JUDGMENT OF 5. 12. 1979 — CASE 143/77 KONINKLIJKE SCHOLTEN-HONIG v COUNCIL AND COMMISSION
In Case 143/77,
THE COURT composed of: H. Kutscher, President, A. O'Keeffe and A. Touffait (Presidents of Chambers), J. Mertens de Wilmars, Lord Mackenzie Stuart, G. Bosco and T. Koopmans, Judges, Advocate General: G. Reischl Registrar: A. Van Houtte
gives the following
JUDGMENT
Facts and Issues
I — Facts and procedure
1. The product at issue
2. Community legislation
3. The applications
(a) In Cases 116/77 and 143/77
(b) In Case 124/77
II — Conclusions of the parties
Alternatively
Alternatively
III — Submissions and arguments of the parties
— Breach of a superior rule of law for the protection of the individual
— Breach of a superior rule of law for the protection of the individual
1. The prohibition on any discrimination between producers within the Community (second subparagraph of Article 40 (3) of the Treaty)
2. The obligation to take account of the objectives set out in Article 39 (1) of the Treaty in laying down rules for the common organization of the agricultural market
3. Violation of the principle of proportionality
4. Principle of legal certainty
5. The right of freedom to trade and pursue other business activities
— Assessment of the damage
— Causal connexion between the regulations in dispute and the damage suffered
— Damage and causal nexus
— Damage and causal nexus
— Damages claimed by the applicant in this application
— Breach of a superior rule of law
1. Discrimination
2. Disregard of the objectives in Article 39 of the Treaty and of the principle of proportionality
3. Violation of legal certainty
4. Violation of the principle of freedom to pursue trade and business activities
1. Infringement of the prohibition on discrimination (second subparagraph of Article 40 (3) of the Treaty)
1. Infringement of the prohibition on discrimination (second subparagraph of Article 40 (3) of the Treaty)
2. Violation of the principle of proportionality
D — The applicant's reply
1. Infringement of Article 39 of the Treaty
2. Violation of the principle of nondiscrimination
3. Violation of the principle of proportionality
E — The Council's rejoinder relating to Joined Cases 116/77, 124/77 and 143/77
— Causal nexus
— Serious breach of a superior rule of law
1. Potential production of isoglucose and the extent to which that product may he substituted for sugar
2. The question of acquired rights to continuance of regulations
3. Infringement of Article 39 of the Treaty
4. The complaints of discrimination, disproportionality and misuse of powers
6. Violation of legal certainty by the absence of transitional measures
F — The Commission's rejoinder relating to the three cases
— Facts
1. Extent to which isoglucose may be substituted for sugar
2. Production costs
3. Raw materials
— Law
1. Violation of the principle of nondiscrimination
2. Violation of the principle of proportionality
IV — Questions put by the Court
First question (to the Council and the Commission):
The Council's answer
The Commissions's answer
Second question (to the Council and the Commission):
The Council's answer
The Commission's answer
Third Question (to the Council):
The Council's answer
Request for additional information addressed to the Commission
The Commission's answers
Points 1 and 3
Point 2
Point 4
Supplementary question put to the Commission
The Commission's answer
V — Further procedure in cases 116, 124 and 143/77 and related events
A — Oral procedure
B — Requests submitted after the closure of the oral procedure
C — The Judgment of the Court of 25 October 1978 in Joined Cases 103 and 145/77
D — Resumption of the written procedure in Joined Cases 116, 124 and 143/77 and disjoinder of Case 143/77
E — Re-opening of the oral procedure
VI — Conclusions of the parties
VII — Summary of the observations of the parties
1. Must the losses suffered by the applicant be charged to the Community under Article 215 of the Treaty?
1. Must the losses suffered by the applicant be charged to the Community under Article 215 of the Treaty?
2. The causal connexion between losses suffered by the applicant and the actions of the Community
3. The applicant's damage
B— Observations of the Commission
1. Admissibility of the applicant's supplementary observations
2. The limits of the Community's liability
3. Causal connexion between the illegal act and the damage suffered
4. The evalutation of the damage allegedly suffered by the applicant
2. Future results at Tilbury.
C — Observations of the Council
1. Introduction
2. Manifest and grave disregard of the limits on the exercise of powers
As to Point (i)
As to Point (ii)
Economic impact of the levy of 5 units of account
3. Causal connexion
4. Specific arguments to the effect that the applicant's claim for damages is unfounded
5. Alleged damage
VIII — Request for information addressed by the Court to the applicant
IX — Oral procedure
Decision
Costs
I —. Facts and procedure
1. The product at issue
2. Community legislation
3. The applications
(a). In Cases 116/77 and 143/77
(b). In Case 124/77
II —. Conclusions of the parties
III —. Submissions and arguments of the parties
A —. In its application the applicant states that its action is for compensation for the damage caused both by Council Regulation No 1111/77 and by Commission Regulation No 1468/77.
—. Breach of a superior rule of law for the protection of the individual
1. The prohibition on any discrimination between producers within the Community (second subparagraph of Article 40 (3) of the Treaty)
2. The obligation to take account of the objectives set out in Article 39 (1) of the Treaty in laying down rules for the common organization of the agricultural market
3. Violation of the principle of proportionality
4. Principle of legal certainty
5. The right of freedom to trade and pursue other business activities
—. Assessment of the damage
—. Causal connexion between the regulations in dispute and the damage suffered
B —. In its defence the Council first of all adds to its observations in the defence lodged in Cases 116 and MA/77, particularly as regards the damage and the causal nexus. It states that its observations in this case also apply mutatis mutandis in the context of those cases.
—. Damage and causal nexus
—. Damages claimed by the applicant in this application
—. Breach of a superior rule of law
1. Discrimination
2. Disregard of the objectives in Article 39 of the Treaty and of the principle of proportionality
3. Violation of legal certainty
4. Violation of the principle of freedom to pursue trade and business activities
C —. In its defence the Commission repeats the exposition of the economic and legislative context of the dispute given in its defence in Case 116/77 (Amylum).
1. Infringement of the prohibition on discrimination (second subparagraph of Article 40 (3) of the Treaty)
2. Violation of the principle of proportionality
D —. The applicant's reply
1. Infringement of Article 39 of the Treaty
2. Violation of the principle of nondiscrimination
3. Violation of the principle of proportionality
E —. The Council's rejoinder relating to Joined Cases 116/77, 124/77 and 143/77
—. Causal nexus
—. Serious breach of a superior rule of law
1. Potential production of isoglucose and the extent to which that product may he substituted for sugar
2. The question of acquired rights to continuance of regulations
3. Infringement of Article 39 of the Treaty
4. The complaints of discrimination, disproportionality and misuse of powers
5. The Council considers that it has said enough on the system of Regulation No 1111/77 to dispense it from making further justification of having violated freedom of trade and industry, or even basic liberties.
6. Violation of legal certainty by the absence of transitional measures
F —. The Commission's rejoinder relating to the three cases
—. Facts
1. Extent to which isoglucose may be substituted for sugar
2. Production costs
3. Raw materials
—. Law
1. Violation of the principle of nondiscrimination
2. Violation of the principle of proportionality
IV —. Questions put by the Court
(a). The Council and the Commission are asked to produce the figures and calculations on which the rate of the production levy for isoglucose was initially proposed by the Commission and subsequently fixed by the Council.
(b). The Council and the Commission are asked to produce the information available to them at the material times as regards the capacity for isoglucose to be used as a substitute for sugar and the future production possibilities of isoglucose.
(a). The Commission states that its examination of the rate of the production levy for isoglucose provided in Regulation No 1111/77 was not based on specific calculations. The Commission approached the question in the following manner: isoglucose being a product which could be substituted for liquid sugar, it was appropriate to include it in the management of the sugar market. Given the existing forecasts of the situation of the sugar market in the Community and of the costs in the form of refunds following from exports, the Commission proposed that the production of isoglucose should be subjected to the same levy system as that existing for the production of sugar, which had the object of causing producers to share to a certain extent in the financial losses of the Community resulting from the putting of sugar on to the market. The parallelism referred to in the Commission's proposal between the rate of the levy for isoglucose and that for sugar can be explained, then, by this decision to treat in an identical fashion two competing products which were interchangeable in certain of their applications.
(b). In appendices to its answer the Commission submits the relevant information in its possession at the time of the preparation of Regulation No 1111/77 as regards the capacity for isoglucose to be used as a substitute for sugar and the future production possibilities of isoglucose.
(i). Example: Regulation No 1696/71 of 26 July 1971 (Official Journal, English Special Edition 1971 (II), p. 634) on the common organization of the market in hops (see in particular the third recital in the preamble thereto). In fact, the smooth functioning of this market would have been jeopardized if broadly speaking interchangeable products with hops, namely the essence and vegetable extract of hops had not been subject to the common organization in question. In order to establish a balance between hops and these two products, the Community authorities extended the common organization in question to these products and thus subjected their producers to the obligations flowing from this organization.
(ii). Another example: Regulation No 2783/75 of 29 October 1975 on the common system of trade for ovalbumin and lactalbumin (Official Journal No L 282 of 1 November 1975) the first five recitals in the preamble to which show the absolute necessity of such links between products by reason of their competitive use, that is to say their interchangeability.
1. In the observations submitted by the Commission in Case 103/77 there is a reference to page 27 (French version) to a report which is being prepared on the competitive capacity of isoglucose as compared with sugar. If this investigation has already been concluded the Court would be obliged if the report could be made available to it.
2. In the reply in Case 116/77 there is a reference on page 7 (French version) to an investigation by the Commission's Directorate General III into the costs of production of isoglucose. The Court would be glad to be informed of the results of this investigation.
3. In Case 124/77 there is a reference in the Commission's defence on page 27 (French version) to a report to be drawn up by experts on the production costs on isoglucose and sugar. If this repon is yet in existence the Court would be glad to receive a copy.
4. The Commission is asked to provide detailed information with regard to the quantities of B and C sugar produced by the individual sugar producers during recent sugar marketing years (for example from 1974).
V —. Further procedure in cases 116, 124 and 143/77 and related events
A —. Oral procedure
B —. Requests submitted after the closure of the oral procedure
C —. The Judgment of the Court of 25 October 1978 in Joined Cases 103 and 145/77
D —. Resumption of the written procedure in Joined Cases 116, 124 and 143/77 and disjoinder of Case 143/77
E —. Re-opening of the oral procedure
VI —. Conclusions of the parties
(1). Declare the putting forward of any grounds other than the adoption of Regulation No 1111/77 in assessing the liability of the Community to be inadmissible;
(2). Declare that the Community is not liable on grounds of the adoption of Regulation No 1111/77;
(3). Order the applicant to pay the costs.
VII —. Summary of the observations of the parties
A —. By way of introduction the applicant remarks that, so as to avoid repetition, it refers expressly to its application and its reply as well as to the whole of the arguments set out therein.
1. Must the losses suffered by the applicant be charged to the Community under Article 215 of the Treaty?
2. The causal connexion between losses suffered by the applicant and the actions of the Community
3. The applicant's damage
—. The effect of the levy is to make the production of isomerose impossible.
—. The reason for that is that the levy is so stringent that the factories under construction cannot be demolished since no derogative rules to that effect have been drawn up.
—. The existing factories which are already operational may possibly continue to produce as long as their variable margin continues to be positive but that category too is threatened by an increase in the levy in two years.
—. Owing in particular to this uncertainty there is no further economic justification in continuing to invest in isomerose.
—. Scholten-Honig's isomerose project at Tilbury is at the moment half completed and the company is thus compelled to stop all investment in the field of isomerose.
—. The experimental isomerose factory at Koog, which is already operational, must therefore be closed and liquidated, since its principal reason for existence was the preparation of the market in Europe and England and the acquisition of technical experience for Tilbury.
—. Furthermore this question of isomerose must be settled quickly, in view of the losses in the form of interest which may follow if it is not and the necessity of acting so as to restrict losses.
B—. Observations of the Commission
1. Admissibility of the applicant's supplementary observations
2. The limits of the Community's liability
3. Causal connexion between the illegal act and the damage suffered
4. The evalutation of the damage allegedly suffered by the applicant
1. The writing off of the investments effected for isoglucose production, in particular those concerning:
2. Future results at Tilbury.
C —. Observations of the Council
1. Introduction
2. Manifest and grave disregard of the limits on the exercise of powers
3. Causal connexion
4. Specific arguments to the effect that the applicant's claim for damages is unfounded
5. Alleged damage
VIII —. Request for information addressed by the Court to the applicant
IX —. Oral procedure
1. The applicant in this case is claiming that the European Economic Community, represented by the Council and the Commission, should be ordered to pay it compensation under the second paragraph of Article 215 of the EEC Treaty for the damage which it claims to have suffered as a result of the imposition of a production levy on isoglucose in pursuance of Council Regulation No 1111/77 of 17 May 1977 laying down common provisions for isoglucose (Official Journal L 134, p. 4).
2. It may be recalled that the following reasons were given in the seventh recital in the preamble to that regulation for the setting up of a production levy system for isoglucose:
3. According to the ninth recital, the aforesaid levy system is complementary to that established for sugar by Council Regulation No 3330/74 of 19 December 1974 on the common organization of the market in sugar (Official Journal 1974, L 359, p. 1) and the envisaged levy on the production of isoglucose is analogous to that provided for in Article 27 of Regulation No 3330/74, namely to the levy on a percentage of the production of sugar manufactured in excess of the basic quota.
4. The production levy system for isoglucose was established by Articles 8 and 9 of Regulation No 1111/77 and applied to the 1977/78 and 1978/79 sugar years. Article 9 (1) of the regulation provided that Member States were to charge a production levy on manufacturers of isoglucose and the first subparagraph of Article 9 (2) provided that the amount of the levy per 100 kg of dry matter should be equal to the amount of the production levy provided for in Article 27 of Regulation No 3330/74 for the same period to which the latter amount applied. However, under the second subparagraph of Article 9 (2), for the period from 1 July 1977 to 30 June 1978 the amount of the levy referred to in paragraph (1) might not exceed the amount of five units of account per 100 kg of dry matter.
5. In its judgment of 25 October 1978 given in answer to a reference for a preliminary ruling from the High Court of Justice, Queen's Bench Division, Commercial Court, in Joined Cases 103 and 145/77, Royal Scholten-Honig (Holdings) Limited v Intervention Board for Agricultural Produce; Tunnel Refineries Limited v Intervention Board for Agricultural Produce ([1978] ECR 2037), the Court ruled that Regulation No 1111/77 was invalid to the extent to which Articles 8 and 9 thereof imposed a production levy on isoglucose of five units of account per 100 kg of dry matter for the period corresponding to the sugar marketing year 1977/1978. The Court had found that the provisions of that regulation establishing the production levy system for isoglucose offended against the general principle of equality of which the prohibition on discrimination set out in Article 40 (3) of the Treaty was a specific expression. However, it had added that its answer would leave the Council free to take any necessary measures compatible with Community law for ensuring the proper functioning of the market in sweeteners.
6. Following that judgment the Commission, by letter dated 8 January 1979, informed the Member States that, pending measures to be adopted by the Council to ensure the proper functioning of the market in sweeteners, it was appropriate to suspend all collections of the isoglucose production levy and that, similarly, the establishment, accounting and allocation to own resources of the amounts concerned should be provisionally suspended by Member States.
7. On 25 June 1979 the Council adopted Regulation No 1293/79 (Official Journal 1979, L 162, p. 10) amending Regulation No 1111/77 in the light of the judgment of the Court of 25 October 1978. Since the most appropriate means for avoiding inequality of treatment between producers of sugar and producers of isoglucose was to subject isoglucose production to rules analogous to those applying to sugar production until 30 June 1980, Regulation No 1293/79 in particular established, on a transitional basis until that date, a temporary system of production quotas for isoglucose. It was also provided that for the quantity of isoglucose produced which exceeded the basic quota without exceeding the maximum quota Member States were to charge a production levy on the isoglucose producer concerned, the amount of which was to be equal to the share of the sugar production levy as fixed for the 1979/80 sugar year by virtue of Article 28 of Regulation No 3330/74, borne by the sugar manufacturers. As regards the production levy established by Regulation No 1111/77 and declared invalid by the abovementioned judgment, it was abolished by Article 2 (1) of Regulation No 1293/79 with effect from 1 July 1977.
8. In the course of the oral procedure in this case the applicant stated that it had paid the levy in respect of the isoglucose production in a pilot factory and had not yet obtained a refund from the national authorities. The object of these proceedings is not, however, to obtain a refund of the levy but solely to obtain compensation from the Community for losses which the applicant claims to have incurred because the introduction of the production levy compelled it permanently to stop manufacturing isoglucose. It claims that the damage caused to it consists, on the one hand, in the writing-off of investments in isoglucose production in two experimental plants in the Netherlands and a factory being built at Tilbury, in the United Kingdom, which was to be specially equipped for isoglucose production, the costs of administration and research relating to the product, as well as costs of taking legal advice and the financial consequences relating to contracts made with other undertakings for purchasing licences and obtaining enzyme supplies. On the other hand there were losses due to the sale, subsequent to the applicant's bankruptcy but prior to the judgment of the Court of 25 October 1978, of the Tilbury factory at a price well below the construction costs, as well as the loss of estimated future profits.
9. Since the Court has already established in its judgment of 25 October 1978 that the imposition of an isoglucose production levy of five units of account per 100 kg of dry matter was incompatible with the principle of equality, the first question which arises in these cases is whether that illegality is such as to involve the Community in liability under the second paragraph of Article 215 of the Treaty.
10. A finding that a legal situation resulting from legislative .measures by the Community is illegal is insufficient by itself to involve it in liability. The Court has already stated this in its judgment of 25 May 1978 in Joined Cases 83/76 and Others, Bayerische HNL & Others v Council and Commission ([1978] ECR 1209). In this connexion the Court referred to its consistent case-law in accordance with which the Community does not incur liability on account of a legislative measure which involves choices of economic policy unless a sufficiently serious breach of a superior rule of law for the protection of the individual has occurred. Having regard to the principles in the legal systems of the Member States, governing the liability of public authorities for damage caused to individuals by legislative measures, the Court has stated that in the context of Community legislation in which one of the chief features is the exercise of a wide discretion essential for the implementation of the Common Agricultural Policy, the liability of the Community can arise only exceptionally in cases in which the institution concerned has manifestly and gravely disregarded the limits on the exercise of its powers.
11. This is confirmed in particular by the fact that, even though an action for damages under Articles 178 and 215 of the Treaty constitutes an independent action, it must nevertheless be assessed having regard to the whole of the system of legal protection of individuals set up by the Treaty. If an individual takes the view that he is injured by a Community legislative measure which he regards as illegal he has the opportunity, when the implementation of the measure is entrusted to national authorities, to contest the validity of the measure, at the time of its implementation, before a national court in an action against the national authority. Such a court may, or even must, in pursuance of Article 177, refer to the Court of Justice a question on the validity of the Community measure in question. The existence of such an action is by itself of such a nature as to ensure the efficient protection of the individuals concerned.
12. These considerations are of importance where, as in these cases, the Court, within the framework of a reference for a preliminary ruling, has declared a production levy to be illegal and where the competent institution, following that finding, has abolished the levy concerned with retroactive effect.
13. It is appropriate to inquire in the light of these considerations whether, in the circumstances of these cases, there has been, on the part of the Council and the Commission, a grave and manifest disregard of the limits which they are required to observe in exercising their discretion within the framework of the Common Agricultural Policy.
14. In this respect it must be recalled that the Court did not declare invalid any isoglucose production levy but only the method of calculation adopted and the fact that the levy applied to the whole of the isoglucose production. Having regard to the fact that the production of isoglucose was playing a part in increasing sugar surpluses it was permissible for the Council to impose restrictive measures on such production.
15. Although, in its judgment of 25 October 1978, giving a preliminary ruling within the framework of a consideration of the validity of Regulation No 1111/77, the Court found that the charges borne in pursuance of that regulation by isoglucose producers by way of production levy were manifestly unequal as compared with those imposed on sugar producers, it does not follow that, for the purposes of an assessment of the illegality of the measure in connexion with Article 215 of the Treaty, the Council has manifestly and gravely disregarded the limits on the exercise of its discretion.
16. In fact, even though the fixing of the isoglucose production levy at five units of account per 100 kg of dry matter was vitiated by errors, it must nevertheless be pointed out that, having regard to the fact that an appropriate levy was fully justified, these were not errors of such gravity that it may be said that the conduct of the defendant institutions in this respect was verging on the arbitrary and was thus of such a kind as to involve the Community in non-contractual liability.
17. It must also be recalled that Regulation No 1111/77 was adopted in particular to deal with an emergency situation characterized by growing surpluses of sugar and in circumstances which, in accordance with the principles set out in Article 39 of the Treaty permitted a certain preference in favour of sugar beet, Community production of which was in surplus, whilst Community production of maize was to a considerable extent deficient.
18. It follows from these considerations that the Council and the Commission did not disregard the limits which they were required to observe in the exercise of their discretion in the context of the Common Agricultural Policy in such a serious manner as to incur the non-contractual liability of the Community.
19. The application must be dismissed as unfounded.
20. Under Article 69 (2) of the Rules of Procedure, the unsuccessful party shall be ordered to pay the costs.
21. As the applicant has been unsuccessful it must be ordered to pay the costs.
On those grounds, THE COURT hereby:
1 Dismisses the application;
2 Orders the applicant to pay the costs.