Judgment of the Court 2 June 1965 Acciaieria Ferriera di Roma (Feram) and Anotherand Merisider - Industria Meridionale Siderurgica and Others v High Authority of the European Coal and Steel Community
In Joined Cases
THE COURT composed of : Ch. L. Hammes, President (Rapporteur), A. M. Donner and R. Lecourt, Presidents of Chambers, L. Delvaux and R. Monaco, Judges, Advocate-General: J. Gand Registrar: A. Van Houtte
gives the following
JUDGMENT
Issues of fact and of law
I — Facts
1. By its Decision No 22/54 of 26 March 1954 (Official Journal of the ECSC 1954, No 4, p. 286), the High Authority, acting under Article 53 (b) of the ECSC Treaty, made a compulsory financial arrangement for all Community undertakings which were consumers of ferrous scrap, the purpose of which was to ensure a regular supply of scrap within the Common Market. This arrangement was extended, in particular by Decisions Nos 14/55 of 26 March 1955 (Official Journal of the ECSC 1955, No 8, p. 685) and 2/57 of 27 January 1957 (Official Journal of the ECSC 1957, No 4, p. 61).
2. By these Decisions the High Authority established a scheme for the purchase on joint account of ferrous scrap and a financial arrangement for the equalization of scrap imported from third countries or scrap treated as such (scrap from ship-breakers' yards and other highly-priced scrap).
3. The equalization scheme was financed by contributions based on the consumption of bought ferrous scrap by each undertaking; the principal purpose of these contributions was to enable equalization payments to be made to undertakings which obtained ferrous scrap imported from third countries or scrap treated as such.
4. Under the responsibility of the High Authority, the working of the equalization scheme was entrusted to the Office commun des consommateurs de ferraille (Joint Bureau of Ferrous Scrap Consumers) (hereinafter referred to as the ‘OCCF’) and to the Caisse de péréquation des ferrailles importées (Imported Ferrous Scrap Equalization Fund) (hereinafter referred to as the ‘CPFI’, cooperative associations incorporated under Belgian law. In each Member State the working of the equalization scheme was assisted by a regional office. In Italy the regional office was run by the Consorzio Approwigionamenti Materie Prime Siderurgiche (Campsider).
5. With effect from 1 August 1958, the High Authority withdrew the decisionmaking power which it had delegated to the OCCF and the CPFI. The compulsory equalization scheme came to an end on 30 November 1958. Up to that date, more than 13 million metric tons of ferrous scrap had been imported into the Community or obtained from shipbreakers' yards and on those grounds had qualified for equalization.
6. Certain rumours concerning the possibility of fraudulent or irregular transactions began to circulate in August 1956. In November 1957 Mr Worms, a dealer in ferrous scrap established in the Netherlands, reported frauds arising from forged certificates issued by the head of the Iron and Steel Department of the Netherlands Ministry of Economic Affairs, as a result of which more than 22000 metric tons of ferrous scrap had wrongly acquired a right to equalization.
7. On 15 March 1958, the directorate of the OCCF authorized the S.A. Fiduciaire Suisse to investigate whether the OCCF or the CPFI ‘had accepted or considered as satisfactory documents proving the origin’ of certain types of ferrous scrap. The scope of this authority was strictly limited: contracts concerning imports from the United States and ferrous scrap from ship-breakers' yards were excluded from the investigation.
8. On 14 August 1958, the CPFI made the S.A. Fiduciaire Suisse responsible for carrying out a complete investigation concerning all ferrous scrap covering the period from 1 April 1954 to 31 January 1957; the period of investigation was subsequently extended to 30 April 1957.
9. On 29 September 1958 the High Authority gave its own authorization to the S.A. Fiduciaire Suisse ‘to carry out the fullest investigation possible’.
10. On 8 April 1961, in a schedule to its ninth General Report, the High Authority issued a Report on its action concerning the investigation into the origin of ferrous scrap accepted for equalization by the CPFI (hereinafter referred to as the ‘Report of the High Authority’. On its own account, on 15 December 1961 the Domestic Market Committee of the European Parliamentary Assembly submitted a Report on the action of the High Authority in this field (Rapporteur Mr Alain Poher, Working Document No 109, hereinafter referred to as the ‘Poher Report’).
11. The Report of the High Authority shows, in particular, that: at least 229889 metric tons out of a total of 13018270 metric tons of imported ferrous scrap or scrap treated as such were wrongly accepted for equalization; it is possible, if not probable, that this figure does not include all the irregularities which had occurred; the types of irregularity are extremely varied and were committed in several Member States; it is not yet possible to state the final outcome of the attempts made to recover from the guilty parties the sums paid in error.
12. In its tenth, eleventh and twelfth General Reports on the activities of the Community the High Authority gave information about its action, which was at that time incomplete, as regards the winding-up of the equalization scheme and the checking of ferrous scrap which had qualified for equalization.
13. On 18 March 1964 the two applicant companies in Case 9/64, and on 25 June 1964 the five applicant companies in Case 25/64, lodged an application for reparation for damage suffered as a result of the wrongful act or omission on the part of the High Authority in the management and supervision of the equalization scheme.
II — Conclusions of the parties
The applicants claim that the Court should:
a) as a preliminary point, in order to establish that their application is well founded, order the High Authority to reply to 21 questions set out in greater detail in the application;
b) as an alternative preliminary point, order the defendant to produce various documents, further details of which are given in the application;
c) on the substance of the case, subject to the production of further documents, the presentation of new evidence and of any other submission which the applicants consider it advisable to make,
declare the applications to be admissible;
state that, within the meaning of the first paragraph of Article 40 of the Treaty establishing the ECSC, the High Authority is liable for a wrongful act or omission in that, throughout the period of operation of the compulsory ferrous scrap equalization scheme (that is, from 1 April 1954 to 31 March 1959), it was unable to prevent the commission of flagrant and gross frauds to the detriment of the iron and steel undertakings of the Community (frauds in part referred to in the Report of 8 April 1961 of the High Authority, annexed to the ninth General Report on the activities of the ECSC);
request that a committee of experts, appointed by the Court, establish finally:
1) whether other frauds were committed apart from those already set out in the provisional Report of the High Authority, published on 8 April 1961;
2) whether the inquiries made by the following auditors, commissioned by the High Authority to investigate the improper and fraudulent functioning of the equalization scheme, were thoroughly, extensively and definitively carried out as regards the frauds committed:
Price Waterhouse & Co., United States of America
Treuhand
T. Keuzenkamp
Jonkers et De Jong
Dijker, de Leede et Co.
Société Anonyme Fiduciaire de Belgique
Société Anonyme Fiduciaire Suisse;
3) whether the directives issued and the methods used in order to discover and calculate the quantities of ferrous scrap which were improperly accepted for equalization were adequate and correct from a technical point of view and whether they can guarantee with reasonable certainty that the metric tonnages of ferrous scrap involved in the frauds are comparable, even if only approximately, to the quantity of such scrap referred to by the High Authority in its Report of 8 April 1961;
4) whether everything possible has been done in order to avoid exceeding the periods of limitation and of preclusion of the right to examine the accounts and customs documents involved and, if not, in order to establish (if only reasonably approximately) the damage likely to have been caused to the iron and steel undertakings of the Community;
5) whether the exact metric tonnage of ferrous scrap involved in the frauds to the detriment of the iron and steel undertakings of the Community corresponds to that provisionally indicated by the High Authority in its Report of 8 April 1961 (that is, 229889 metric tons), and to that indicated in paragraph 43 of the Poher Report (252000 metric tons, excluding the differences resulting from the research undertaken by ‘Lloyd's’), or whether, on the other hand, this tonnage was considerably higher, a fact which would be shown by the report of the committee of experts to be appointed;
6) whether the percentage increases in the equalization contributions resulting from the frauds in question (and, therefore, the total sums which will have to be credited to the applicants) must be calculated on the basis of the 229889 metric tons declared by the High Authority, on the 252000 metric tons (excluding the differences which may result from the research undertaken by ‘Lloyd's’) referred to in the Poher Report, or whether, on the other hand, it must be calculated on a considerably higher tonnage which, if so, will be established by the committee of experts to be appointed;
7) whether the total costs resulting from all the investigations into the frauds involved in the equalization of scrap amount in fact to 400000 dollars or to a higher sum;
in any event, order the High Authority to pay damages, the amount of which shall be fixed by the Court, as well as the costs of the application and any expenses incurred by the experts.
The defendant contends that the Court should:
a) as a preliminary point
principally, declare that the applications of the applicant companies are barred as being out of time;
alternatively, declare that in the present state of the proceedings the applications are premature and must therefore be dismissed;
b) on the substance of the case in the further alternative, dismiss the applications as unfounded and order the applicants to pay the costs and expenses of the proceedings.
III — Submissions and arguments of the parties
The submissions and arguments of the parties may be summarized as follows:
A — Admissibility
1. Period of limitation of the proceedings
The defendant maintains that the facts which gave rise to the applications of the applicants are the equalization payments made in respect of ferrous scrap which was not entitled thereto.
These payments were made at the latest during 1958 and the applications of the applicants, based on Article 40 of the Treaty, are barred in that they were not brought within the period of five years from the occurrence of the event giving rise thereto as laid down in Article 40 of the Protocol on the Statute of the Court.
The applicants reply by quoting the judgment of the Court in Joined Cases 46 and 47/59 (Rec. 1962, pp. 783 et seq.), which states that ‘the Court would receive claims made after the closing of the accounts of the equalization scheme, without holding them to be outside the period of limitation’; as these accounts are not yet closed, the claims are clearly admissible.
2. Premature nature of the applications
As an alternative defence the defendant maintains that the applications made by the applicants are premature and, therefore, inadmissible, on the grounds that as yet no damage has been suffered.
The actions for recovery undertaken by the High Authority and the winding-up of the equalization scheme are still in progress; if it is accepted that the period of limitation only runs from the day on which the final balance is drawn up, there can, as yet, be no question of damage.
Moreover, as the tonnage of ferrous scrap which was wrongly accepted for equalization represents only about 2 % of the total tonnage, any damage suffered could not itself exceed this percentage. Only those undertakings which have already paid at least 98 % of their contributions could therefore claim reparation; this does not apply to the applicants who have as yet to pay a large portion of their contributions.
In any case, the figure of 2 % may be reduced; the uncertainty in this respect prevents the making of any statement at this point on the question ‘an debeatur’.
The defendant adds that the seriousness of any damage suffered is one of the factors necessary in order to establish the existence of a wrongful act or omission capable of rendering it liable; however, as it is at present impossible to assess the damage, it is impossible to state that it is liable.
The applicants reply that a distinction must be made between the existence of damage and its assessment; for an order for damages to be made it is unnecessary that the total damage suffered foe finally established, only its existence need be objectively proved. It is clear at this moment that damage has been suffered: the sums wrongly paid will not foe recoverable in toto and the investigations have incurred heavy costs.
The fact that the applicants owe certain sums to the High Authority by way of equalization contributions is irrelevant in this case, which concerns an application for compensation arising from a wrongful act or omission.
B — The substance of the case
1. Facts giving rise to liability
Without formally raising an objection of inadmissibility, the defendant maintains that the applications must be dismissed on the grounds that they are ambiguous.
In fact, instead of setting out the particular facts on which they rely in order to justify their application, the applicants merely produce numerous parliamentary documents and refer to all the facts and hypotheses mentioned therein.
Although the outcome of parliamentary debates may well raise the question of the political responsibility of the High Authority it is of no value when it is necessary to establish liability based on Article 40 of the Treaty.
The applicants are proposing various measures of inquiry and, by requesting replies to numerous questions are attempting to lay the burden of proof on the High Authority; this is quite unacceptable in that they must bring evidence of damage which they have themselves suffered, and not of damage suffered by some 250 undertakings which were subject to equalization.
For their part, the applicants maintain that, by its Decisions establishing the compulsory equalization scheme, the High Authority accepted responsibility for its proper functioning.
The Report of the High Authority, the Poher Report and the special schedule attached to the eleventh General Report of the High Authority contain an unambiguous statement as to the existence of numerous irregularities; these constitute a serious wrongful act or omission on the part of the High Authority leading to an increase in the contributions required from undertakings which were consumers of ferrous scrap.
In their replies the applicants set out in detail the facts on which they intend to base their application for compensation :
a) The High Authority only obtained the unanimous assent of the Council, which was necessary in order to set up the equalization scheme, on the express condition that it would severely limit its intervention in and supervision of the activities of the agencies in Brussels and of their regional offices. By accepting this compromise, which was for a long time illegally kept secret, the High Authority was limiting ab initio its supervision of the supply policy and was not concerning itself directly with the management of the agencies in Brussels or even with evidence as to the origin of the ferrous scrap presented for equalization; in this way the High Authority patently infringed the Treaty (Article 3, (a), (b) and (c), the third paragraph of Article 5 and Article 53) and used its powers for a purpose other than that for which they were conferred. It is this compromise which gave rise to the administrative confusion and the squandering of public funds.
b) In the absence of any uniform, detailed regulations as to the documents to be supplied, the High Authority allowed each regional office to adopt its own procedure for checking the origin of the ferrous scrap. For several reasons, however, it should have ensured that this checking was carried out with special vigilance: for example, the great difference in price between imported ferrous scrap or scrap treated as such and ferrous scrap available within the Common Market; the nature of the trade in ferrous scrap; the difficulty involved in verifying the exact origin of ferrous scrap from ship-breakers yards; the fact that the very nature of the so-called ‘substitute’ ferrous scrap lent itself to abuses of all kinds, etc. This negligence resulted in frauds and irregularities of the most varied type: customs receipts forged or obtained by a trick, reimportation of ferrous scrap acquired within the Common Market and temporarily exported; equalization of higher tonnages than had been declared; documents falsified by photomontage; documents, bills of lading and certificates of origin concerning products other than ferrous scrap; imported goods not processed into ferrous scrap but traded as recycled products; British units of measurement treated as equivalent of European units; falsified certificates of origin; export licences Obtained by a trick; double use of a single document; equalization on the basis of marine bills of lading but on insufficient evidence; documents showing that the same ship had berthed in Community ports at least five times during the same week, etc.
c) Irregularities in the working of the equalization scheme were ‘suspected’ from August 1956; on 28 November 1957 Mr Worms reported certain frauds to the Netherlands legal authorities. However, it was only in March 1958 that the Société Anonyme Fiduciaire Suisse was first authorized to carry out an inquiry; the sectors in which the most frauds had been committed were however excluded from the inquiry. Only in August 1958 did the High Authority realize the limited nature of the authority given and only at the end of September of the same year was the Société Anonyme Fiduciaire Suisse given unlimited authority to pursue its inquiry. In this field the High Authority showed an unwarrantable lack of diligence and excessive caution, to say the least.
d) As the defendant itself admits, the Report drawn up in April 1961 ‘does not put an end to the question raised by the fraudulant dealings in ferrous scrap, or to all the actions of the High Authority in this matter’. Even at the date on which these applications were lodged, that is three years after the publication of this Report, the High Authority has still not explained several important points, in particular the exact quantity of ferrous scrap which wrongly benefited from equalization the exact total of the sums wrongly paid, the exact total of the expenses incurred in carrying out the investigations and in proceeding against those responsible for the frauds, the total sums recovered, etc.
In answer to these points, the defendant replies that:
a) The compromise with the Council was merely the application of the compulsory assent procedure imposed by Article 53 (b) of the Treaty for the making of financial arrangements. Its terms are consistent with the final paragraph of Article 5 of the Treaty, the Community shall carry out their according to which the institutions of activities with a minimum of administrative machinery and in close cooperation with the parties concerned. As regards the secret nature of the agreement, the defendant observes that, by virtue of the provisional internal regulations of the Council, the sessions of that institution are not public; the defendant may not, therefore, be criticized for having failed to publicize the discussions which took place within the Council.
b) The failure to check the origin of the ferrous scrap accepted for equalization is the work of the agencies in Brussels, not of the High Authority.
c) The only concrete factor put forward by the applicants in support of their complaint that the High Authority had equivocated before beginning the investigations following the discovery of the first frauds is a passage in the opinion of the Advocate-General in Case 33/59 (Rec. 1962, p. 760). The defendant here observes first that it contests the point of view of the Advocate-General which, moreover, was never followed by the Court, and secondly, that the Advocate-General himself concluded that ‘the dilatoriness which it (the High Authority) displayed in the months following the discovery of the first frauds, somewhat regrettable though it may be, has not appeared to me to be by itself capable of constituting a “wrongful act or omission” within the meaning of Article 40’.
d) The delay in publishing the results of the investigations cannot in any case have caused damage to the applicants.
2. The wrongful act or omission of the High Authority.
The applicants, basing their argument on the classical theory of the wrongful act or omission in French law, maintain that in this case the wrongful act or omission on the part of the High Authority is constituted by its failure to take sufficient action in the organization, the management and the functioning of the equalization scheme and by a lack of vigilance in its supervision.
a) The organization of the equalization scheme was irregular from its inception by virtue of the illegal ‘compromise’ made between the High Authority and the Council; this compromise constitutes in itself a clear wrongful act or omission on the part of the administration.
b) The management and functioning of the scheme, in pursuance of this compromise, were irregular, insufficient, unwise and culpable. The agencies in Brussels completely neglected to check the origin of the ferrous scrap; the High Authority must bear the consequences of this wrongful act or omission. The defendant's conscious failure to supervise the management of the scheme for which it was responsible constitutes a serious wrongful act or omission on the part of the administration.
c) The belated intervention of the High Authority after the discovery of the first frauds allowed the destruction of the incriminating documents and led to its own action being largely impeded by the period of limitation. Basing their argument on the case-law of the Court, the applicants observe that acts of the agencies in Brussels are regarded as acts of the High Authority itself and that, therefore, the High Authority is liable for them. There is no reason in this case to regard the situation as one of ‘administrative control’; the High Authority itself bears the entire civil liability, as distinct from its political responsibility as regards the Parliament, for the wrongful acts or omissions on the part of its own bodies, the equalization agencies. The functions of these agencies may in no way be compared with any alleged banking function.
The defendant observes first of all that the OCCF and the CPFI are neither bodies nor departments of the High Authority, but agencies established under private law, endowed with separate legal personality and invested with their own powers.
The High Authority cannot be directly responsible for the management of the equalization scheme.
Secondly, the High Authority notes that the theoretical responsibility which it assumed on the establishment of the equalization scheme is political and administrative and can constitute neither an obligation as regards those undertakings subject to the payment of contributions nor a guarantee creating contractual or legal and objective liability. Thus, liability could only be incurred by the High Authority in the supervision of the management of the scheme.
Basing its arguments on Italian and French case-law concerning the supervision of banking transactions by public authorities, the defendant maintains that in this case its liability cannot be incurred. Under Italian case-law the liability of a public authority cannot be incurred in this matter; according to French case-law it may only be incurred if a serious wrongful act or omission is established; this only applies where, after the discovery of serious irregularities, neither proper sanctions nor suitable measures have been introduced; in this case, the High Authority intervened as it was its duty to do.
3. The damage suffered by the applicants
The applicants maintain that a distinction must be made between the existence of the damage and its assessment.
The damage suffered is actual, certain and has arisen; recovery of all the sums wrongly paid will be impossible; heavy expenses have been incurred as a result of the investigations and checks carried out; moreover, the inertia of the High Authority has now made certain inquiries impossible; imports of ferrous scrap from the United States have been made under conditions exceptionally disadvantageous to Community undertakings as a result of commissions improperly granted to certain suppliers.
The fact that the exact extent of the damage cannot be established is entirely due to the defendant's negligence; the applicants request that, as regards each of them, its extent be determined by means of an expert assessment.
The defendant maintains that the undertakings must have actually paid the contributions required of them in order for the question of damage to be discussed; this does not apply in this case, with the result that the larger contribution complained of by the applicants might, at the most, be required in the future, but does not exist at present.
As to the factors causing the damage referred to by the applicants, the defendant observes that:
the applicants must establish that the cost of a posteriori supervision is higher than that of the preventive supervision which it criticizes the High Authority for having neglected;
since the necessary funds for the supervision were required from the undertakings concerned by the general decisions governing the winding-up of the equalization scheme, any claim for possible damage must be made on the basis of Article 34 and not of Article 40;
the allegations concerning the illegal commissions paid to certain American suppliers are entirely without foundation.
In conclusion, the defendant contends that future and uncertain damage, or a risk of damage, such as that claimed by the applicants, is not calculable, with the result that the element of damage itself is also completely lacking.
IV — Procedure
In both cases the written procedure followed the normal course.
By an order of 18 November 1964, the Court decided to join the cases for the purposes of procedure and judgment.
On hearing the report of the Judge-Rapporteur and the opinion of the Advocate-General, the Court decided to open the oral procedure without any preparatory inquiry.
The parties submitted their oral explanations at the hearing on 18 February 1965.
The Advocate-General delivered his opinion at the hearing on 1 April 1965.
Grounds of judgment
I — Admissibility
The defendant raises two objections to the admissibility of the applications: first, that the proceedings were brought outside the period of limitation and, secondly, that they are premature.
It is convenient to consider the second objection first.
In its support, the defendant observes that the action undertaken to recover the sums wrongly paid and to wind up the equalization scheme are still pending. At present it is impossible to establish with certainty that the applicants will suffer damage by reason of the alleged wrongful act or omission. The applications of the applicants are therefore, the defendant states, premature and consequently inadmissible.
It is not disputed that the High Authority's action in winding-up the equalization schemes is not yet complete, and this is being regarded by the applicants as one of the factors constituting the alleged wrongful act or omission on the part of the defendant.
At this stage it is not possible to calculate exactly the effect of the irregular equalization payments on the contributions charged either to undertakings subject to this scheme in general, or to the applicants in particular. The damage referred to by the applicants has neither arisen nor is certain.
At the most it is a future damage, which can neither be assessed at this point nor even regarded as certain to occur.
Further, it will always be open to the applicants, should they be obliged by the High Authority to pay their contributions, to bring legal proceedings in order to assert their claims.
Although at present it is unnecessary to consider either the wrongful acts or omissions imputed to the High Authority or their financial consequences, it should be observed that these consequences are not at present capable of assessment and that it will be impossible to establish the existence of the damage referred to by the applicants, its extent and its relationship to the alleged wrongful acts or omissions, until the final accounts are drawn up.
This being so, an expert assessment appears premature.
Therefore, the applications made by the applicants are at present inadmissible.
Costs
Under the terms of Article 69 (2) of the Rules of the Procedure the unsuccessful party shall be ordered to pay the costs.
The applicants have failed in their submissions.
They must therefore be ordered to pay the costs.
On those grounds, Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur; Upon hearing the parties; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Coal and Steel Community, especially Articles 3, 5, 34, 40 and 53; Having regard to the Protocol on the Statute of the Court of Justice of the European Coal and Steel Community; Having regard to the Rules of Procedure of the Court of Justice of the European Communities, THE COURT hereby:
1 Dismisses the applications as inadmissible;
2 Orders the applicants to pay the costs.
1 Language of the Case: Italian.
2 CMLR.