C-181/02

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OPINION OF MR LÉGER — CASE C-181/02 P

(e) such other categories of aid as may be 7. The preamble to Directive 92/68 states, specified by decision of the Council in this regard: acting by a qualified majority on a proposal from the Commission.'

'... the shipbuilding industry is important for the structural development of the coastal region of the territories of the 5. On the basis of this provision, the former German Democratic Republic; Council adopted, on 21 December 1990, Directive 90/684/EEC on aid to shipbuild- ing. 4 This provides for the possibility, subject to certain rules, of granting State aid to shipbuilding undertakings for oper- ating, investment, closure, and research and development. ... the shipbuilding industry, as it existed in those territories at the time of their incor- poration into the Community, requires urgent and comprehensive restructuring in order to become competitive ...;

8. It is apparent from the contested judg- ment 6that in 1992 Warnow Werft, an East 10. In 1997 KWW's actual production was German shipyard, was sold by the Treu- 93 862 cgt. In 1998, its actual production handanstalt, the body with the task of reached 122 414 cgt. restructuring the undertakings of the for- mer German Democratic Republic, to the Norwegian industrial group Kvaerner. According to the sale contract sent by Germany to the Commission, Kvaerner undertook until 31 December 2005, with regard to the Warnow yard, not to exceed 11. Since the Commission took the view an annual shipbuilding capacity of that KWW had exceeded the capacity 85 000 cgt. This capacity was that allocated restriction of 85 000 cgt for 1998, it to KWW by the Federal Republic of adopted Decision 1999/675. In that deci- Germany in pursuance of Article 10a(2)(c) sion, it stated that the aid which Germany of Directive 90/684, as amended by Direc- had implemented in favour of KWW in an tive 92/68. 7 amount of EUR 41.5 million (DEM 83 million) was incompatible with the com- mon market and requested that Germany take the necessary measures to recover the aid from the recipient. 9

KWW amounting to EUR 6.3 million III — The contested judgment (DEM 12.6 million) was incompatible with the common market and requested Ger- many to take the necessary measures to recover the aid from the recipient. 15. In support of its actions, KWW relied on eight pleas, two of which were based upon errors in applying Articles 87 EC and 88 EC and Directive 90/684.

13. Finally, on 29 March 2000, the Com- 16. KWW claimed that the concept of a mission adopted Decision 2000/416/EC on 'capacity restriction' as used in the author- State aid implemented by Germany in ising decisions did not impose a limit on favour of Kvaerner Warnow Werft GmbH actual production but simply required ( 1 9 9 9 ) and a m e n d i n g D e c i s i o n compliance with a series of technical 1999/675.10In this decision, the Commis- restrictions relating to the production sion stated that '[KWW] complied in 1999 installations. Thus, in stating that this with the capacity limitation, compliance concept had to be interpreted to mean that with which is, pursuant to the Decision on KWW's production could not exceed the State aid measure No N 325/99, notified by limit of 85 000 cgt per year fixed by the letter of 5 August 1999, a condition for the authorising decisions, the contested deci- compatibility of the aid with the common sions were vitiated by errors of fact and of market'. 11 The Commission therefore law. reduced, to EUR 41.1 million (DEM 82.2 million), the amount of aid declared incom- patible by Decision 1999/675.

17. The Court of First Instance upheld those pleas after reasoning as follows:

tion within the scope of that discretion, 94 As regards, first, the legal framework complains principally that the Com- within which the authorising decisions mission failed to have regard in the were taken, it must be observed that contested decisions to the concept of the objective of the capacity reduction capacity as imposed by it previously in laid down by Article 10a(2)(c) of the authorising decisions ... Directive 90/684 ("the German Gov- ernment agrees to carry out ... a genuine and irreversible reduction of capacity of 40% net of the capacity of 545 000 cgt existing on 1 July 1990"), of which the capacity restriction of 85 000 cgt per annum imposed on the applicant forms part ..., is to restore a 92 Consequently, when ascertaining in the normal market situation within the present case whether there is a manifest shipbuilding sector and the competi- error of assessment in the contested tiveness of the shipyards of the former decisions, the Court must take into German Democratic Republic, while account the rule that the Community reducing excess capacity. institutions must comply with the principle that they may not alter measures which they have adopted, so that the legal certainty of the persons affected by those measures may be ensured ... It cannot be accepted that the Commission can require recovery of aid to the detriment 95 As the reason for inserting the new of a recipient of the aid who has Article 10a into Directive 90/684, the complied with the aid conditions laid Council stated in the third recital to down by the Commission in the Directive 92/68 that "competition con- authorising decisions. siderations dictate that the sector of the shipbuilding industry of the [former German Democratic Republic] should contribute significantly to the reduc- tion of the excess capacity which, worldwide, continues to impede the restoration of normal market condi- tions for the shipbuilding industry". 93 It is therefore first necessary to exam- ine the legal framework within which the authorising decisions were taken and then to analyse those decisions in order to ascertain whether in the contested decisions the Commission has applied an interpretation of the requirements for a capacity restriction which is different from, and more 96 The wording of Directive 90/684 also restrictive than, the definition applied reveals its objective of eliminating the in the authorising decisions. structural overcapacity of shipyards in

— the new steel cutting shop to stay as 97 It must be observed, next, that the developed with no additions except for reduction of excess capacity through a mechanical edge preparation the introduction of a capacity restric- machine (milling machine type);

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COMMISSION v KVAERNER WARNOW WERFT

— the number of work stations on the (two identified) to be of the jib type large panel line and the double bottom with a maximum lifting capacity of 50 line to be fixed at eight respectively six tonnes." as defined in the designs in the consultant's report EECLOOOIA;

— any increase in length of these lines should be allowed only if the commen- surate area is deducted from the 600 99 It is clear from that passage that the tonne super unit shop. The converse objective set out in it, namely an actual must also be applied, that is, any reduction of capacity, was to be reduction in large panel/double bottom achieved essentially through compli- line area could be accompanied by an ance with a series of technical restric- increase of the super unit shop area tions concerning the production plant equal to the reduction in the large of the shipyard. panel/double bottom line area;

the capacity restrictions, the Commis- of production and of production sion will be obliged to require all the itself"; "In the light of the two aid to be repaid" and in particular by production monitoring reports sent to the use of the plural ("capacity restric- the Commission to date, monitoring tions") in that sentence. clearly remains necessary in order to ensure compliance with the maximum capacity authorised in the framework of the planned production as in that of actual production"; "In accordance with the production monitoring reports sent to the Commission to 101 In that context it should be added that date, monitoring remains necessary in if the Commission had really wished to order to ensure compliance with the impose on the applicant, when it maximum capacity in the framework authorised the aid, an annual ceiling of actual production as in that of on actual production, it would have planned production". Those sentences sufficed for it to use the terms "pro- clearly indicate that the applicant duction limit" or to specify that the must, in the planning and actual capacity restriction referred, in the production phases, comply with the present case, to maximum production technical restrictions on capacity. If, in optimum conditions. In the absence for example, the applicant receives two of such explanations, the applicant orders which would lead it to produce cannot be criticised for having more than 85 000 cgt in one year, it is exceeded the capacity restriction of permissible for it to accept and per- 85 000 cgt per annum, since it is form those orders within that year if it common ground that it complied, is able to do so while complying at the throughout the period in question, same time with the technical restric- with all the technical restrictions. tions on capacity laid down (such as those set out in paragraph 98 above relating inter alia to the number of work stations on the curved panel line and to the presence of only one 600 tonne crane over the dock). 102 However, in the authorising decisions there is no explanation of that kind. In particular, interpretation of the capa- city restriction expressed in cgt per annum as being a restriction of actual production cannot be inferred from the following sentences in the letters of 20 February, 18 October and 11 Decem- ber 1995 (the third, fourth and fifth 103 Furthermore, in the same letters some authorising decisions respectively): sentences clearly indicate that compli- "Furthermore, the first production ance with the capacity restriction of monitoring report sent to the Commis- 85 000 cgt per annum is treated in the sion shows that it is also necessary to same way as compliance with the monitor compliance with the capacity technical restrictions on the installa- restrictions at the time of the planning tions. Thus in the letter of 20 February I - 5712

1995 (third authorising decision) the the applicant relies ([Case T-266/94] Commission explains that "in carrying Skibsvaerftsforeningen and Others v out the investment plan it is appro- Commission [[1996] ECR II-1399], priate to monitor compliance with the paragraph 177), the capacity restric- capacity restriction applicable to ship- tion laid down in those authorising building. Such compliance is ensured decisions corresponded to the produc- only if the investment plan presented to tion achievable under favourable nor- the consultants is scrupulously mal conditions, given the facilities observed; that applies in particular available. When accepting and execut- with regard to the maximum permis- ing orders for the construction of ships, sible output of 73 000 tonnes of steel, the applicant therefore had to comply the double bottom line and the two with the technical restrictions on its panel lines. The German Government installations, restrictions which had has given an assurance that the ship- been calculated and laid down in such yard will comply with the capacity a way that under favourable normal restriction." In its letters of 18 October conditions it would not produce more and 11 December 1995 (the fourth and than 85 000 cgt per annum. However, fifth authorising decisions), the Com- the authorising decisions did not pro- mission observes, in almost identical hibit the applicant from producing, terms, that the double bottom assem- under exceptionally favourable condi- bly line and the large panel line limit tions such as those which might result the shipyard's capacity to transform from the receipt of orders which could steel and by that very fact restrict the be executed more quickly than normal, shipyard's production capacity to more than 85 000 cgt per annum, but 85 000 cgt per annum. The Commis- merely required compliance with the sion adds in those two letters that for technical restrictions set out in parti- the duration of that capacity restriction cular in the authorising decisions, such it is indispensable that the layout of the as those limiting the number of work shipyard should not be amended and stations on the curved panel line to six that the "optional" equipment which and the number of work stations on has not yet been installed should the small panel line to three. comply with the specifications which the shipyard submitted for an opinion by the consultant.

106 According to that case-law, a capacity restriction may, as is apparent in the present case from the wording of the authorising decisions, relate to "pro- duction achievable under favourable normal conditions, given the facilities 108 Thus, the minutes of a meeting held on available" and not express an actual 1 June 1993 concerning privatisation maximum production which may not of the shipyards in the former German be exceeded even under exceptionally Democratic Republic state as follows: favourable conditions. The Commis- sion cannot convincingly argue that the capacity restriction imposed on the applicant, even though relating to "the production achievable under favour- able normal conditions, given the facilities available", nevertheless indi- cates a maximum actual production "The Danish, Italian and the UK which may not be exceeded in any delegates were expressing their worry event (see paragraph 87 above). If the that the actual production would capacity restriction reflects production exceed the assigned capacity after the achievable under favourable normal investments would be implemented. conditions, that in itself implies that The Commission was confident that the figure indicated by that restriction future production would not exceed may be exceeded in periods of optimal the agreed capacity limits because of conditions. Contrary to the Commis- the technical bottlenecks in the invest-

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COMMISSION v KVAERNER WARNOW WERFT

ment plans, because of the present and 109 Likewise, the Commission's report on future monitoring of the investment the monitoring of the privatisation of plans together with the contractual shipyards in the former German capacity limits in the privatisation Democratic Republic annexed to the contracts, because of the German letter of 6 May 1993 addressed to the Government's undertaking to respect Permanent Representative of the Fed- the limits and because all aid payments eral Republic of Germany states that, are conditional on respect of the in the Commission's view, the capacity capacity limits." restriction was constituted by the entirety of the technical restrictions imposed:

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85 000 egt ..., the operative parts of and to refer the case back to the Court of those decisions are vitiated in their First Instance for judgment as provided for entirety by that error of appraisal. in Article 61 of the Statute of the Court of Justice.

111 It should be observed in that regard that the sole basis for the contested decisions is the simple fact that actual 20. In support of its appeal, the Commis- production exceeded 85 000 cgt per sion puts forward three pleas in law: annum. The Commission neither examined, nor alleged, that the excess production during the years in ques- tion is the result of a failure to comply with the restrictive conditions laid down in the authorising decisions.' — breach of Article 10a(2)(c) of Directive 90/684;

18. The Court of First Instance therefore annulled the contested decisions without considering the other pleas put forward by — breach of the authorising decisions; KWW. 12 and

— an error of law in the assessment of the IV — The appeal case-law and of the documents cited in paragraphs 105 to 109 of the contested judgment.

A — The first and third pleas double error in law. 14 Firstly, it misread the case-law cited in paragraph 105 of the contested judgment since, contrary to its finding in paragraph 106, it may not be inferred from that case-law that the capa­ city restriction related only to the technical 22. In its first plea, 13 the Commission installations of the shipyards. Secondly, the alleges that the Court of First Instance documents in the case referred to in wrongly defined the legal framework for paragraphs 107 to 109 of the contested the authorising decisions. It claims that the judgment were taken out of context and do Court of First Instance interpreted the not support the disputed interpretation concept of 'capacity restriction' solely in either. the light of one of the two aims of Directive 90/684, namely the reduction of excess capacity in the shipbuilding sector. The Commission points out that Directive 90/684 does, however, have another objec­ tive, which is to compensate for the 25. As I have stated, I consider that these distortion to competition caused by the two pleas must be rejected. grant of aid to the East German shipyards.

26. In accordance with settled case-law, 15 the Court rejects from the outset claims 23. Unlike the first objective, the second challenging grounds that constitute an can be achieved only by limiting the actual alternative or superfluous line of reasoning production of the shipyards. Therefore, if in the judgment of the Court of First the Court of First Instance had correctly Instance. The Court considers that, to the identified the aims of Directive 90/684, it extent that the operative part of the would have seen that the capacity restric­ judgment of the Court of First Instance is tion applied not only to the technical based on other, primary, grounds, such installations of the shipyards, but also to their actual production.

27. In the present case, I consider that the 31. Finally, the third line of reasoning very purpose of the first and third pleas is to relates to case-law and to certain docu- contest reasoning which is superfluous in ments in the case. In paragraphs 105 and view of that set out in paragraphs 97 to 104 106 of the contested judgment, the Court of of the contested judgment. First Instance took as its basis a number of judgments of the Court of Justice and of the Court of First Instance in confirming that 'a capacity restriction may ... relate to "pro- duction achievable under favourable nor- mal conditions'". 17 Similarly, in para- 28. It can be seen from the contested graphs 107 to 109 of the contested judg- judgment that, in accepting the view put ment, the Court of First Instance found that forward by KWW, the Court of First certain documents produced by KWW Instance developed its reasoning along three 'confirm that the capacity restriction ... lines. relates to the production achievable under favourable normal conditions, given the facilities available'. 18

29. The first line of reasoning relates to the legal framework within which the authoris- ing decisions were taken. In paragraphs 94 32. However, only the second of these lines to 96 of the contested judgment, the Court of reasoning constitutes the principal rea- of First Instance stated that Article 10a(2) soning of the contested judgment. (c) of Directive 90/684 was intended to reduce excess capacity in the shipbuilding sector.

33. As can be seen from paragraph 91 of the contested judgment, the Court of First Instance noted at the outset that 'the 30. The second line of reasoning relates to applicant, rather than disputing the Com- the contents of the authorising decisions. In mission's interpretation [of the concept of paragraphs 97 to 104 of the contested judgment, the Court of First Instance held that the concept of 'capacity restriction' in 16 — Contested judgment (paragraph 104). the authorising decisions referred to 'the 17 — Ibid, (paragraph 106). production achievable under favourable 18 — Ibid, (paragraph 107).

"capacity" as referred to in Directive 35. The first and third pleas are accord- 90/684], complains principally that the ingly of no consequence. Commission failed to have regard in the contested decisions to the concept of capacity as imposed ... in the authorising decisions'. The Court of First Instance therefore decided to examine the legality of the contested decisions in the light of 'the rule that the Community institutions must comply with the principle that they may not alter measures which they have adopted'. 19 The reason given by the Court of First Instance for its annulment of the recovery decisions is, furthermore, that 'the Commis- 36. These pleas cannot cause the contested sion committed a manifest error ... in judgment to be set aside since, even if they treating in the contested decisions, contrary are well founded (that is to say that the to its approach in the authorising decisions, Court of First Instance did make an error in the concept of a capacity restriction as a defining the objectives of Directive 90/684 limit on actual production'. 20 and in analysing the case-law and the documents in the case), the operative part of the judgment (namely the annulment of the contested decisions) would still be based upon the fact that, in the recovery decisions, the Commission applied the concept of 'capacity restriction' in a manner different 34. It follows that the principal reasoning from that in the authorising decisions. In underlying the contested judgment is that order to have the contested judgment set the Commission based the recovery deci- aside, the Commission must on any view sions on a concept of 'capacity restriction' show that the reasoning relating to the which differed from that stemming from the contents of the authorising decisions (para- authorising decisions. The reasoning relat- graphs 97 to 104 of the contested judg- ing to the objectives of Directive 90/684 ment) is incorrect, that is to say that the (paragraphs 94 to 96 of the contested concept of 'capacity restriction' as referred judgment) and that relating to the case- to in the authorising decisions relates to a law of the Court of Justice and of the Court limit on KWW's actual production. of First Instance (paragraphs 105 and 106 of the contested judgment) and to the documents produced by KWW (paragraphs 107 to 109 of the contested judgment) are therefore superfluous vis-à-vis the reason- ing relating to the concept of a 'capacity restriction' as referred to in the authorising decisions (paragraphs 97 to 104 of the contested judgment).

40. The Commission concedes that the first and second authorising decisions set out in detail the technical restrictions on the 43. As to why the restriction on actual installations and that, unlike the other three production was expressly mentioned only authorising decisions, they contain no in the third, fourth and fifth authorising indications regarding production. decisions, the Commission draws a distinc- tion between an 'investment' phase and a 'production' phase. The first and second authorising decisions concern solely the investment phase, namely the phase of creation and extension of the shipyard installations: during this phase, determina- 41. However, according to the Commis- tion of and compliance with the technical sion, the efforts to ensure compliance with restrictions were what mattered above all to the capacity restriction by putting technical the Commission. By contrast, the other bottlenecks into place do not mean, con- authorising decisions, adopted in 1995, in trary to the findings of the Court of First essence relate to the production phase starting on 1 January 1996. It is therefore logical that they emphasise the restriction 21 — Appeal (paragraphs 16 to 24). on and monitoring of actual production.

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COMMISSION v KVAERNER WARNOW WERFT

48. In the same way, the second authoris- 46. It is true, as the Court of First Instance ing decision provides: found in paragraphs 97 to 100 and 103 of the contested judgment, that the authoris- ing decisions contain a large number of references to the technical restrictions on KWW's installations.

22 — Ibid, (paragraphs 25 to 34). 'Although the monitoring study, for which 23 — Ibid, (paragraph 25). the Commission instructed an independent

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OPINION OF MR LÉGER — CASE C-181/02 P

50. In all these decisions, the Commission states that KWW's shipbuilding capacity must be limited to 85 000 cgt per annum and that this restriction must be effective. 'According to the independent technical That means, for the Commission, that the monitoring study carried out at the request investments made in the context of the of the Commission, [KWW's] shipbuilding restructuring of the shipyard were to take capacity will not exceed 85 000 cgt ... place in accordance with the plans pre- Nevertheless, in carrying out the investment sented to the firm of consultants nominated plan it is appropriate to monitor compli- by the Commission. It can therefore be ance with the capacity restriction applicable assumed that the plans presented to this to shipbuilding. Such compliance is ensured firm already included all the technical only if the investment plan presented to the requirements to be complied with by consultants is scrupulously observed; that KWW. applies in particular with regard to the

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COMMISSION v KVAERNER WARNOW WERFT

maximum permissible output of 73 000 as to check that the technical bottlenecks tonnes of steel, the double bottom line and are in fact put in place correctly. the two panel lines. The German Govern- ment has given an assurance that the shipyard will comply with the capacity restriction.

55. However, following this reminder, the Commission adds, in the second paragraph: 'Furthermore, the first production monitor- ing report sent to the Commission shows that it is also necessary to monitor com- pliance with the capacity restrictions at the time of the planning of production and of production itself'. 24

57. This element is confirmed by the other two authorising decisions. The fourth 58. The fifth authorising decision contains authorising decision provides: identical points, stating:

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COMMISSION v KVAERNER WARNOW WERFT

ance that the shipyard will comply with the pose a problem with regard to the capacity capacity restriction.' 26 restriction, that means that the capacity restriction also applied to KWW's actual production.

59. These decisions also deal with two matters. Firstly, the Commission states that 61. It accordingly seems to me that the its technical consultant carried out a check assessment made by the Court of First to verify that the work complied with the Instance that the capacity restriction investment plan. The consultant found that applied only to the technical restrictions KWW's installations did comply with the on KWW's installations (paragraphs 101 technical restrictions imposed, the effect of and 102 of the contested judgment) is which was to limit its production to 85 000 incompatible with the wording of the cgt per annum. Nevertheless, after this authorising decisions. Nor, in my view, finding, the Commission adds, on the basis does that interpretation appear to be of the reports on the monitoring of KWW's consistent with the broad logic of those production, that monitoring 'remains decisions. necessary' to ensure compliance with the limit of 85 000 cgt in respect of both actual production and planned production.

65. The interpretation adopted by the Court of First Instance does not permit this objective to be achieved. The facts of the case show, on the contrary, that despite the technical restrictions imposed on KWW, 63. Furthermore, the Commission's view the shipyard produced up to 44% more also seems to me to be the only one which than the authorised capacity restriction. accords with the objective of the authoris- The interpretation that the authorising ing decisions. decisions impose only a technical restriction on KWW's installations therefore also seems to me to be contrary to the very objective of the capacity restriction.

72. It is common ground that, so far as the second claim is concerned, the state of the proceedings does not permit the Court to 69. In the present case, I consider that the give final judgment. 30 In support of that state of the proceedings does not permit the claim, KWW made numerous offers of Court to give judgment in the matter. evidence to the Court of First Instance in order to establish that the alleged error was made. However, the Court of First Instance, because of the conclusion it reached on the principal claim, made no finding on the applicant's evidence in support. 70. Before the Court of First Instance, KWW made two separate claims for annulment. 29 The first, principal, claim sought annulment of the recovery decisions in their entirety. In this connection, KWW disputed the Commission's assessment that it had not complied with the capacity restriction laid down by the authorising decisions. 73. I accordingly consider that the Court should refer the case back to the Court of First Instance. It will be for the latter to assess the need to order measures of inquiry and the value to be attached to the evidence submitted. It will also be for the Court of 71. The second claim, put in the alterna- First Instance to rule on all the costs, tive, sought the annulment of the contested including the costs of this appeal. decisions only with regard to the amount of

30 — See also, to this effect, the appeal (paragraphs 48 to 50) 29 — Sec the applications in Cases T-227/99 (paragraph 267) and the response (introductory section, under the heading and T-134/00 (paragraph 381). 'Claims').

(3) order that the costs be reserved.

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