences of the reduced market production quotas only if the unlawful for steel. The quota system, which seeks conduct was necessary to safeguard a to improve market conditions, enables legally protected interest of greater value the profitability of undertakings to be than the -interest adversely affected. maintained or restored in the long term; However, the interest which is affected on the other hand, it cannot maintain or by exceeding the quotas is not, as the

In any event, even if it is accepted that the existence of the undertaking was in fact in jeopardy during the quarter in issue, the Commission contends that the applicant brought about such a situation itself through its previous conduct. The applicant admitted that before the quota The Commission denies, moreover, that system was adopted it had suffered very in the present case the existence of the heavy losses in the steel sector. Those undertaking was in immediate danger. losses are due to wrong decisions on The applicant itself stated that it had matters of commercial policy, namely suffered a very serious loss in the steel the installation of a wide-strip mill of sector from the 1974/75 marketing year exceptional and excessive size involving a to 30 September 1981 but had neverthe- capital cost far exceeding that of other less succeeded in almost entirely making modern plant in the Community and the good that loss; so it cannot claim that its lack of adequate plant to enable the existence had been in peril since the products of the mill to be further beginning of April 1981. The applicant processed, so that production at the mill claims that if it had observed the quotas was much less profitable than at other fixed for the quarter in question it would similar undertakings.

JUDGMENT OF 14. 12. 1983 — CASE 263/82

KLÖCKNER-WERKE v COMMISSION

Should the Court consider those claims In refutation of the Commission's argu- not to be sufficiently supported by evi- ment to the effect that, in the weighing dence, Klöckner offers to call witnesses of conflicting interests which appraisal of to give further evidence.

JUDGMENT OF 14. 12. 1983 — CASE 263/82

In the second place, the applicant That was perfectly in accordance with challenges the assertion that the threat to the steel policy of the Community; so its existence was apparent even before the Commission in recognition that the establishment of the quota system Klöckner had acted in accordance with and is not an effect thereof; on the the Commission's proposals granted the contrary, it maintains that if it had kept undertaking large loans in order to to the quotas allocated to it, it would encourage the aforesaid operations. It already have ceased to exist, since the would therefore be absurd and contra- reduction of its receipts would have been dictory to accuse the undertaking of untenable, as is· apparent from the making mistakes in commercial policy auditors' reports annexed to the after having encouraged and induced it application. to do so.

The necessity relied on by Klöckner The Commission's contention that the arises from the fact that, as distinct from applicant is at a disadvantage because many other Community undertakings, it of a lack of sufficient capacity for has acted in accordance with the processing the products from the wide- provisions of the ECSC Treaty and the strip mill is also without foundation. suggestions of the Commission. It Since 1980 Klöckner has increased its organized and modernized its plant by proportion of further processing and has means of a reduction in the number of now attained the Community average of factories and the replacement of several 70%. Moreover, it is not true that an obsolete factories of small proportions by undertaking which does not engage in a lesser number of large, very modern processing is always at a disadvantage; factories; it consequently reduced its processing certain products, such as staff, which involved heavy social cold-rolled sheet, may even entail losses. burdens, developed business in areas other than steel in order to have a larger basis for its activities and to ensure alter- native jobs and adopted new technology The Commission seeks to justify the fact which saved energy and reduced costs. that the quotas granted to the applicant

KLÖCKNER-WERKE v COMMISSION

JUDGMENT OF 14. 12. 1983 — CASE 263/82

decisions. Neither Article 14 of Decision improvement. The result was that the No 2794/80 nor the corresponding position of large integrated undertakings provisions in other general decisions give improved but the position of mono- rise to an increase in quotas for reasons structural undertakings became critical, of profitability; the decisive criterion in since they were not able to compensate those provisions resides in extraordinary for their losses in the reinforcing bars' or exceptional difficulties, other than sector by profits in other sectors. those of a strictly economic or financial Accordingly, Decisions Nos 533/82 and nature, caused by the application of the 1698/82, by granting monostructural

In any event, they are provisional measures relating to a limited market and to undertakings of small size, so their effects on the quota system remain transparent and fore- seeable; the measures therefore fall The aforesaid decisions apply only to within the scope and logic of the system. undertakings of small and medium size On the other hand, those special circum- which do not produce flat products and

The Commission contests the validity of As regards the causal link between the Klöckner's opinion that no catastrophe fixing of the quotas and the state of could ensue if Klöckner's argument were necessity, it is not a question of taking accepted because, in confining itself to into account each of the multitude of producing an amount equivalent to an causes but solely of determining whether equitable quota such as ought to have there is a direct legal link between the been granted to it, it would in substance allocation of the quotas and the state of scrupulously observe all the provisions necessity in the sense that the fixing of adopted by the Commission. The context the quotas is a condition sine qua non of in which Klöckner places itself is based the threat to the undertaking's existence. on a quite fictitious production capacity That is not so in the present case because for the wide-strip rolling mill No II in the dangerous situation — in so far as it Bremen which scarcely accords with the really existed — was caused by the facts as verified by the Commission; it is applicant itself, and was not a direct therefore absurd to speak of scrupulous consequence of the application of the compliance with the provisions in force. system. The applicant itself admitted If Klöckner's argument were accepted, having suffered enormous losses, before any undertaking could for the same or the quota system was adopted; the similar reasons itself calculate the quotas system cannot in any event be the cause which it considered just and appropriate, of those losses. so that the fixing of the quotas by the authorities would be futile. Breach of the quota system cannot therefore be justified by the state of necessity of a single undertaking. As for the errors of commercial policy and management, which it believes caused those losses, the Commission denies that it is possible to draw a comparison between the wide-strip mill No II in Bremen and similar Japanese In the alternative, the Commission plant; the question whether that mill is contends that in any event the conditions too large can be determined only with for a defence of necessity are not regard to the state of the German and satisfied in the present case in relation to European steel market. The question the second quarter of 1981. The whether the capital cost of that plant was

Decision

1 By an application lodged at the C o u r t Registry o n 24 September 1982 K l ö c k n e r - W e r k e A G , a steel u n d e r t a k i n g of Duisburg, b r o u g h t an action u n d e r Article 36 of the E C S C T r e a t y in which it s o u g h t to have declared void the Commission's individual decision of 13 August 1982 imposing a fine on it, p u r s u a n t to Article 58 (4) of the E C S C T r e a t y a n d Article 9 of Decision N o 2 7 9 4 / 8 0 of 31 O c t o b e r 1980 (Official J o u r n a l 1980, L 2 9 1 , p. 1), for exceeding its p r o d u c t i o n quotas.

KLÖCKNER-WERKE v COMMISSION

2 By an individual decision of 6 April 1981, adopted pursuant to Article 58 of the Treaty and Decision No 2794/80, the Commission had notified Klöckner of its reference production and production quotas for the second quarter of 1981. Taking the view that those quotas were too low in relation to the production capacity of its plant, Klöckner made an application to the Court for a declaration that the individual decision was void. By judgment of 7 July 1982 (Case 119/81, Klöckner v Commission, [1982] ECR 2627) the Court dismissed the application, so the quotas in question became definitive.

3 In the meantime Klöckner had exceeded those quotas by 122 781 tonnes in respect of rolled products in Group I. After a complaint had been addressed to it, by a letter dated 1 February 1982, for exceeding its quotas and the procedure provided for in Article 36 of the Treaty had been exhausted, the Commission adopted an individual decision of 13 August 1982, which is the subject-matter of the present application, imposing a fine on Klöckner of 10 129 432 ECU, equivalent to DM 23 909 916.

7 In that respect, it must be recognized that certain arguments put forward by the applicant — such as the inadequacy of the quotas allocated to it, which are below the average of the quotas granted to other undertakings in the Community and thus do not ensure the profitability of the applicant's business — amount in substance to reopening the question of the lawfulness of the quota system and in particular the lawfulness of the decision allocating to the applicant the quota which it exceeded. Those arguments cannot be accepted because the Commission's decision has become definitive and the matter is res judicata as a result of the Court's judgment of 7 July 1982.

8 However, during the proceedings the applicant clarified its position by stating that it was not challenging the lawfulness of the decision allocating the quota to it but was confining itself to a claim that the decision imposing a fine on it was void on the ground that it was justified in exceeding the quota by the necessity in which it found itself. In those circumstances and within those limits the Commission's objection that the matter is res judicata must be dismissed.

T h e v a l i d i t y of t h e s i n g l e s u b m i s s i o n of n e c e s s i t y

9 The applicant maintains that since 1974 it has suffered very heavy losses which it was only able to withstand by drawing on its entire reserves, so that it is no longer able to bear further serious losses without becoming insolvent. The cut in production entailed by the quota system would, however, have inflicted further enormous losses on it. In those circumstances it maintains that it was constrained to exceed the quotas allocated to it in order to protect the essential legal interest constituted by its own existence. It thus acted out of necessity.

1 3 In the Commission's view, to accept necessity as an argument to justify exceeding the quota would be incompatible with the nature and structure of the quota system. As the Court has already recognized in its judgment of 11 May 1983 (Joined Cases 303 and 312/81, Klöcknerv Commission, [1983] ECR 1507), the application of the principle of necessity to the quota system would ultimately lead to the collapse of the system.

JUDGMENT OF 14. 12. 1983 — CASE 263/82

i4 In the alternative, the Commission contends that the conditions for recognizing necessity are not satisfied in the present case. The danger to the undertaking at the time the quota was exceeded is not sufficiently proved; in any event, the financial crisis which is at the root of the alleged necessity is not the consequence of adopting the quota system but of certain choices made by the undertaking itself as part of its investment policy. Finally, the alleged danger could have been averted by lawful means and to exceed the quota was in no way necessary for that purpose.

is It must be remembered that in its aforesaid judgment of 11 May 1983 the Court has already considered and rejected Klöckner's argument that the infringement of its quota for the first quarter of 1981 was justified by the inadequacy of the quota which had been allocated to it by the Commission and by necessity. In particular, the Court refuted Klöckner's claim that the quota was unlawful and inequitable inasmuch as it was too low in relation to its production capacity and stated that the undertaking's difficulties were due to its management and therefore necessity could not be pleaded. Finally, the Court emphasized that application of the principle of necessity to the quota system would lead to the collapse of the system and deprive Article 58 of the Treaty of any purpose.

20 In addition it must be emphasized that if every undertaking could, by pleading necessity on account of serious financial difficulties, exempt itself from the restrictions and exceed at will the production quotas allocated to it the quota system would be destroyed. If the quotas of undertakings pleading necessity were increased — or simply exceeded by the undertakings without any penalty, on grounds of necessity — it would necessarily entail a reduction in the quotas of other undertakings, so that some of them would in turn find themselves in a state of necessity and would be entitled to claim increased quotas or to exceed their quotas without any penalty. A chain reaction would set in which would lead to the collapse of the system and thus compromise the purpose of Article 58 of the ECSC Treaty.

2i The legal opinion provided by Professor Eser states that the concept of necessity was developed in the field of criminal law and has also permeated economic law in a limited number of Member States. Without denying the

JUDGMENT OF 14. 12. 1983 — CASE 263/82

truth of that observation, which however does not in itself warrant the conclusion that Community law contains a general principle relating to necessity, the Court wishes to emphasize once again that the concept of necessity cannot be accepted in the context of the quota system provided for by Article 58 of the ECSC Treaty.

22 Necessity cannot therefore be pleaded by an undertaking in order to exempt itself from the restrictions on production provided for by the quota system or from the payment of fines imposed on it for exceeding the quotas. The systematic exceeding of its quotas by the applicant considerably impaired the functioning of the system.

T H E C O U R T (Fourth Chamber)

hereby:

1. Dismisses the application; and

KLÖCKNER-WERKE v COMMISSION

2. Orders the applicant to pay the costs, including the costs of the application for interim measures.

Koopmans Bahlmann Pescatore O'Keeffe Bosco