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
Glucose having a high fructose content (“isoglucose”) is a new natural sweetener made from starch of any origin but most frequently obtained from maize. This product, which, appeared on the market in the Community countries in 1976, has sweetening properties comparable to those of sugar. However, in the present state of technical knowledge, isoglucose cannot be crystallized. It follows that its markets at the present time are limited to the food industries using sugar in liquid form: refreshing drinks, jams, biscuits, ice-creams etc. In these respects it competes with liquid sugar.
The applicants in these cases are starch manufacturers who have made heavy investments to allow them to produce isoglucose.
2. Community legislation
In view of the growing industrial production of isoglucose in several Member States of the Community, the Council decided to lay down common measures applicable to that product. Those measures were adopted by Council Regulation (EEC) No 1111/77 of 17 May 1977 (Official Journal 1977, L 134, p. 4).
The recitals in the preamble to that regulation contain amongst other things the following passages:
“… isoglucose is a direct substitute for liquid sugar obtained from sugar-beet or cane” (second recital);
“… being a substitute product in direct competition with liquid sugar, which, like all beet or cane sugar, is subject to stringent production constraints, isoglucose therefore enjoys an economic advantage and since the Community has a sugar surplus, it is necessary to export corresponding quantities of sugar to third countries; … there should, therefore, be provision for a suitable production levy on isoglucose to contribute to export costs” (seventh recital).
The system for production levies for isoglucose is laid down by Articles 8 and 9 of the regulation and applies to periods corresponding to the sugar marketing years 1977/1978 and 1978/1979.
By Article 9 the amount of the production levy is, per 100 kg of dry matter, equal to the amount of the production levy for sugar provided for in Article 27 of Regulation (EEC) No 3330/74 of the Council of 19 December 1974 (Official Journal 1974, L 359, p. 1), the basic sugar regulation, for the same period to which the latter amount applies.
For the period from 1 July 1977 to 30 June 1978, however, the amount of the production levy may not exceed five units of account per 100 kg of dry matter. The latter amount is to apply when the amount of the production levy provided for in Article 27 of Regulation No 3330/74 exceeds five units of account per 100 kg of white sugar for the same period.
Article 9 (3) provides that detailed rules for the application of the provisions concerning the production levy are to be adopted in accordance with the Management Committee procedure.
These detailed rules formed the subject of Commission Regulation (EEC) No 1468/77. of 30 June 1977 laying down rules for applying the production levy on isoglucose in respect of the period 1 July 1977 to 30 June 1978 (Official Journal 1977, L 162, p. 7).
Council Regulation (EEC) No 1110/77 of 17 May 1977 (Official Journal 1977, L 134) provides inter alia for the exclusion of isoglucose from the field of application of Regulation (EEC) No 3330/74.
3. The applications
(a) In Cases 116/77 and 143/77
G. R. Amylum N.V. on 29 September 1977 and Koninklijke Scholten-Honig N.V. on 21. November 1977 commenced proceedings against the Council and the Commission seeking compensation for the damage which they claim to result for them from the entry into force of Council Regulation No 1111/77 and Commission Regualtion No 1468/77.
(b) In Case 124/77
Tunnel Refineries Limited commenced proceedings on 18 October 1977 against the Council and the Commission seeking compensation for the damage which it claims to result for it from Council Regulation No 1111/77.
By an order of 2 December 1977 the Court decided to join these cases for the purposes of the procedure.
By an application lodged at the Court on 16 February 1978, the Syndicat National des Fabricants de Sucre de France (National Union of Sugar Manufacturers of France), the Union Syndicale des Producers de Sucre et de Rhum de l'île de la Réunion (Union of Sugar and Rum Producers of the Island of Réunion) and the Syndicat Général des Producteurs de Sucre et de Rhum des Antilles Francaises (General Union of Sugar and Rum Producers of the French West Indies) sought leave to intervene in these cases in support of the defendants' conclusions.
By an order of 12 April 1978 the Court dismissed the application for leave to intervene.
Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure after the defendants had been requested to answer certain questions (which are set out under heading IV below). At this stage, the oral procedure is confined to the question of liability on the part of the Community, reserving any questions as to the causation of the damage and the nature and scope of the damage.
II — Conclusions of the parties
The applicant claims that the Court should:
Declare that the Community is in respect of the damage caused the adoption of Council Regulation No 1111/77 and Commission Regulation No 1468/77;
Award the applicant damages for the damage suffered in an amount provisionally calculated at H 154278000;
Order the defendants to bear the costs;
Alternatively
before giving judgment:
Appoint an expert responsible for determining the amount of the damage suffered by the applicant in collaboration with the Council, the Commission and the applicant itself;
Make an order as to costs in that connexion subsequently.
In its defence, the Council contends that the application should be dismissed as unfounded and that the applicant should be ordered to bear the costs. In its rejoinder, the Council contends that the application should be dismissed as inadmissible and unfounded and that the applicant should be ordered to bear the costs.
The Commission contends that the Court should:
Dismiss the application as inadmissible;
Alternatively
Dismiss the application as unfounded;
Order the applicant to bear the costs.
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. As regards the possible uses of isoglucose, the applicant observes inter alia that isoglucose is delivered in the form of syrup, as technology is not yet far enough advanced to enable the product to be crystallized. It is put on the market at a price 6 to 7 % below that of sugar. The difference in price corresponds approximately to the difference in sweetening power between sugar and isoglucose. The applicant's research department spent many years developing a commercially valid method of turning dextrose into fructose, with or without the use of enzymes. At the end of 1972, the applicant bought the patent for the process from the American company Reynolds, and this enabled the aim pursud by the applicant's research workers to be attained more quickly. The value of the experience and know-how thus acquired for the development by Koniklijke Scholten-Honig of its own process became apparent later, because although the Reynolds patent is the basis of the process it was none the less necessary to make many improvements to it, so that now it is possible to speak of a Koninklijke Scholten-Honig manufacturing process. In 1973 the applicant constructed a pilot plant at Foxhol, which began production in September 1973. Then the applicant enlarged that pilot plant and transferred it to Koog aan de Zaan, where production began in September 1975. In 1973 the applicant took the decision to construct a large starch factory at Tilbury, Essex, in England, and to manufacture 85000 tonnes of isoglucose per year from that starch. The first pile for that factory was driven into the ground on 1 October 1974. By May 1977 the applicant had invested a total of HFL 53 million in that new factory, including development costs. The applicant considers that the imposition of the production levy on isoglucose causes it damage. It is of the opinion that it and other Community manufacturers in a similar situation are being unjustly penalized to the benefit of Community sugar manufacturers. The imposition of the production levy has very serious consequences for the applicant's situation, not only as a manufacturer of isoglucose, but also as a manufacturer of starch in general. In drawing up its investment plans, the applicant had relied on the income from isoglucose production making an important contribution to the results of its group. The returns from the production of isoglucose were to enable the applicant's starch production to be modernized and expanded. The applicant states that the consequences of the production levy will be that it will have to suspend construction of the isoglucose factory planned at Tilbury and perhaps even dispose of it, that it will be obliged to close its pilot plant at Koog aan de Zaan and that it will be unable to construct the large starch factory at Koog aan de Zaan that it was thinking of building there in the longer term. On several occasions the applicant asked the Community and national authorities to adopt measures to make the production levy system less disastrous for the isoglucose industry (Annexes 5 to 12 to the application). In particular the applicant drew attention to the possibilities offered by Article 18 of Regulation No 1111/77, which deals with transitional measures. Up to the present time, the Community authorities have made no proposal for transitional measures within the meaning of Article 18 of Regulation Ño 1111/77.
— Breach of a superior rule of law for the protection of the individual
The applicant is of the opinion that in adopting Regulation No 1111/77 and Regulation No 1468/77, the Council and the Commission have violated the following principles of Community law.
1. The prohibition on any discrimination between producers within the Community (second subparagraph of Article 40 (3) of the Treaty)
The applicant submits that the only possible conclusion which emerges from a comparison of the production levy on isoglucose with the production levy for the sugar industry is that one cannot speak of an economic advantage for the isoglucose industry, as the seventh recital in the preamble to Regulation No 1111/77 does, but of the imposition on that industry of a much heavier burden than that which is imposed on the sugar industry, with the consequence that production of isoglucose within the Community becomes completely uneconomic.
In support of its submission that isoglucose production is subject to discrimination arising from the measures in dispute, the applicant advances arguments essentially corresponding to those put forward by the applicant Amylum in Case 116/77 which are set out above.
After stating that it is prepared to assume responsibility in the same way as sugar producers for the problems which sugar surpluses cause in the Community, it submits that the system introduced by the regulations at issue is blatantly discriminatory in regard to the isoglucose industry. The policy towards it is contrary to Article 3 (f) of the Treaty, which provides for the introduction within the Community of a system ensuring that competition in the Common Market is not distorted, and the policy is more particularly contrary to the obligation meticulously described in the 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
For the same reasons as those advanced by Amylum in Case 116/77, the applicant is of the opinion that the adoption of Regulation No 1111/77 does not stem from any of the objectives of the common agricultural policy which are defined in Article 39 (1) of the Treaty.
Furthermore, the Council did not use its power under Article 18 of the regulation to adapt the arrangements applicable to the isoglucose industry by degrees, thus taking into account the provisions of Article 39 (2) of the Treaty. In spite of many steps taken by the applicant and other isoglucose producers in the Community, no transitional measure was adopted.
3. Violation of the principle of proportionality
Like the applicant Amylum in Case 116/77 and on the basis of the same figures as those indicated by that undertaking in its application, the applicant is of the opinion that the Community authorities have overestimated the competition to the Community sugar industry from isoglucose.
Moreover the Commission's answer to Mr Martens' written question No 803/76 of 17 January 1977 is very significant in this connexion. In answer to the question whether the Commission already had a fair idea of the relationship between net cost prices (per unit of sugar) of sugar prepared from sugar beet and sugar prepared from maize, at current target prices for sugar beet and maize within the EEC, the Commission stated that at the date of its reply, 1 March 1977, it did not possess that necessary information regarding the isoglucose industry. One wonders therefore how the Commission was able to carry out its calculations and how it arrived at the conclusion that isoglucose could be offered at a lower price than the price applicable to sugar in the Community.
4. Principle of legal certainty
The applicant argues that by imposing on the isoglucose industry a charge which is discriminatory in relation to the sugar industry, the Council and the Commission have violated the principle of legal certainty in the European Community. The starch industry could have expected the imposition of a charge, but it could not anticipate that a discriminatory measure resulting in the destruction of a capital investment would be adopted.
5. The right of freedom to trade and pursue other business activities
The applicant submits that if the charges imposed on the isoglucose industry and the sugar industry were equal, the applicant would have no difficulty in carrying on the production of isoglucose in the Community economically. The applicant's fundamental right of freedom to pursue an industrial activity is impaired by the imposition of a levy five times higher than the levy imposed on sugar manufacturers.
— Assessment of the damage
The applicant submits that the effect of the levy charged under Regulation No 1111/77 is to make production of isoglucose impossible, because the levy is so onerous that the construction of the factories which are in the course of being built cannot be completed since no provision has been made for an exception in such a case. The fact that the amount of the levy has been fixed only for a period of two years and that the levy might be increased at the end of that period results in the applicant's being placed in a most insecure situation, since from the economic and management point of view it can no longer find any justification for continuing to invest in isoglucose.
The applicant states that all investments in isoglucose and all expenses incurred on isoglucose must be written off, and that Koninklijke Scholten-Honig's estimated future profits will fall sharply owing to the absence of isoglucose production. Therefore the loss of profit from future earnings must be included in the application for damages, since in the circumstances it will be necessary fundamentally to modify the structure of the applicant's whole group.
From the economic and management point of view, the damage caused to the applicant by the introduction of the production levy on isoglucose results from the following factors, and for the purpose of calculating the damage the applicant has used the following method:
The profits and losses are brought into account in the year in which they accrued or will accrue, and are then consolidated at 8 % per annum after the financial year 1976/1977, that is, as from 31 August 1977. The applicant considers the consolidation necessary, on the one hand, because the first expenditure was made in 1971/1972 and, on the other, because the estimate of returns on the applicant's investments at Tilbury, with which this calculation is compared, covers the period up to 1986/1987. In this outline of the damage, a distinction must be drawn between the following concepts:
nominal value: the amounts derived from the administration report or the estimate of returns;
consolidated value: the same amounts, but consolidated at 8 % as from 31 August 1977.
The applicant states that it has made investments in research and development in the isoglucose field, that it has constructed pilot plants and that it has made investments at Tilbury in the expectation that they would contribute to the future results of the group. The damage to the applicant covers the following factors:
Development costs: 27549 (nominal value) 27103 (consolidated value)
Pilot plants at Foxhol and Koog: 32588 (nominal value) 34273 (consolidated value)
Investments at Tilbury 34770 (nominal value) 34770 (consolidated value)
Future results of Tilbury: 95561 (nominal value) 58132 (consolidated value)
The total damage to the applicant can be set at 190558 (nominal value) or 154278 (consolidated value). All amounts in this calculation are in Netherlands guilders.
Although the above calculation of the damage suffered by the applicant is not yet complete, it should be acknowledged that the damage is sufficiently foreseeable and the threat sufficiently real to give rise to a right to compensation by the Community authorities (cf. in particular Joined Cases 56 to 60/74, Kampffmeyer and Others v Commission and Council).
— Causal connexion between the regulations in dispute and the damage suffered
It is clear that the applicant would not have suffered the damage stated if the Community authorities had not introduced the disputed system of the production levy on isoglucose, which is not only discriminatory but also out of proportion to the aim sought.
If the production levy in its present form had not been imposed, the applicant could have continued to produce isoglucose and would not have been obliged now to write off all the investments which it has made in isoglucose producion.
Therefore there is a direct connexion between the damage suffered and the regulations in dispute.
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
The decision to produce isoglucose was, in the Council's contention, strongly influenced by three factors, the first of which appears to be the most important and the other two in a sense adjuncts to the first one.
It appears that the primary consideration taken into account at the time of the decision to produce isoglucose was the rise in sugar prices on the world market in the 1970s, which was such as to make the new product competitive. The isoglucose producers mistakenly came to the conclusion that the deficit on the sugar market, and consequently the rise in prices, would be structural, at least in the medium term, and that consequently the situation justified heavy investments. It is thus clear that the decision to invest in isoglucose production, the cost of which is now being sought from the Community by the applicants, was based in the first instance on a mistaken assessment of the trends on the sugar market.
Secondly, the decision to produce isoglucose seems to have been influenced by the assumption by the starch industries of a firmly-established Community policy in the field of production refunds for starch. If those refunds were indispensable to enable isoglucose to be produced on an economic scale and if the producers in question took as certain the permanent existence of refunds at a level sufficient to allow economic production of isoglucose, so that they built their investment policy on that assumption, those producers again acted upon a mistaken assessment of the situation concerning isoglucose.
Yet a third consideration was the absence of a Community charge on the production of isoglucose (unlike B Quota sugar) and distinctly lower charge on isoglucose as compared with sugar in several Member States.
It seems quite clear that if a particular product can be sold profitably only owing to a difference in taxation between that product and a substitute product, then that difference can never justify major investment since the différence is quite liable to be abolished.
The Council contends that the inference is that, before the causal connexion between the disputed levy and the alleged damage can be examined, the applicants must first of all show that production of isoglucose can be carried out on an economic scale even if the raw materials for that product are not subsidized and even if that product is made subject to Community and national taxes similar to those on sugar.
On the other hand, the Council contends that, even if it is shown that isoglucose can withstand selling conditions similar to those for sugar and that the level of the disputed levy is ‘excessive’, that situation would none the less still be only one of the factors giving rise to the damage, taking into account the mistaken assessments made by the isoglucose producers.
Thus it is to be seen that on any analysis the applicants themselves contributed to the damage which they claim to have suffered. That contribution totally breaks the chain of causation between the levy and any damage (paragraph 23 of the Decision in Case 169/73 Compagnie Continentale France v Council [1975] ECR 117, at p. 135).
Even if the Court does not follow this line of reasoning and holds that there is damage and that there is a causal nexus and that there is a breach of a superior rule of law, the Council contends that none the less the applicant's contribution to the damage must be to a considerable extent reflected in the portion of the damage to be borne by the applicant in accordance with the general principles common to the laws of the Member States.
— Damages claimed by the applicant in this application
The Council considers inter alia that at all events the profits which the applicant alleges it would have made in the absence of the levy are not to be taken into account. Such alleged losses are highly speculative.
— Breach of a superior rule of law
1. Discrimination
The Council persists in the arguments set out in its defence in Cases 116 and 124/77, that is in particular that isoglucose producers and sugar producers are not in comparable situations, so that the question of discrimination between them cannot arise.
None the less the Council points out objective circumstances which either go to show that the situations of the two categories of producers in question arc not comparable — the Council's argument — or tend to justify different treatment of those two categories of producers, if it is held that situations are comparable owing to the fact that of the products at issue interchangeable in the preparation foodstuffs.
First, isoglucose was introduced market in which production alread outstripped consumption and in the rights arising from a organization of the market had been allocated for several years beet and cane sugar producers.
Secondly, the difference between the materials used for the production of or cane sugar and for the production of sugar from maize, a raw material mostly imported from the United .States, is, in the Council's contention, a further objective circumstance — if it is assumed that the situations of the two categories of producers are comparable — to treat them differently and to do so not only temporarily but also permanently.
2. Disregard of the objectives in Article 39 of the Treaty and of the principle of proportionality
The Council points out inter alia that the aim pursued by Regulation No 1111/77 was primarily to stabilize the market in sugar within the Community by depriving isoglucose of the economic advantage which it derived from being, unlike sugar, free from any levy, and thus redressing the conditions of competition between the two products. It also points out that even if it is found that the constraints temporarily imposed on that product are too severe, it must also be borne in mind that other conditions of competition between the two products have not yet been altogether brought into equilibrium.
In that connexion, it is not to be forgotten that there are appreciable differences in national taxes on each of the products. Thus, even if it were found that isoglucose was — even temporarily — excessively handicapped, none the less that handicap is largely compensated for by other competitive factors.
3. Violation of legal certainty
Recalling the objective circumstances justifying different treatment of isoglucose producers, the Council argues that those circumstances — of which moreover the business circles concerned are well aware — do not bear out the applicant's plea of legitimate expectation that Community taxation on isoglucose should be equal to that on sugar.
4. Violation of the principle of freedom to pursue trade and business activities
The Council first of all remarks that isoglucose production — far from being made impossible for ever — is at worst only temporarily impeded in the aim of restoring stability to a market which was in danger of being seriously disturbed by the appearence of a new product at a time when the shares in the market had already been allocated for a certain period.
Temporary restriction is being confused here with absolute prohibition.
So far as relevant, the Council relies here on the judgment of the Court in Case 4/73, Nold, in which it was held that fundamental rights such as the one pleaded in this case can be subject to restrictions in accordance with the public interest.
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). Advancing the same legal arguments as those already put forward in the Amylum case, the Commission expresses grave doubts on the admissibility of the application both in so far as the applicant is seeking compensation for damage arising from future loss of profit and in connexion with the question whether the applicant satisfies Article 38 (1) of the Rules of Procedure of the Court as regards proving a direct connexion between the damage suffered and the regulations at issue. If the case is held to be admissible, the Commission wishes to rely upon the same arguments to establish that the application should be dismissed as unfounded. As to the substance of the case, the Commission replies inter alia to the following grounds of complaint pleaded by the applicant:
1. Infringement of the prohibition on discrimination (second subparagraph of Article 40 (3) of the Treaty)
The Commission states inter alia that in the present case the producers concerned are on the one hand the manufacturers of starch (and not isoglucose) and on the other hand the manufacturers of sugar. The situation of these manufacturers is in no way comparable.
Isoglucose is a recently-developed product manufactured by the starch industry for which it represents only a by-product. The manufacture of isoglucose requires only the addition of a supplementary technical unit to a modern type of starch factory, and isoglucose, like any other product, has to make its marginal contribution to the total costs which have to be borne by the starch manufacturers. At the present time, isoglucose represents only 3 % of the total production of starch within the Community.
The starch producers manufacture many products from different types of raw-materials and sell them to a wide range of consumers. Starch manufacturers are therefore much better able to adapt themselves to circumstances than sugar manufactures, as is shown by the appearence of the new product isoglucose.
From the point of view of the relative size of the production factors, starch manufacture requires above all a high proportion of capital whereas sugar manufacture is labour-intensive. The Commission estimates that to produce 1000 tonnes of isoglucose takes approximately one tenth of the man-hours necessary to produce 1000 tonnes of sugar.
Apart from being in itself an objective reason justifying the non-comparability of the starch and sugar industries, that difference also explains the lively concern of the national and Community authorities at the expansion of isoglucose production at a time when unemployment is at a very high level in the Community.
The Commission then contends that even if the applicant's argument that the comparison should not be between starch producers and sugar producers but between isoglucose producers and sugar producers is accepted, it would none the less have to be found that this in no way proves that there is discrimination between the aforementioned producers. In fact the total effect of the measures at issue on the prices of products in both sectors has to be examined, and only if there is found to be a difference can the question of discrimination arise.
In support of its contention that such is not the case, the Commission puts forward the same calculations as those set out in its defence in Case 116/77.
2. Violation of the principle of proportionality
Adopting the argument of Mr Advocate General Capotorti (Opinion presented in joined Cases 83, 94, 114, 116, 119 and 120/76, and 4 and 15/77) that ‘the principle of proportionality means that the burdens imposed on the persons concerned must not exceed the steps required in order to meet the public interest involved’, the Commission maintains that the public interest which Regulation No 1111/77 seeks to protect is to remedy the problem of sugar surpluses in the Community by introducing suitable arrangements for isoglucose production.
That objective is not disputed by the applicant. The applicant bases itself on the argument that the measure adopted by the Community makes any competition by isoglucose on the sugar market impossible. However, the applicant adduces no evidence to support this allegation. In fact, the measure at issue consists of taxing the production of isoglucose at the rate of approximately 14.5 % per 100 kg, which corresponds to the minimum economic advantage enjoyed by isoglucose producers owing to the fact that the prices which they can charge are close to those for sugar. The Commission thinks it most unlikely that the imposition of such a burden on an industry which, unlike the sugar industry, is very modern and can therefore carry out production very efficiently, would deprive that industry of its competitiveness.
As regards the assessment of the damage, the Commission calls in question the applicant's statement to the effect that a number of factories and investments must be completely written off. It points out in particular that the factories which have been constructed still have some value and that the investments in technical knowledge have not lost all their value. Furthermore, in the Commission's contention, the final amount of the damage will depend to a great extent on the subsequent development of the economic situation.
D — The applicant's reply
With regard to the facts the applicant makes the following observations:
As appears from the recitals themselves in the preamble to Regulation No 1111/77, isoglucose is only a substitute for liquid sugar.
As regards the competitive position of isoglucose, the defendants have failed to take into account the perishability of the product. Transporting it over long distances is extremely expensive, because special tankers have to be used in order to maintain the isoglucose at the correct temperature.
As to the taxes which, according to the Council, apply to sugar in the different Member States, the applicant points out that in four Member States sugar is not subject to any taxation and from that point of view isoglucose and liquid sugar are in an identical competitive situation in those Member States.
Furthermore, the applicant has constructed its isoglucose factory in the United Kingdom, where sugar is not taxed and where the use of glucose and isoglucose is not, as in most Member States, restricted by legal provisions on the composition of products.
As far as the raw materials for isoglucose are concerned, it is in the interest of the applicant and similar undertakings to use ever-increasing amounts of Community-produced maize. The intention is to increase in the Community the areas where maize is cultivated and to develop strains of maize suitable for use as raw material in the starch industry. Therefore the importance of isoglucose for maize growers should not be underestimated.
On the admissibility of the application, the applicant formally maintains that each of the three conditions for the Community to be found liable is satisfied here and in this case that there is a sufficiently serious breach of a superior rule of law for the protection of the individual, a causal connexion between the regulation at issue and the damage alleged, and damage which either has already occurred or at least is imminent and foreseeable with sufficient certainty.
The applicant develops its arguments regarding the substance of the case, in particular on the following points:
1. Infringement of Article 39 of the Treaty
The applicant submits that the Court of Justice itself takes the view that the objectives stated in Article 39 (1) of the Treaty, taken together with the prohibition on discrimination in Article 40 (3), supply the criteria for appraising the legality of Community measures adopted in the agricultural sector (Case 116/76, Granaría). Thus there is indeed a rule enacted for the protection of the interests of individuals.
Even assuming that Regulation No 1111 /77 was adopted in order to stabilize the sugar market, there is no reason to suppose that such aim necessarily had to be pursued at the expense of technical progress. The applicant wonders why the defendants did not consider the possibility of encouraging Community sugar-beet producers to turn towards products which are in short supply in the Community.
2. Violation of the principle of nondiscrimination
In the applicant's submission, isoglucose and sugar are comparable products. That emerges from the recitals themselves in the preamble to Regulation No 1111/77. If isoglucose were not a product comparable to sugar, there would be no grounds for adoption measures concerning isoglucose in order to stabilize the sugar market. It is irrelevant that the raw materials are different, since the issue is clearly the possibility of substitution at the stage of the finished product.
The regulation lays down rules involving discrimination between liquid sugar and isoglucose. For isoglucose it lays down a production levy on all production, whereas for sugar, including liquid sugar, the levy applies only to certain quantities exceeding a specified quota.
The applicant argues that there is no objective basis for the different treatment of isoglucose. Moreover, the applicant criticizes the Commission's attempt to minimize that difference of treatment by using an atypical example.
3. Violation of the principle of proportionality
Even supposing that, contrary to the applicant's opinion, the defendants were entitled to regulate the production of isoglucose, it is none the less true that their action was completely out of proportion to the aim pursued.
It is not clear on what basis the Commission contends that the potential market in which isoglucose could compete is to be assessed at 3 million tonnes, or 30 % of the sugar market. In the seventh recital in the preamble to Council Regulation No 1111/77, isoglucose is merely compared to liquid sugar. In its answer to written question No 803/76 by Mr Martens, the commission indicated that isoglucose could compete with solid sugar only when isoglucose is offered at a distinctly lower price than sugar. In answer to a question from Mr Martens, Commissioner Davignon told the European Parliament that the market share of isoglucose would without doubt hardly exceed 5 to 6 %, a figure comparable to the present market share of liquid sugar.
As the Commission was obliged to admit in its answer to Mr Martens' question that it did not have sufficient information on the isoglucose industry, it cannot but be felt that the defendants' policy was a panic policy and that it was desired to restrain the development of isoglucose in the Community at any price.
E — The Council's rejoinder relating to Joined Cases 116/77, 124/77 and 143/77
In its rejoinder the Council argues that it is because they were rash in their business actions that the applicants suffered damage. Their applications should therefore be rejected for lack of a causal nexus, as the damage suffered, that is the economic obsolescence of their investments, was the particular result of the lack of caution with which they entered a sector covered by special rules, hoping to benefit from both the advantages of that sector (high guaranteed price) and those of the raw material used, and without taking into consideration the possibility of additional measures being taken in this sector, as they were blinded by their belief that there would be a sugar shortage and that a new outlet was assured for processed maize.
— Causal nexus
After remarking that the applicant in Case 143/77 unlike the other two applicants had submitted the first piece of evidence that there was a causal link between the alleged damage suffered and Regulation No 1111/77, the Council points out that it seems from the application lodged by the same applicant in the action for liability in Case 153/77 that the cause of the alleged damage suffered is to be found further back than Regulation No 1111/77. The application contains inter alia the following passage (p. 34):‘The production of isoglucose would not have become unprofitable if the production refund had not been abolished’.
Furthermore, it now appears from the figures submitted by the applicant in Case 124/77 in Annex I to its reply in that case (in particular from the document dated 12 July 1977 and headed ‘Projected Costs of Isoglucose’) that a loss was made by that applicant as well on the manufacture of isoglucose as a result of abolition of the production refund that is as a result of Council Regulation No 1862/76 of 27 July 1976.
Be that as it may, it is the Council's opinion that the present claims for damages should be ruled inadmissible since the grounds adduced by the applicants do not show that Regulation No 1111/77 was. a certain cause, within the meaning of the case-law of the Court in Joined Cases 56 to 60/74, of the alleged damage.
With more specific reference to Scholten's application, the Council bases its new argument of inadmissibility on Article 42 (2) of the Rules of Procedure. The arguments put forward by this company after the lodging of the Council's defences in the present cases constitute a fresh issue within the meaning of the said article.
— Serious breach of a superior rule of law
Before replying to a number of remarks made by the applicants concerning the Council's alleged serious breach of such a superior rule of law, the Council submits inter alia the following observations on the ‘potential’ production of isoglucose and on the rights acquired by virtue of Community regulations.
1. Potential production of isoglucose and the extent to which that product may he substituted for sugar
The Council observes that it is clear that isoglucose is not fully interchangeable with sugar and that the share of the market occupied by household consumption cannot be supplied by isoglucose. On the other hand, the scope for substitution in all industrial uses of sugar is extensive. This leads on to the problem of liquid sugar. There are, however, two types of liquid sugar, one marketed in the liquid state and the other which, after delivery to the processor in the solid state, is added by the latter to an aqueous solution for use (certain manufacturers prepare their liquid sugar themselves using solid sugar).
It is contended that the expression ‘potential market’ for isoglucose means the possible market or, again, the market which could possibly be secured. In this connexion, the Council provides for the purposes of the debate documentation which it has collected; it feels that it is clear from those documents that, technically speaking, there is nothing to prevent isoglucose from replacing sugar in Western Europe by 1980 to the extent of over two million tonnes and certainly at least one million tonnes (W. Grosskopf and E. Schmidt, ‘Saccharose or Isoglucose’ pp. 14-17). And the Council emphasizes the turmoil that would result on the market if even only one million tonnes of isoglucose were produced.
2. The question of acquired rights to continuance of regulations
The Council finds no quarrel with the applicants' assertion that there are no acquired rights to the continued existence of regulations. However it points out that, in the context of regulations clearly laying down the conditions which traders are to enjoy during a given period, such traders enjoy, if not ‘acquired rights’stricto sensu, in the said regulations. This is true of the interest of the sugar undertakings in the system of quotas introduced by Regulation No 3330/74.
3. Infringement of Article 39 of the Treaty
The Council defends the wisdom of its choice of certain objectives in that article in preference to others, against various criticisms made by the applicants.
4. The complaints of discrimination, disproportionality and misuse of powers
The Council challenges the argument common to the replies that the levy on A + B sugar amounts to 2.82 % of its price (in fact the intervention price) whereas the levy on isoglucose amounts to 14.45 % of the corresponding price, and that these figures, being in a ratio of 1 to 5.2, are evidence of the discrimination against isoglucose. In that connexion, the Council repeats in particular that before attempting to prove that the rate of the levy on their product is discriminatory, the isoglucose manufacturers should have considered whether their product is not receiving more than favourable treatment in that, thanks to the sugar arrangements, it is sold at a price determined not by market forces but by the sugar system. Since they have not made this comparison and since the two situations are objectively different, they cannot claim that sugar and isoglucose are two similar products which are being treated differently. In following the applicants' line of argument it is easy to overlook the fact that Regulation No 1110/77 establishes the relationship between the two levies and justifies the amount of the levy on isoglucose as laid down in Regulation No 1111/77.
The applicants will no doubt maintain that the relationship established by Regulation No 1110/77 represents a misuse of powers in that an uneconomic product, sugar, is being ‘propped up’ by an economic product, isoglucose, at the expense of the latter. The Council has already rejected this argument in its various forms.
The Council considers that there is no justification for the complaint that the levy on isoglucose as compared with the levy on sugar is disproportionate, since the effect of Regulations Nos 1110/77 and 1111/77 is precisely to bring the growth of isoglucose production into proportion.
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
The Council argues inter alia that Article 18 of Regulation No 1111/77 has a different purpose from that which the applicants wish to attribute to it. In fact it is a standard provision included in every change in agricultural regulations for ‘current contracts’.
Here the situation is quite different. Regulation No 1111/77 stans out from a system legitimately established for sugar and links any expansion of isoglucose production to the difficulties which such development will provoke in the sugar system, from which, moreover, isoglucose benefits.
F — The Commission's rejoinder relating to the three cases
— Facts
In its rejoinder, the Commission deals inter alia with the following points:
1. Extent to which isoglucose may be substituted for sugar
The Commission maintains its position that isoglucose can be substituted for sugar in the majority of industrial uses of sugar (including crystal sugar) and that the potential market in the long term might amount to as much as 30 % of total Community sugar consumption. In support of that contention, the Commission annexes to its rejoinder an excerpt from the study by Mr Ehle: ‘Die Konkurrenzsituation zwischen Zucker aus Rüben und Zucker aus Mais in der Bundesrepublik Deutschland’ (‘The Situation regarding Competition between Beet Sugar and Sugar derived from Maize in the Federal Republic of Germany’) (p. 83).
2. Production costs
The Commission confirms that at the time it submitted its proposal it did not have and still does not have figures on the actual and comparative production costs of isoglucose and liquid sugar. The figures produced by the applicant in Case 124/77 are merely estimates (of which some are particularly open to discussion) since it appears that its plant has not yet come on stream.
3. Raw materials
The Commission observes that the applicant in Case 143/77 criticizes the Commission for minimizing the importance of isoglucose for Community maize growers, but does not query the present figures produced by the Commission regarding Community supplies of maize. Moreover, shortages in production of maize and surpluses in production of sugar within the Community should be weighed against each other.
— Law
The Commission persists in all the arguments as to the admissibility of the applications put forward in its defences while developing them in order to answer the various points made in the replies.
On the merits of the applications, the Commission develops its arguments in reply to the applicants' submissions, in particular on the following points:
1. Violation of the principle of nondiscrimination
Concerning Case 116/77, the Commission recalls that the production of isoglucose is only one of a number of activities of the starch industry, which has many outlets for its numerous products; on the other side there is the sugar industry which is much more specialized in both its production and its outlets. An objective comparison therefore must be made at the level of the economic activities and not, in the abstract, at the level of ‘products’.
In order to refute the applicant's assertion that sugar undertakings producing B and C sugar only constitute a minute minority in comparison with the body of sugar producers, the Commission produces annexed to its rejoinder a statistical table on the number of undertakings producing B and C sugar up to the marketing year 1977/1978. It may be seen from the table that, leaving aside the first year 1968/1969, of application of the common organization, the number of undertakings producing B sugar varies between 76 % and 90 % of the total number of sugar undertakings, while between 5 % and 44 % of the undertakings produced C sugar. These figures show that, contrary to the applicant's argument, the comparison made by the Commission with a sugar undertaking producing the three kinds of sugar has a firm economic basis. The objections put forward by the applicant (in the supplement to its reply) to the calculation carried out by the Commission only go to show that the applicant does not wish to be compared with a sugar-producing competitor placed in a similar situation, that is to say recently arrived on the market and supporting the maximum burden of the production levy.
2. Violation of the principle of proportionality
The Commission points out that the applicant in Case 124/77 maintains that if the aim of the levy is to require isoglucose to pay its share of the costs of disposing of surplus sugar the burden imposed on isoglucose should be proportionate to its share of the total market. The applicant calculates this proportion as 3 %. Applying the applicant's own method and taking the applicant's figures for the production of isoglucose, the Commission calculates that the present share borne by isoglucose is only 2.6 % of the total burden of exporting the surplus of sugar on the Community market envisaged for 1977/1978. In fact, in the Commission's view, the proper approach is to compare the levy on one tonne of isoglucose with the cost of disposing of the tonne of sugar which it displaces from the Community market. At slightly more than one fifth of the cost to Community funds, it can hardly be said that the levy is disproportionate from this point of view.
IV — Questions put by the Court
First question (to the Council and the Commission):
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.
The Council's answer
In reply to this question the Council provides extracts from the three documents concerning isoglucose in the Commission's proposals of February 1977 (Commission proposals of 11 February 1977 on the fixing of prices for certain agricultural products and on other related measures, Vol. I; ‘Situation of the Agricultural Markets, 1976 Repon, Part I’, submitted to the Council by the Commission; proposal for a Council regulation (EEC) laying down common provisions for isoglucose).
In addition the Council submits to the Court a document dated 11 January 1977 produced by the Association Genérale des Producteurs de Maïs (General Association of Maize Producers): ‘Observations sur les Sirops de Glucose Riches en Fructose’ (Observations on High Fructose Glucose Syrups). The Council contends that this document confirms that:
At the end of 1977 the isoglucose production capacity amounted to 400000 tonnes;
Plans were being studied with a view to attaining a capacity of approximately 1000000 tonnes by 1980; and
The extent to which isoglucose might possibly be substituted for sugar (potential use) amounted to 2000000 tonnes.
The Commissions's answer
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. During the discussions in the Council the question arose whether this complete parallelism which might result, in particular, in a maximum rate of levy of 30 % of the intervention price of sugar should not be tempered during a certain transitional period. It was in this context that the Council finally accepted a maximum amount of five units of account for the levy on isoglucose, this amount representing the economic advantage gained by this product from a market price for sugar higher than it would be without the limitation on production deriving from the quota system. The Commission intended that the one year transitional period should be extended in accordance with the Commission's proposals to the Council for 1978/79, providing during this period the same figure of five units of account for the isoglucose levy.
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.
Second question (to the Council and the Commission):
Did the Council and the Commission at any time, whilst the provisions now in dispute were being drafted, examine and take into consideration the bio-chemical and hygienic properties of isoglucose as compared with traditional sugars manufacture from beet and cane?
The Council's answer
The Council states that a comparative examination, such as this question refers to, was not made by the Council at the time of the discussions leading to the adoption of Regulation No 1111/77. The Council's Agent also wonders whether what was at stake here might have been not so much a problem of market organization as a question of harmonization of legislation and possibly a matter of public health.
The Commission's answer
The Commission states that it did not take into consideration the bio-chemical and hygienic properties of isoglucose as compared with traditional sugars manufactured from beet and cane whilst the provisions now in dispute were being drafted. The Commission acted on the assumption, based on the information in its possession at the time, that isoglucose had, from the economic and commercial point of view, characteristics comparable to those of traditional liquid sugar. By way of illustration, the Commission submits in an annex data provided by the producers of isoglucose themselves which confirm this assumption.
Third Question (to the Council):
Can the Council supply the Court with other examples taken from the agriculture sector of an obligation (pecuniar) or otherwise) imposed on the producers or manufacturers of a product coming under one sector of the common agricultural policy to assist producers or manufacturers of a product coming under another sector?
The Council's answer
The Council's Agent rejects the idea that Regulation No 1111/77 was designed to ‘assist’ sugar producers by imposing a constraint on isoglucose producers. Moreover, he does not consider that the use of the expression ‘another sector’ is an appropriate way of distinguishing isoglucose from sugar. Both products are, in his view, as a pragmatic consequence of the substitution possibilities and of Regulation No 1110/77 (Article 4), part of one vast sector, that of sweetening agents.
The Council's Agent makes the point that the agricultural systems of the Member States may be integrated by levying taxes on traders in certain products in one or all Member States for the benefit of traders in other products.
In this connexion the third question put by the Court concerns an extremely complex problem relating to the arrangements to be applied to ‘similar and competitive products’, to ‘interchangeable products’ or, to use the words of the Court in Joined Cases 117/76 and 16/77 (eighth paragraph of the Decision) to products which ‘are in a comparable situation, in particular in the sense that (the one) can be substituted for (the other) in the specific use to which the latter product is traditionally put’ and which must therefore be afforded equal treatment under the general principle of equality.
The Council's Agent states that it is possible to provide the Court with examples where the interdependence for a certain product with products covered by a sector of the agricultural policy has made it necessary for the Community authorities to adopt measures to maintain or re-establish a balance between products falling within this agricultural sector and similar products. Thus, the Community authorities imposed constraints on non-agricultural products, that is to say products not listed in Annex II but which in common parlance are considered to be of agricultural origin, constraints which were necessary for the smooth functioning of the common organization in question:
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. Conversely it is also possible to mention another method tending towards the same goal, by which an advantage is granted to the agricultural product so that a balance may be re-established with a similar product. In order to guarantee a balance between agricultural products (starch from cereals, potato starch etc.) and interchangeable products from the industrial sector, the Council (Regulation No 1132/74) introduced a production refund for the former. The Court considered this to be a legitimate mechanism (end of paragraph 7 and paragraphs 9 and 12 of the Decision in Case 2/77 Hoffmann's Stärkefabriken v Hauptzollamt Bielefeld). As a third point mention might be made of the example of the. case where supply difficulties in an agricultural sector led the Community authorities to tax not only the export of the agricultural product, but also certain goods resulting from the processing of the product, provided that the agricultural product in short supply made up a certain percentage of those goods. Example: Council Regulation (EEC) No 3185/74 of 17 December 1974 introducing an export charge on certain goods covered by Regulation No 1059/69 (Official Journal L 340, p. 74) (sugar content — that is to say the product in short supply — a minimum of 35 %. In conclusion, the Council's Agent reiterates that the ‘agricultural intervention system’ is a coherent whole made up of guarantees offered to producers, but subject to constraints imposed on those selfsame producers. It would run entirely counter to the system and to the general Community interest to wish to benefit from the guarantees whilst refusing to accept the constraints. This, however, is the position adopted by the isoglucose producers who wish to benefit from the guarantees offered to the sugar producers, without having to suffer any of the constraints imposed upon them.
Request for additional information addressed to the Commission
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).
The Commission's answers
Points 1 and 3
The comparative investigation into the production costs of isoglucose on the one hand and of sugar, liquid and invert sugar on the other, referred to on page 27 (French version) of the Commission's observations in Case 103/77 is the same as that referred to at page 27 (French version) of the Commission's defence in Case 124/77.
This investigation has been entrusted by the Commission to a specialist private firm, Klynveld, Turquands, DTG & Co. (KTD). The two industries in question have accepted this firm.
Originally the Commission intended, so that it should be representative of the Community as a whole, that this investigation should be carried out in three Member States (Germany, Belgium and the United Kingdom) where there was production of isoglucose, sugar and liquid sugar. However, the ‘isoglucose side’ in Germany and the ‘sugar side’ in the United Kingdom were not able to agree. The investigation, then, was limited to Belgium — at the Amylum company for isoglucose and at the Tirlemont refinery for sugar.
By agreement with the Commission and the two industries KTD planned to carry out the first pan of its investigation at Amylum, the repon on which was completed on 23 March 1978 and is in the form attached at Annex I, and to pursue the second pan of its investigation at Tirlemont, which commenced on 10 April and should be completed during the month of May. It is further planned that the third part in which KTD gives its conclusions should be ready in mid-June. Thus at the present stage the Commission is only in possession of partial information from this investigation. It will communicate the rest of the information to the Court as soon as it is available. The Commission thinks it important to mention to the Court that it has undertaken with regard to the sugar industry to treat in a confidential manner the information acquired during the course of the investigation (see Annex II)).
Point 2
The investigation into the production costs of isoglucose referred to in the reply in Case 116/77 is an analysis of accounts carried out by the Directorate General for Industrial Affairs at Amylum (see Annex III). The Commission has not taken a position on the results of this investigation. As it emerges from the answers to the first and third requests, the Commission thought it appropriate to have a comparative investigation carried out.
Point 4
The Commission provides as Annex IV the information requested by the Court. The Commission mentions that this information has been acquired under the provisions of Regulation (EEC) No 1087/69 (Official Journal L 140 of 12 June 1969, p. 15). Article 7 of that regulation provides:
‘Information communicated pursuant to the regulation is solely for the internal use of the Commission. Only those persons who, within the Commission, are responsible for the sugar market may have access to information relating to an individual factory or undertaking. Such information may not be disclosed to third parties.’
Supplementary question put to the Commission
On page 26 of its defence in Case 116/77 the Commission gave an example to show that the charge imposed on an undertaking manufacturing isoglucose is equivalent to the one imposed, by way of the production levy, on a modern sugar undertaking manufacturing A, B and C sugar.
The Commission is requested to repeat this calculation for the last two sugar-marketing years taking as a basis the average production of all the modern sugar undertakings which have exhausted their B Quota and produced appreciable quantities of C sugar and taking into account the fact that the price allowed for beet-growers in respect of B and C sugar is less than that paid to them in respect of A sugar.
The Commission's answer
At page 26 of the Comission's defence in Case 116/77 the Commission put forward a calculation, carried out on the basis of the prices and levy for the 1977/78 marketing season but on the hypothesis of a production for the firm in question of the same order as that obtained during the 1976/77 sugar-marketing season since its actual production for 1977/78 was not yet known at the moment of the calculation (November 1977). In the light of the Court's question, the Commission now thinks it useful to submit for this firm the actual figures for the two most recent marketing seasons — see Annex I. These figures show that the position of the particular firm has not improved in spite of its increased quota.
Regarding the other firms for which the Court has asked the Commission to do the calculation again, the Commission thinks it necessary to emphasize that an analysis of their average production for the two most recent marketing seasons does not give a correct impression of their situation. In fact the production of C sugar in most Member States has been comparatively small, often non-existent, because of the drought which prevailed during the 1976/77 marketing season and which seriously affected yields. The average Community yield was 15 to 20 % lower than that for a normal harvest.
Finally the Commission indicates to the Court that it does not know the price paid by sugar-manufacturers to producers for beet intended for C sugar since this does not derive from Community rules but is a matter for agreement between the parties. As to the price actually paid for beet intended for Bsugar the Commission knows that it is often higher than the minimum price fixed by the Community and that in certain cases the same price has been paid for all this beet as for beet intended for A sugar. For these reasons the Commission is only able to give the Court the information requested for each individual firm (15 in all) in the form of the calculation applied at page 26 of its defence in Case 116/77. These firms are distributed amongst four Member States.
V — Further procedure in cases 116, 124 and 143/77 and related events
A — Oral procedure
At the hearing on 24 May 1978 Koninklijke Scholten-Honig N.V., represented by D.J. Gijlstra, of the Amsterdam Bar, the Council of the European Communities, represented by its Agent, Daniel Vignes, assisted by A. Brautigam and D. G. Lawrence, members of its Legal Department, and the Commission of the European Communities, represented by its Agent J. H. J. Bourgeois, assisted by J. Delmoly, a member of its Legal Department, presented oral argument.
The Advocate General delivered his opinion at the hearing on 20 June 1978.
B — Requests submitted after the closure of the oral procedure
By letter of 8 August 1978 Tunnel Refineries Ltd., the applicant in the main action in Case 145/77 (Tunnel Refineries Ltd. v Intervention Board for Agricultural Produce) and the applicant in Case MA/77, requested the Court, in the context of Joined Cases 116, 124 and 143/77, to consider certain information to which the attention of the Court had been drawn by a letter of 7 August 1978 from G. R. Amylum N.V., the applicant in case 116/77, relating to the price, for the sugar marketing year 1977/1978, of sugar beet corresponding to C sugar.
In its judgment of 25 October 1978 in Joined Cases 103 and 145/77 (Royal Scholten-Honig (Holdings) Ltd. v Intervention Board for Agricultural Produce; Tunnel Refineries Ltd. v Intervention Board for Agricultural Produce, [1978] ECR 2037) the Court stated that if it were to agree to the above-mentioned request it would be necessary for it to do the same in the context of Joined Cases 116, 124 and 143/77 as well as in Cases 103 and 145/77. Having regard to the reasons given in the decision of the abovementioned judgment the Court did not think it necessary to agree to the abovementioned request.
On the same grounds the Court also refused to accede to a request from the Commission, contained in a letter dated 25 September 1978, under Articles 60 and 61 of the Rules of Procedure, that it should be authorized to produce to the Court the second and third parts of the comparative study of the production costs of isoglucose on the one hand and sugar, liquid sugar and inven sugar on the other, conducted by the private firm Klynveld-Turquands DTG & Co., and that the Court, if it thought it necessary, should order the re-opening of the oral procedure.
C — The Judgment of the Court of 25 October 1978 in Joined Cases 103 and 145/77
In its judgment of the above-mentioned date the Court, giving a preliminary ruling on questions submitted to it by the High Court of Justice, Queen's Bench Division, Commercial Court, ruled that Council Regulation No 1111/77 of 17 May 1977 was invalid to the extent to which Articles 8 and 9 thereof imposed a production levy on isoglucose of 5 units of account per 100 kg of dry matter for the period corresponding to the sugar marketing year 1977/1978. The Court had in fact held that the provisions of the above-mentioned 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. It had however 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 for sweeteners.
D — Resumption of the written procedure in Joined Cases 116, 124 and 143/77 and disjoinder of Case 143/77
By letter of 21 November 1978, the Court invited the applicants in the three above-mentioned cases to supplement the written procedure with a statement of observations specifying their losses and the causal connexion between those losses and the actions of the Community and giving, in the light also of the recent case-law of the Court, and in particular of the judgment of 25 May 1978 in Joined Cases 83 and 94/76 and 4, 15 and 40/77 (Bayerische HNL Vermehrungsbetriebe GmbH & Co. KG and Others v Council and Commission [1978] ECR 1209) such observations as they thought appropriate on the question whether any losses were such as to be chargeable to the Community in pursuance of Article 215 of the Treaty.
Following that invitation supplementary observations were submitted by the applicants. In reply the Council and the Commission submitted supplementary written observations.
Koninklijke Scholten-Honig N.V., the applicant in Case 143/77, asked that certain data contained in the evaluation of its losses annexed to its supplementary observations should be treated as confidential and as a result that case was, by order of the Court of 7 March 1979, disjoined from Cases 116 and 124/77.
E — Re-opening of the oral procedure
The Court, after asking Koninklijke Scholten-Honig N.V. to supply supplementary information as regards the evaluation of its losses (see under VIII below) and on hearing the report of the Judge-Rapporteur and the views of the Advocate General, decided to re-open the oral procedure, limited to the question whether, having regard also to the behaviour of the applicant; the Community had in principle any noncontractual liability as regards one or more heads of the claim for damages put forward by the applicant, any question concerning the proof and detailed calculation of the quantum of any damage which might be established being if necessary deferred until a later stage in the procedure.
VI — Conclusions of the parties
The applicant maintains its conclusions, formulated in its application and its reply.
The Commission contends that the Court should:
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.
The Council contends that the Court should dismiss the application for damages as unfounded and 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. It next proceeds to consider the following questions:
1. Must the losses suffered by the applicant be charged to the Community under Article 215 of the Treaty?
On the basis of the criteria set out by Mr Advocate General Capotorti in Joined Cases 83 and 93/76 and 4, 15 and 40/77 (the ‘Skimmed-Milk Powder’ Cases, Bayerische HNL Vermehrungsbetriebe & Co. KG and Others v Council and Commission, referred to above), the applicant takes the view that in this case there is a ‘sufficiently serious breach of a superior rule of law for the protection of the individual’ within the meaning of the settled case-law of the Court (cf. in particular the judgment of 2 December 1971 in Case 5/71, Zuckerfabrik Schöppenstedt v Council, [1971] ECR 975), so that the losses suffered by the applicant should be charged to the Community under Article 215 of the Treaty.
According to the applicant there is a breach of a superior rule of law, in this case a breach of the principle of non-discrimination, a concept of fundamental importance for the Community legal system.
Although serious fault is not required in this case it seems sufficiently clear that in fixing the production levy the Council and the Commission acted in such a negligent manner that they do in addition bear such guilt for the establishment of the production levy at issue. The applicants in these joined cases are distinguished individually sufficiently to be able to claim compensation in these cases. The great difference between the factual situation in Joined Cases 116, 124 and 143/77 and that in the ‘Skimmed-Milk Powder’ cases resides in the fact that in the former cases there is only a very small category of persons concerned, who are precisely defined. In the judgment of the Court of 25 May 1978 there were enormous groups of traders. The applicants in this case are fully distinguished individually by the measures adopted by the Council and the Commission. There is no possible doubt with regard to the undertakings affected within the Community by the measure in dispute.
In the applicant's opinion the difference resides also in the fact that the Community institutions manifestly and gravely disregarded the limits of their powers. In fact in this respect it must be emphasized that the production levy of five units of account for the 1977/1978 sugar year, referred to in Articles 8 and 9 of Regulation No 1111/77 is only the consequence of a compromise within the Council. The Commission's proposals were very far-reaching and if it had been possible to put them into force they could only have increased the distortion to a much greater degree.
It is true that the compromise effected within the Council of the European Communities limited the production levy for the first year to five units of account but at that time the damage was already done as regards the applicant. Furthermore everything seemed to indicate at that time that the production levy would be drastically increased from the beginning of the following sugar year. It was only in the course of these proceedings, at the beginning of 1978, that the production levy was definitively fixed at the amount of five units of account, which was still exorbitant.
The applicant further points out that if account is also taken of the fact the Council and the Community acted in an extremely negligent manner by not taking acceptable data as their basis as regards the isoglucose industry but on the other hand — as may be deduced from the Commission's declarations — by resorting to guesswork, it can only be concluded that there has indeed been a manifest and grave disregard of the limits of the powers of the institutions.
2. The causal connexion between losses suffered by the applicant and the actions of the Community
The applicant maintains that it has clearly explained in its application and in its reply that there is a direct connexion between the production levy fixed by Regulation No 1111/77 and the damage which it suffered. It claims that, in their defence and rejoinder the Council and the Commission did not so much deny the existence of that causal connexion as an attempt to lay at the door of the applicants in these joined cases part of the responsibility for the damage suffered.
Furthermore the applicant contests the argument of the Council and the Commission to the effect that it was not the imposition of the production levy which was at the basis of the damage but the abolition of production refunds by Council Regulation No 1862/76. In this respect it states that the document entitled ‘Application for Compensation Isomerose No 2’ (annexed to its observations) shows that it was the levy which gave the coup de grâce to the production of isoglucose.
In fact the three applicants in these joined cases had all been engaged with the development of isoglucose long .before there was any question of a shortage of sugar on the world market, that is to say, a long time before 1973/1974. They effected investments in this sector for research and for the development of an experimental factory. Such a favourable trend on the sugar market during 1973 and 1974 could only make investment in the field of isoglucose attractive but that fact had nothing to do with the decison, which had been taken a long time before, to start production of isoglucose. The documents put in by the applicants show clearly that a decision to invest in isoglucose had already been taken at an earlier stage.
The applicant claims that profitable production was henceforward possible for starch manufacturers only if they proceeded to grind raw materials on a large scale. These considerations led the applicant to plan the construction of a very large unit for maize grinding: that was the ‘Tilbury project’. Isoglucose was retained as representing one of the new outlets for this large grinding unit. The fact that, even if the production refund system were to be modified or abolished, the existing factories, which were already at work, would nevertheless be able to pursue their activities as long as they continued to have a variable positive profit margin, played an important role in that project.
It was the policy of the Council and the Commission which led to the decision to discontinue investment in isoglucose.
In fact, the applicant and, a most important fact in this case, the latter's financiers, saw how the Council and the Commission, not burdening themselves with any knowledge of the facts, set about imposing a production levy on the isoglucose industry. During the course of the winter of 1976 and the spring of 1977 it seemed that the levy which was to be imposed would be at an even higher level than that finally decided upon. Furthermore the Commission's proposals revealed clearly the intention of proceeding to a further increase in the future. The applicant and its financiers thus found themselves in a particularly uncertain situation and suspected, on good grounds, that the policy in respect of isoglucose would become only more onerous.
These were the facts underlying the applicant's decision, also taken under pressure from its financiers, to cease investment in isoglucose and no longer to use the existing capacity for the production of isoglucose in an experimental factory.
The applicant thinks that it is irrefutably established that there is a causal connexion between the disputed measures of the Commission and the Council and the damage suffered.
3. The applicant's damage
For the purpose of calculating the damage suffered by the applicant it refers to the note entitled ‘Application for Compensation Isomerose No 2’ (annexed to its observations), dated 20 June 1977, but brought up to date on 18 January 1979.
In the introduction to that note it is stated that it was drawn up having regard to the ‘EEC production levy on isomerose to be brought into force on 1 July 1977’ and that the ‘application for compensation No 1, drawn up following the abolition of the production refund on maize intended for the production of isomerose is commented upon from the financial point of view in a separate note’.
The note in question is based on the following interpretation of the situation in which the applicant found itself:
‘— 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. On the basis of the foregoing it is permissible to say that: All the investments in isomerose must be liquidated; All the costs incurred for isomerose must be considered as having been totally written off; Scholten-Honig's expected output will show a considerable deterioration since the production of isomerose must be given up; This loss of profit on future results is thus a factor in the action for compensation since it requires a radical restructuring of the whole of the group’.
It is stated in the above-mentioned note that as regards the method of assessment, losses and profits are evaluated for the year in the course of which they occur or are due to occur and consequently brought up to date at the rate of 8 % per annum on the basis of the accounting year 1976/1977, that is, in fact to 31 August 1977. Bringing up to date is necessary because the first expenditure was undertaken in 1971/1972 and because the report on Tilbury output, which is used for the purpose of comparison, extends as far as 1986/1987. The calculation of loss of profits on future results is based on the ‘Tilbury output report C 97 1 A’ (dated 25 April 1977).
The evaluation of losses suffered by the applicant is summarized in the note in the form of the following general summary:
| Points | Heading | Nominal Value | Value updated to 31. 8. 1977 | Value updated to 18. 1. 1979 |
|---|---|---|---|---|
| 3 | Foxhol experimental factory | 5390 | 6909 | 6909 |
| 4 | Koog experimental factory | 27198 | 27364 | 27364 |
| 5 | Liquidation, Tilbury | 34770 | 34770 | 32721 |
| 6 | Scholten-Honig research | 2057 | 2385 | 2385 |
| 7 | Cost of managing committee and of management | 3211 | 3624 | 3624 |
| 8 | Legal advice and assistance | 574 | 567 | 567 |
| 9 | Contracts with ICI and Reynolds | 21707 | 20527 | 15818 |
| Intermediate total | 94907 | 96146 | 89388 | |
| 10 | Future results, Tilbury | 95651 | 58132 | 58132 |
| Total claim for compensation No II | 190558 | 154278 | 147520 |
All the above amounts are expressed in guilders.
The amounts set out under the heading ‘Nominal value’ come from the administrative or output report (where necessary after correction). Under the heading ‘Value updated’ the same amounts are set out updated at the rate of 8 %.
Points 3 to 10 of the above general summary are the subject of commentaries and detailed calculations annexed to the note.
B— Observations of the Commission
By way of introductory remarks the Commission recalls in particular that, following the judgment of the Court of 25 October 1978, it sent to the Member States a letter notifying them that, whilst awaiting measures which the Council was shortly to adopt in order to ensure the proper functioning of the market in sweeteners, the charging of any instalments to be paid under Article 3 (3) of Commission Regulation No 1464/78 of 29 June 1978 (Official Journal L 176 of 30 June 1978, p. 7) by way of isoglucose production levy was to be suspended by way of conservation measures (Annex I to the Commission's observations).
Furthermore, the Commission had submitted to the Council a proposal for a regulation amending Council Regulation No 1111/77 (Annex II to the Commission's observations).
The Commission then considers the case from the following aspects:
1. Admissibility of the applicant's supplementary observations
The Commission observes that in its supplementary observations the applicant is attempting first and foremost to prove the Community's liability, not because it results from the adoption of Regulation No 1111/77, but because it flows from the Commission's behaviour during the period prior to that in which it prepared its proposals and submitted them to the Council. In relying on such reasoning the applicant goes beyond the bounds of the conclusions presented in its application. In fact those conclusions were limited to asking for a declaration of the liability of the Community as a result of Regulation No 1111/77 itself (and from Commission Regulation No 1468/78) and not from other factors.
The applicant's supplementary observations must therefore be declared inadmissible on this point.
2. The limits of the Community's liability
The Commission emphasizes that, in accordance with the established case-law of the Court, the Community cannot be held liable for the effect of a legislative measure involving choices of economic policy unless a sufficiently serious breach of a superior rule of law for the protection of the individual has occurred.
It concedes that the breach of the principle of equality of treatment, as enshrined in Article 40 (3) of the Treaty, does constitute a breach of a superior rule of law for the protection of the individual. With regard to the other claims relating to alleged breaches of other rules of law, the Commission maintains the conclusions contained in its defence and rejoinder.
On the other hand, the Commission, on the basis of the Court's judgment of 25 May 1978 in the HNL cases, denies that in this case there has been a sufficiently serious breach of the principle of equality to involve the Community in liability, and points out that, in the legislative context in question, involving a choice of economic policy in a field characterized by the exercise of a wide margin of discretion which is indispensable to the implementation of the common agricultural policy, the institutions in question have not manifestly and gravely disregarded the limits on the exercise of their powers.
According to the Commission, so as to judge whether there has been a manifest and grave disregard of powers, account must be taken, as regards the Community measure, of its consequences on economic policy in the context of which the measure was adopted as well as of the nature of the damage caused.
In this context the Commission emphasizes that the Court, in judgment of 25 October 1978, restricted itself to a finding that the levy was as such but only by reason of its amount The Court did not in fact call in question the Community's power to impose a in general. Any manifest and misuse of powers could therefore only in the fixing of the levy at too a level.
In denying that there has been any misuse of powers, the Commission to its detailed arguments set out in defence relating to the complexity of the situation by which the Community faced at the time the isoglucose production levy was fixed.
With regard to the nature of the damage claimed by the applicant, the Commission points out in particular that the disregard by the Community of its powers must be serious, that is to say that it must be assessed by reason of its financial consequences for the parties concerned. As regards the seriousness of the damage which the applicant claims to have suffered, particularly by reason of the effect of the levy on the profitability of the manufacture of isoglucose, the Commission recalls that such profitability itself depends on the common organization of the market in sugar. With high prices for sugar it would be possible to sell isoglucose on that market at prices several times higher than those on the world market.
The levy charged on isoglucose consequently represents only a fraction of that price. On the other hand, it may be noted that, if the situation on the world market alone is taken into consideration and if the levy is compared with the extent of the economic risk involved in operations in the sector concerned, the incidence of the levy on the selling price represents only a small percentage of the difference between the world price in sugar in 1973, a year in which the decision to undertake investments was taken, and the price in 1977, the year in which the levy was established.
3. Causal connexion between the illegal act and the damage suffered
The Commission points out that its observations on this subject are of a subsidiary nature and concern the present case only to the extent to which the Court does not share the conclusions mentioned above and takes the view that the Community is financially liable for the consequences of the invalidity of Regulation No 1111/77.
As regards the question of the causal connexion, the Commission, referring to its observations on point 1 above, points out that, for the applicant, the illegality of the Community's behaviour does not stem from the formulation of the regulation itself but above all from the behaviour of the Community during the previous period in which the Commission was preparing its proposals and submitting them to the Council. Such a definition of the illegal behaviour of the Community contradicts that which the Court gave in its judgment of 25 October 1978, when it simply ruled that the Council had adopted on 17 May 1977 a regulation which was invalid to the extent to which its provisions 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 therefore merely held that the levy itself was unlawful and not the threat of a levy, as the applicant states.
It follows from the above considerations that the applicant has not succeeded in establishing a causal connexion between the invalidity of the levy and the damage allegedly suffered.
The Commission takes the view that it is highly improbable that it is the levy which, by reason of its amount, is at the basis of the damage alleged by the applicant and mentions a number of actors, which, in its opinion, were responsible for that damage as a whole, namely: the poor general situation of the Koninklijke Scholten-Honig group; the considerable reduction in the prices for sugar on the world market after the decision to invest had been taken in 1973/1974 or thereabouts, whilst such prices were high; the abolition of the production refund on starch intended for isoglucose manufacture. The applicant itself concedes that the latter factor is at the base of the difficulties concerning its investments for isoglucose production and the profits which its group hoped to obtain therefrom. In fact, in its application in Case 153/77 it declared that isoglucose production had become unprofitable as a result of the abolition of that production refund system.
According to the Commission the applicant acknowledges in addition, in the same application, that if the production refund system had not been abolished, it would have been in a position to continue its isoglucose production and would not have been obliged to revise its investment policy.
The Community's financial liability must therefore be rejected because the damage caused to the applicant must be attributed to factors other than the unlawful nature of the levy.
4. The evalutation of the damage allegedly suffered by the applicant
The Commission emphasizes the subsidiary nature of the considerations which it puts forward on this subject, in the sense that it wishes to insist upon them only if the Court does not share the Commission's conclusions as concerns the liability of the Community and the causal connexion between the unlawful act and the damage suffered.
It remarks that the damage alleged by the applicant may be subdivided into two main categories:
1. The writing off of the investments effected for isoglucose production, in particular those concerning: The experimental factories of Foxhol and Koog aan de Zaan; The Tilbury factory; Research; The purchase of ICI and Reynolds patents; General management costs; General costs of expert assistance and legal costs.
2. Future results at Tilbury.
As to the first point the Commssion refers to the applicant's statement to the effect that the factors mentioned under this point occasioned it high costs in particular by reason of the thoroughgoing depreciation of the Tilbury investments. According to the Commission, this results in particular from the fact that clearly no opportunity can be seen of continuing to produce isoglucose, so that the isoglucose plant can no longer be used for its initial purpose. The unlawful levy cannot be the cause of this situation since the levy no longer exists. The depreciation of the investments must be attributed to the fact that the production of isoglucose is no longer profitable at present since sugar prices are at a low level. It is possible that the abolition of the production refund may have contributed to this result.
As to point 2 the Commission states that the loss due to the abandonment of future profits is relied on as a loss of profit in the contribution of the subsidiary to the holding company. That contribution represents the counterpart of a benefit from the holding company, namely the putting at the disposal of the subsidiary in particular of the capital and know-how. Those factors are already mentioned as being written off and as losses in points 3 to 9 inclusive of the compensation calculation. It is self-evident that losses cannot be mentioned twice so that, for these reasons too, the losses mentioned in points 3 to 9 inclusive must not appear amongst those claimed here by the applicant. Furthermore, as the levy has no longer been in force since the judgment of 25 October 1978, the impossibility of making future profits can no longer be imputed to the existence of the levy but to the situation on the sugar market.
What is more, the calculations are effected for such a distant future that it is impossible to regard them as realistic. The action is very largely dominated by aspirations with regard to outlets but absolutely no regard is paid to the possibility of reducing the damage by making use of other possibilities of sale, a remark which applies equally as regards research: the accuracy of the amounts claimed to have been written off for the experimental factories of Foxhol and Koog aan de Zaan depends entirely on the possibilities of using those factories for other research work.
C — Observations of the Council
1. Introduction
The Council devotes the introduction to its observations to a brief summary of the facts concerning isoglucose, a description of the actions of the parties between the introduction of the levy and the judgment of the Court of 25 October 1978, followed by a consideration of the legal consequences of that judgment and finally a description of the measures proposed by the Commission in order to comply with that judgment.
First the Council remarks that there are two possible methods of production for isoglucose, either by expanding the maize-grinding capacity of a conventional starch plant already built and adding on the specific plant required for the production of isoglucose, or else by creating a production unit specifically and solely equipped for isoglucose production.
The first option is less ambitious and is consequently cheaper and better able to cope with unforeseen market fluctuations in the event of isoglucose proving less profitable than expected. The second option is more expensive and carries the advantages and disadvantages of specialization.
The applicant opted to build a factory specifically and solely equipped for the production of isoglucose.
As regards the effect of the levy, the applicant, unlike Amylum and Tunnel, decided as early as December 1977 to give up for good the production of isoglucose. Furthermore, after the applicant had secured a deferment of payment and had later gone bankrupt its production unit at Tilbury, including, it appears, the licences, was transferred to an American company for much less than cost price. This latter decision was taken in September 1978, that is, before the Court's judgment of 25 October 1978.
The Council takes the view, on the basis of a consideration of the reasons on which the said judgment was based, that the Court did not call in question the actual principle of a production levy to be paid by isoglucose producers, but rather found that in the case in point the amount of five units of account charged was too high considering the charge actually borne by sugar producers.
On the basis of the Court's judgment and for the sake of argument the Council proceeds to make a rough calculation of a non-discriminatory levy to be borne by isoglucose producers which would compare economically with that borne by sugar producers.
In this respect the Council begins its comparison with isoglucose producers by taking as a model a sugar producer who has used up both his A and B quota, the Court having, in paragraph 74 et seq. of the above judgment, accepted the comparison between the charge levied upon modern sugar works which also produce C sugar and that levied upon isoglucose producers. For the purposes of its comparison the Council accepts that the Court criticized the fact that, when the officers of the Commission calculated the average charge for these sugar undertakings running from 3.81 to 13.52 units of account per quintal, no allowance was made for the fact that 60 % of the charge was passed on to beet growers. In these circumstances the charge actually borne by this model producer during the 1977/1978 sugar year may be broken down as follows:
Since 1000 kg of beet normally produce 130 kg of sugar (cf. paragraph 4 of Regulation No 1112/77 (Official Journal L 134, p. 9), the part of the levy charged to beet growers for 100 kg of sugar is of the difference between the minimum price paid to beet growers per tonne of beet which has produced A sugar and the minimum price also paid to beet growers per tonne of beet which has produced B sugar, in other words, these prices being 25.43 and 17.80 units of account per tonne respectively (cf. Regulation No 1113/77 (Official Journal L 134, p. 11, Art. 4)), that is to say 100/130 (25.43 - 17.80) = 5.87 units of account per quintal of sugar. Hence the share of the levy per quintal actually borne by the sugar producer would be the amount paid (9.85 units of account per quintal) less the amount passed on (5.87 units of account per quintal) or 3.98 units of account per quintal for B sugar, that is, by dividing this charge according to the proportion of B sugar in the maximum quota, an actual levy of 3.98 x 26 % = 1.0348 units of account per 100 kg.
If the Court's reasoning is followed, it is that latter charge which might be levied per 100 kg of isoglucose for the 1977/1978 sugar year without discriminating against isoglucose producers by comparison with sugar producers in similar circumstances.
However, the Council emphasizes that once again it should be remembered, in order to appreciate the economic risks inherent in present-day sugar production with a structural surplus of sugar, that it is not the aim of quotas to create structural surpluses. In this connexion Article 27 (2) of Regulation No 3330/74 of the Council lays down that the production levy shall be calculated at a flat rate in proportion to the total losses incurred by the Community in disposing of the surplus of guaranteed sugar on the world market. On the basis of that principle the maximum levy for the 1977/78 sugar year was 19.5 units of account per 100 kg (cf. the 7th and 8th recitals of the preamble to Commission Regulation No 2889/78 of 8 December 1978 — Official Journal L 344). However, that amount was not used by Regulation No 2889/78 for the maximum levy for that year since Article 27 (3) of Regulation No 3330/74 limits the levy at a flat rate of 30 % of the intervention price (in this case 9.85 per quintal), at a time when the sugar market looked very different from the present picture of structural over-production, so as not to discourage regional specialization too greatly.
In the present state of affairs it would have been conceivable, according to the Council, to abolish the 30 % ceiling since the charge to which it gave rise is apparently not such as to discourage the production of sugar in excess of the basic quota in regions less suited to sugar-making. On that assumption the levy to be paid by sugar works would have increased as follows:
| Levy: | 19.50 u.a. |
| Amount passed on to beet growers: | 5.87 u. a. |
| 13.63 u. a. x 26 Vo = 3.5438 u. a. per 100 kg. |
If the validity of such a ‘full’ charge is to be admitted without the application of the ceiling in the case of the sugar-producers, the validity of a similar charge must also be admitted in the case of the isoglucose producers since their entire output contributed to the surplus of guaranteed sugar, which is not the case for sugar itself.
Finally the Council remarks that under the proposal for a regulation amending Regulation No 1111/77, which the Commission sent to the Council on 7 March 1979, that portion of isoglucose production which exceeds the basic quota of the producer undertaking would be charged a production levy equal to that portion of the ‘sugar’ levy yet to be paid for the 1979/1980 sugar year by sugar producers only. Thus for the 1979/1980 sugar year, mutatis mutandis, this proposal introduces a charge equivalent to that first described above.
2. Manifest and grave disregard of the limits on the exercise of powers
Referring to the HNL judgment, the Council proceeds to examine (i) whether the features of the measure declared void by the Court in its judgment of 25 October 1978 were such that the measure did or did not exceed the bounds of the risks inherent in the economic activities of those concerned (HNL judgment, paragraph 5, second sentence; paragraph 7, first and fifth sentences); and (ii) whether in adopting the levy at the amount it did the Council manifestly and gravely disregarded the limits on the exercise of its powers (paragraph 6).
As to Point (i)
The Council thinks that the proper interpretation of the HNL judgment implies that each specific feature of the measure in dispute should be assessed on its own merits and in its own economic context. The characteristic features of the economic context of the measure in dispute in this case are in particular as follows: the rashness with which the parties concerned committed their considerable investments to development and exploitation of a new sweetener the value of which remained unproven: their mistaken belief in the existence of a market capable of absorbing sweeteners; their unjustified expectation that they would be able to continue to enjoy a production refund for maize processed by them into isoglucose; the fact that without a refund they were apparently unable to sell their product except at a considerable loss; the fact that their product, in view of its cost price and of the fact that no higher selling prices could be expected in the relatively near future, could not bear any levy whatsoever; and the fact that the Community might have imposed a levy of about four units of account for the said marketing year without infringing the principle of equality of treatment had it not set the sugar levy a ceiling of 9.85 units of account.
Thus, in the light of these considerations, an assessment should be made of the effect of introducing the five units of account levy on the profitability of the parties' isoglucose production. In this connexion it should be recalled that the applicant totally and permanently gave up isoglucose production since it was not profitable.
As to Point (ii)
The Council wonders whether the Court makes use, in attributing or rejecting liability of the Community, of a criterion linked to the seriousness not merely of the damages suffered by the plaintiff but also of the breach of the rule of law in question. Such a criterion appears to be implicit in the terms of the 6th paragraph of the HNL judgment.
This conclusion is understandable having regard to the difficulties with which the Council and the Commission are faced in the implementation of the common agricultural policy and the complexity both of the interests to be taken into account and the objectives to be attained, bearing in mind the vagaries of the economic situation.
Recalling the complexity of the problem which arose in 1976 with the appearance of isoglucose in considerable quantities on the Community market, the Council feels that the greatest doubts might be entertained concerning the seriousness of the breach which it is supposed to have commited when it adopted the regulations concerned.
Economic impact of the levy of 5 units of account
Proceeding, like the Commission, to a comparison of the cost price of isoglucose produced by the applicant Amylum (as it emerges from the Klynveld Turquands report) with the average selling price charged by Amylum (Table 2, Amylum's observations), the Council finds on the basis of these figures that even before any levy was imposed there was a clear loss. According to the Council these figures may be taken as representative for all the parties concerned since Amylum in particular had the longest experience of isoglucose. Furthermore the average selling price indicated by Amylum confirms that the selling price for isoglucose on a glutted market is in fact determined by the intervention price for sugar so that, as long as the market is glutted, no appreciable increase in the selling price can be expected in the short or medium term.
The conclusion is therefore that investments in isoglucose were economically unjustifiable and that production of isoglucose cannot be expected to show a return in the foreseeable future. Accordingly introduction of the levy of 5 units of account could not have heen a causal factor in the decision to give up isoglucose production since it was unprofitable even before the decision; it may at the very most have influenced the time of giving it up.
It may well be asked why, if isoglucosewas a priori not profitable, the Couru nevertheless imposed a levy on it. On subject the Council points out that it not, owing to reticence on the part of isoglucose manufacturers, in a position to ascertain all the elements in the man facturers' cost price, whereas for the Community every quintal of isoglucose placed on the market went towards creasing the sugar surplus, and, final. that the manufacturers of isoglucose were well aware of this surplus just they were aware of the Community rules governing sugar, in force until 1980.
Finally the Council examines the arguments put forward in -particular by the applicant in this case that, on the one hand, as long as there was a positive margin between variable unit costs per product and the selling price, production had to continue and, on the other hand, if the effect of the levy of 5 units of account had been to use up that margin it followed that the invested capital would lose all its value.
In the Council's view there are two misconceptions in that argument. First, it is founded on calculations taking into account for determining the margin only variable costs and their relation to selling price, whereas the calculation should be based on all the costs to be borne by the producer, which should be compared with selling price; indeed, the hypothesis developed presupposes that the undertaking is paying the fixed production costs by drawing on another source, which is contrary to sound business mangement. Secondly, the abovementioned argument postulates that any levy whatever charged on isoglucose, in whatever manner, should be prohibited, whereas the Court has not condemned the principle of such levies.
On the basis of an examination of these two points the Council concludes that with a levy which complied with the equality of treatment of sugar producers, the applicant would in any case have to give up isoglucose production and incur the whole of its ‘losses’. In these circumstances it is difficult to see why the applicant should now be. compensated for damage incurred by closure of its production capacity when such closure was in any case necessary without any blame whatever being attributable to the Institutions.
3. Causal connexion
As a subsidiary application the Council requests the Court, if it finds that the non-contractual liability of the Community is incurred in principle, to take the arguments expounded above as establishing that there is no causal connexion between the Community's action and the losses alleged by the applicant.
4. Specific arguments to the effect that the applicant's claim for damages is unfounded
The Council recalls that the applicant, unlike Amylum and Tunnel, built a factory specifically and solely equipped for the production of isoglucose. The risks inseparable from such a production unit have already been indicated by the Council.
By acting in this way the applicant put itself in the position of carrying a special risk, that is to say, a risk exceeding the normal framework of its economic context. On the basis of the joint responsibility of a person who has suffered damage a special risk must, in accordance with the general principles common to the Member States, be borne by the party who created it.
Moreover, after the applicant had unilaterally taken the decision to abandon the production of isoglucose its principal production unit was sold — even before the Court's judgment had been delivered — to an American undertaking for the derisory price of 7 million Netherlands guilders, although the construction of that production unit had cost more than 39 million. It is to be feared that the applicant will dispose in similar fashion of its other production units (Foxhol, the trial production unit, and Koog (the same)).
There are therefore grounds for expressing the most thoroughgoing reservations with regard to the conduct of the applicant, which thinks itself entitled to liquidate at the expense of the Community the totality of its undertaking — that is to say that the Community, by the sole fact of the entry into force of Regulation No 1111/77, is in any case expected to bear the difference between the cost of the investments and the yield from their disposal without the applicant's being required to take steps to diminish its loss. In any event, the applicant has not hitherto taken any steps to restrict loss on its own part.
5. Alleged damage
Whilst holding to the arguments set out in the defence and the rejoinder, the Council reserves the right to advance at a later stage — should the Court find that the Community is liable under Article 215 and that there is in fact an unbroken causal connexion between the Community's actions and the alleged damage — any relevant argument regarding the constituent elements of the damage of the parties concerned.
In conclusion the Council asks the Court to reject the application for damages and interest as unfounded and order the applicant to bear the costs.
VIII — Request for information addressed by the Court to the applicant
By letter of 8 June 1979 the Court asked the applicant to lodge the document entitled ‘Application for compensation isomerose No 1’. The applicant lodged this document in the Court Registry on 4 July 1979.
IX — Oral procedure
At the hearing on 18 September 1979 the applicant represented by D. J. Gijlstra, of the Amsterdam Bar, the Council, represented by Daniel Vignes, Director in the Legal Department, acting as Agent, assisted by A. Brautigam, an administrator in the said Department, and the Commission, represented by its Legal Adviser, Jacques Bourgeois, acting as Agent, assisted by Hendrik Bronkhorst, a member of its Legal Department, presented oral argument.
The Advocate General delivered his opinion at the hearing on 23 October 1979.
Decision
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:
‘…being a substitute product in direct competition with liquid sugar, which, like all beet or cane sugar, is subject to stringent production constraints, isoglucose therefore enjoys an economic advantage, and since the Community has a sugar surplus, it is necessary to export corresponding quantities of sugar to third countries; …there should, therefore, be provision for a suitable production levy on isoglucose to contribute to export costs’.
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.
Costs
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.