JUDGMENT OF 30. 6. 1966 — CASE 2/65 FERRIERA ERNESTO PREO v HIGH AUTHORITY

In Case 2/65

THE COURT composed of: Ch. L. Hammes, President, A. M. Donner (Rapporteur), A. Trabucchi, R. Lecourt and R. Monaco, Judges, Advocate-General: J. Gand Registrar: A. Van Houtte

gives the following

JUDGMENT

Issues of fact and of law

I — Facts

The applicant is a partnership whose partners are the four brothers Preo.

The applicant's electric furnace, which has a capacity of 6 to 8 metric tons of cold charge, commenced steel production on 1 October 1956.

In order to check the tonnages of ferrous scrap used for this production and liable to equalization, the Société Anonyme Fiduciaire Suisse (hereinafter referred to as SAFS) carried out two checks on the applicant undertaking: the first in September 1958 (for the period from 1 October 1956 to 31 December 1957), the second in February 1961 (for the whole period from the commencement of operation of the furnace until the termination of the equalization scheme on 30 November 1958).

The first inspection (according to the annex to a communication addressed on 6 July 1959 to the applicant by the Director of the Market Division of the High Authority) gave the following result:

on the basis of the consumption of 1100 Kwh of electricity for the production of one metric ton of liquid steel,

on the basis of a ratio of 1.1:1 between the total charge and the production of liquid steel (specific input),

on the basis of a ratio of 0.95:1 between the tonnage of the charge of ferrous scrap and the total charge,

taking account of 2555 metric tons of own resources, notified by the Ferriera, and of the positive differences (981 metric tons) between the initial stock and the final stock,

the difference between the ferrous scrap received, that is to say 13956 metric tons, and the purchased scrap declared (12431 metric tons) was fixed at 1525 metric tons.

At the request of the Director of the Market Division, the applicant accepted these figures by letter of 18 July 1959.

The second inspection, covering the entire period from 1 October 1956 to 30 November 1958 gave, according to the communication of the Market Directorate of the Directorate-General for Steel, dated 8 January 1963, the following result:

on the basis of the consumption of 850 Kwh of electricity for the production of one metric ton of liquid steel,

on the basis of a ratio of 1.015:1 between the total charge and the production of liquid steel (specific input),

without continuing to take account of either the ratio between the tonnage of the charge of ferrous scrap and that of the total charge, or of the own resources notified (thus expressly excluding the arisings of ferrous scrap from the calculation), or of the difference between the initial stock and the final stock,

the difference established between the four quantities of assessable ferrous scrap and of ferrous scrap declared was 10734 metric tons, which increased the debt, principal and interest, as at 31 May 1964, to 58641,455 lire.

On 8 April 1963 the Market Directorate of the Directorate-General for Steel, notified the applicant that, taking into account the contributions already paid by it, it remained liable to a balance of 55576196 lire; subsequently, this figure was amended to 55700153 lire.

By letter of 6 May 1963, the applicant declared that it did not admit this debt.

On 13 November 1964, the High Authority adopted the two contested decisions; the first fixes the applicant's assessment to equalization contributions at 34058 metric tons for the period from 1 October 1956 to 30 November 1958, and the second obliges it to pay in this connexion a sum of 55700153 lire as equalization levy.

II — Conclusions of the parties

In its initial application, the applicant claims that the Court should:

annul the contested decisions having previously ordered that their application be suspended,

order the defendant to pay the costs.

In its reply, the applicant further claims that the Court should:

‘Allow the proof by witnesses of the following circumstances: (1) Is it true that the commissioning period for Preo e Figli's furnace, which went into operation on 1 October 1956, lasted until the end of 1957? (2) Is it true that, during the commissioning period, and even later, until recently, numerous errors were committed causing various difficulties as a result of which many castings were unsuccessful, so that the materials had to be returned to the furnace involving a considerable increase in the consumption of electricity? (3) Is it true that the instruction and retraining of the work force was very long and difficult; that these periods lasted even longer owing to the continual turnover in workers under a group employment scheme, and that this turnover constituted and at present still constitutes the major obstacle to the training of a qualified and specialized labour force? (4) Is it true that in October 1958 production of special steels (for motor vehicle springs and carbon steels) commenced and that this production was declared, as it progressed, to the ECSC and amounted in all, up to June 1960, to 2032 metric tons; and that to obtain that special production there were required several months of trials with unhappy results and an excessive consumption of electricity as a consequence of castings which were either too long or spoiled and in the latter instance had later to be returned to the furnace? (5) Is it true that the excessive consumption of electricity led Preo e Figli in particular to use iron turnings, light scrap and American baled scrap, that the latter in particular constituted the major part of the supplies obtained by Preo e Figli in third countries and as they contain many impurities amongst which in particular are chrome and nickel, does the necessary deoxidization require a longer period in the furnace? To establish the facts relied on, the applicant puts forward the following persons as witnesses: Albano Quaino, Luigi Mansutti and Gaudenzio Poletti, all residing in Mestre (Venice).’

The defendant contends that the Court should:

rule that the application is unfounded;

order tne applicant to pay the costs.

In its rejoinder, the defendant expressly opposes allowing proof by witnesses.

III — Submissions and arguments of the parties

The applicant contests neither the structure and functioning of the equalization scheme, nor the High Authority's right to make an estimated assessment of the contributions if sufficient documents are not furnished by the undertaking concerned.

But it emphasizes that it has a special case, in the first place for technical reasons which it explains in the third submission, and in the second place because two successive assessments were made on it which did not merely contradict each other, but the second of which amended the first without any change in the facts of the case having been either proved or alleged.

As the first assessment was accepted by the applicant, the defendant is bound by agreement.

In support of its application the applicant relies on the following submissions:

A — Infringement of Article 3 of Decision No 22/54 of 26 March 1954, establishing a financial arrangement for the equalization of ferrous scrap imported from third countries, and of Article 5 of the Treaty

The applicant relies on Article 3 of Decision No 22/54 of the High Authority whereby ‘the amount of the contributions shall be calculated in proportion to the tonnage of ferrous scrap purchased’, and on Article 5 of the Treaty which provides that the institutions of the Community shall carry out their activities ‘in close cooperation with the parties concerned’.

In contravention of these provisions, the defendant fixed the basis of assessment to contribution in the case of the applicant on the basis of a theoretical criterion which did not take account of the facts of its particular case, without moreover affording it an actual opportunity to defend itself.

When the defendant makes an estimated assessment, showing the criteria applied, it is for the undertaking to furnish, if necessary, contrary evidence, but when an undertaking has accepted such an assessment, the defendant is not entitled to replace the first assessment by a second, considerably increasing the amount of the chargeable tonnage, without indicating any alteration whatsoever in the facts of the case of such a nature as to justify the increase.

It maintains that in such a situation the undertaking is not obliged to prove that the facts of the case remained the same and that the new assessment is wrong, but that it is for the High Authority to establish that the facts of the case have changed and that consequently a new assessment is justified.

In the present case, it is the criteria not the facts of the case which have changed. According to the applicant, it is inadmissible and illegal retroactively to alter the criteria of assessment, thus rendering invalid an assessment accepted by the undertaking liable. In this way, freedom of will is deprived of all meaning, even in the special but precise sense which prevails in the field of public law (for example, for a national fiscal body).

In its reply, the applicant cites the grounds relied on by the defendant in its statement of defence to justify altering the criteria:

‘The first calculations were not completely satisfactory as they were exceeded by the calculations carried out on the basis of the criteria adopted by the committee of experts created subsequently and which were better suited for the purposes of making the assessment.’

According to the applicant, these grounds are not such as to justify unilaterally changing the assessments already made, with which it agreed.

It argues moreover that the ‘agreement’, which was arrived at following the first assessment, must also prevail for the later period, from 1 January to 30 November 1958.

The defendant replies that Decision No 22/54, relied upon by the applicant, was only in force until 31 March 1955; at this date the applicant undertaking was not yet producing steel.

It observes however that this decision was succeeded by Decision No 14/55 (Article 3 of which is basically modelled on Article 3 of the decision invoked by the applicant) and that the equalization scheme was extended by subsequent decisions (Nos 10/56, 22/56 and 31/56). In consequence Decision No 2/57 (confirmed as regards the question at issue by Articles 3 and 4 of Decision No 16/58) governs the topic somewhat differently.

Pursuant to Decision No 13/58 the High Authority is empowered to make an estimated assessment when the undertakings have failed to furnish declarations or have furnished inaccurate declarations. Although it is true that Article 5 of the Treaty gives rise to an obligation on the part of the defendant to cooperate with the undertakings, this obligation must be reciprocal and assumes cooperation on the part of the undertaking. In the present case, the applicant's letter of 6 May 1963 was limited to replying that, since there were no decisions, there could lie no application to the Court of Justice and that its arguments would be put forward in an application to the Court when the decision was taken. There was no reply to the letter of 29 May 1963 from the appropriate departments of the defendant requesting information.

With regard to the applicant's assertions that an ‘agreement’sui generis was concluded following the first assessment, the defendant objects that it is impossible to talk of two assessments, since the first was not a decision, only a letter from the appropriate departments of the defendant noting the results of the check by the representatives of the SAFS. Furthermore, any comparison between the High Authority and national fiscal authorities is false, since the interests administered by the defendant are not its own but those of the undertakings. It is precisely for this reason that it is impossible to admit special cases.

The defendant refers to the case-law of the Court, alleging that it is charged with the task of improving and perfecting the equalization scheme, and that, in order to avoid differences and discriminations amongst the undertakings, it is entitled to found its estimated assessment on new criteria arising from the opinion of the committee of experts.

The defendant describes as absurd and erroneous the argument of the applicant that the ‘agreement’ could be extended to the period following the first ‘assessment’, thus giving rise to a kind of abstract and perpetual res judicata in favour of the applicant.

In its reply, the applicant asks who the members of the ‘committee of experts’ are, the authors of the new criterion, in what fields they are expert, who appointed them, what their tasks are, what problems were brought before them, and how they replied to them.

The defendant maintains that the Court itself has recognized the competence of this committee in technical matters (Case No 18/62).

It has annexed to its rejoinder the notes ot the meeting of the committee of experts of 13 February 1962.

B — Abuse of powers on the ground of infringement of an essential procedural requirement (lack of a statement of reasons, misuse of power — in the form of misuse of procedure and evident illogicality) in connexion with the provisions of the first paragraph of Article 47, and the fourth paragraph of Article 86 of the Treaty together with Article 2 of Decision No 13/58

When the applicant maintains that the defendant, mentioning in the first of the contested decisions, as a condition precedent to the estimated assessment, the failure to produce any accounting documents, did not take account of the fact that the applicant undertaking did not keep books of account which, under Italian legislation, entails no penalty unless the undertaking becomes insolvent.

Consequently, as no fault can be alleged against the applicant, the very basis for the estimated assessment falls. On the other hand the decision must be based on the particular facts which the SAFS itself checked and assessed at the time of its first inspection. As the defendant itself has maintained on various occasions before the Court, the consumption of electricity may be one factor among many for fixing the consumption of ferrous scrap. According to the applicant, it cannot constitute the sole criterion for justifying (of itself) an alteration of the assessment previously carried out, in the same premises, by specialists appointed for this purpose by the defendant itself.

The first assessment was moreover accompanied by a statement of reasons identical to the second, namely the absence of any documents. Consequently it is unacceptable that the same ground should be relied on twice, but for different purposes: first for the inductive assessment, secondly for altering that assessment.

The defendant objects that the applicant must have, apart from the documents relating to the consumption of electricity, a minimum administrative organization which it has failed to put at the disposal of the appropriate departments of the defendant. The consequence, and not, as the applicant thinks, the penalty, was an inductive assessment: cuius commoda, eius incommoda. The defendant alleges moreover that the contested decisions were accompanied by full statements of the reasons of law and of fact upon which they were based.

C — Abuse (misuse) of powers by reason of erroneous criteria and renunciation of the first assessment, which is all the more serious and requires relevant and convincing grounds since the assessment was accepted by the undertaking — complete failure to state reasons

The applicant contests the criteria on which the second assessment is founded. It maintains that the alteration of the criteria accepted at the time of the first assessment testifies either to a series of errors which it was desirable to correct, or to a contradiction which was arbitrary, and according to it, inadmissible.

It observes that account must be taken of the fact that there was a commissioning period for its furnace, that there were numerous technical mistakes during that period and that the training of its workers entailed a low output for many months. Consequently, its consumption of electricity exceeded what was normal for a comparable undertaking. The SAFS took account of this although only in part.

In its conclusions the applicant has asked the Court to allow evidence by witnesses in order to prove that the reasons which it has advanced differentiate its case as a special one.

The defendant objects that the criteria have not been altered, since the consumption of electricity has been the sole criterion from the very beginning. The first calculations however were not completely satisfactory since they were not based on the factors adopted by the committee of experts. The defendant alleges that since it has a power of discretion, it must, when faced with a difference between two calculations, necessarily choose that which seems more probable and which, according to the documents, inspires it with complete confidence and appears apt to comply with the principle of non-discrimination.

It does not understand how the applicant can speak of a misuse of powers. On the contrary, there would have been a misuse of powers if the High Authority had acted otherwise, that is to say, if it had applied to the applicant criteria other than those applied to all Community undertakings.

With regard to evidence by witnesses, requested by the applicant, the defendant emphasizes that the committee of experts certainly did not fail to take account of the fact that a commissioning period is also necessary for furnaces, that certain mistakes were made and that the workers might have been better. It took account of the difficulties of production. Consequently the applicant does not appear to it to have been less favourably treated than the other undertakings.

IV — Procedure

The application was lodged at the Court Registry on 15 January 1965.

By separate document, lodged at the Registry on 25 January 1965, the applicant made an application to suspend the two decisions contested in the main application.

The application for adoption of this interim measure was dismissed by Order of the President of the Court on 12 February 1965. The written procedure followed the normal course.

By order of 20 May 1965, the President of the Court assigned the case to the Second Chamber of the Court, for any measures of inquiry which might prove necessary.

On 22 June 1965 the Second Chamber heard the parties in the Judges' Deliberation Room. At this hearing the parties agreed that an expert should be appointed by the defendant to check on the spot whether the applicant's observation were well founded. By letters of 9 September 1965 and of 19 October 1965, the defendant declared that this inspection had not taken place and asked the Court to fix the date for the hearing.

By letter of 23 October 1965, the applicant submitted its observations and requested the Court to fix the date for the hearing, and also nominating as witnesses (in addition to those listed in its reply) the following persons: Giovanni Trevisani and Mario Croce. The parties presented further oral argument at the hearing on 15 December 1965.

At the hearing on 19 January 1966 the Advocate-General delivered his opinion that the application was unfounded and should be dismissed.

By Order of 16 February 1966, the Court requested the defendant to supply additional explanations with regard to the scope of the experts' opinion on which it founded its estimated basis of assessment to contribution in terms of the consumption of electricity.

The questions put by the Court were drawn up as follows:

a) In adopting the approved criteria, did the experts take account of normal reuse of own arisings relating to each production cycle in subsequent production cycles?

b) Are the approved criteria applicable to the 15 months after a furnace has commenced operations, in an undertaking which has just begun its production?

The replies supplied by the defendant, which were lodged at the Registry on 29 May 1966, were as follows:

As to (a):) The consumption of units of electricity, fixed for the different furnace capacities, depends on the input of ferrous scrap, and it is of little importance whether the latter is composed of own arisings or of bought scrap; because of this, it was unnecessary for the experts to consider whether the ferrous scrap with which the furnace was charged was composed only of bought material, or whether it also included own arisings originating from previous production cycles, and therefore they have not made this distinction.

As to (b):) As appears from the marginal notes to the graph drawn up by the experts during their abovementioned meeting, with regard to threshold values, it should be noted that the following statement was made: A higher consumption for commissioning thus comes precisely within these exceptional cases, and the experts therefore did not give particular consideration to the commissioning period. It should in addition be considered that the parameters were fixed rather high, in order to take into consideration all the difficulties which might be encountered in the normal production of steel.

‘Cases outside these values are exceptional and require special justification.’

By letter of 6 June 1966, the applicant submitted its observations with regard to the abovementioned replies.

Grounds of judgment

The admissibility of the application against the High Authority's decisions of 13 November 1964 fixing the applicant's pecuniary obligations with regard to the equalization scheme is not disputed and there are no grounds for the Court to raise the matter of its own motion.

The submission of infringement of an essential procedural requirement should be considered first of all.

According to the applicant, the defendant made from the information obtained from the undertaking indirect hypothetical deductions which cannot be checked, and made no attempt to give a relevant statement of reasons for them. In particular, the consumption of electricity, which may be one of the factors for determining the consumption of ferrous scrap, cannot constitute the sole criterion for the assessment.

The applicant declared that it did not keep normal accounting books, and failed to supply any evidence in support of its submissions. In these circumstances, the High Authority was justified in making an estimated assessment and, for this purpose, in having recourse to the principal verifiable factor, in this instance, the consumption of electricity in the undertaking's furnace.

The applicant further complains that the statements of reasons for the contested decisions give no information as to the weight attached by the High Authority to the re-use of arisings of ferrous scrap. In fact it emerges, according to the applicant, both from the statements of reasons and from the documents produced, that neither in calculating by way of extrapolation the quantities of steel produced by reference to the criterion of electricity consumed, nor in establishing the ratio between the charge of ferrous scrap and the steel produced, did the High Authority take account of this factor, although it was essential in fixing the basis of assessment to levy.

The defendant replies to this allegation by referring to the tenth recital in the preamble to the contested decision, which provides that ‘the ratio between a specified charge of ferrous scrap and the steel produced may be assessed at 1.015 kg., taking account of recycling in the rolling mill’, and says that it is apparent from the last six words quoted that it has in fact taken account of this factor in its calculations.

Even on the assumption that the said quotation bore the meaning attributed to it by the defendant, it does not constitute a statement of reasons, sufficient in law, for the assessment. Since arisings often represent a considerable percentage of the ferrous scrap with which the furnace is charged, it is not sufficient to show that account has been taken of them. It is essential to indicate, and indeed to give a statement of reasons for, the average percentage adopted in the case in question for the purpose of calculating their significance. The lack of this information (which moreover appears easy to supply) constitutes a serious hindrance to an adequate defence of the undertakings concerned and the necessary review by the Court.

The submission is therefore well-founded and it must be held that the contested decision infringed an essential procedural requirement and must therefore be annulled.

Costs

Under Article 69 (2) of the Rules of Procedure the unsuccessful party shall be ordered to pay the costs. In this case, since the defendant has failed in its submissions, it must be ordered to pay the costs.

By Order of the President of the Court of 12 February 1965, the costs relating to the application for the adoption of an interim measure were reserved for the final judgment. Since its application for suspension has been ruled inadmissible, the applicant must be ordered to pay the costs thereof.

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 Article 33; Having regard to Decisions Nos 2/57 and 13/58 of the High Authority of the European Coal and Steel Community; 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, especially Article 69 (2); THE COURT hereby:

1 Annuls the individual decisions of the High Authority of the European Coal and Steel Community of 13 November 1964 relating to the payment of contributions to the scheme for the equalization of imported ferrous scrap and scrap treated as such;

2 Orders the defendant to pay the costs of the main action;

3 Orders the applicant to pay the costs of the application for the adoption of an interim measure.