61974C0019
OPINION OF MR ADVOCATE-GENERAL WARNER
DELIVERED ON 11 MARCH 1975
My Lords,
When I first saw the names of these cases, I wondered how a Hindu goddess, even one with such a reputation for agressiveness, could have come into conflict, not once but twice, with Community law. On opening the papers I discovered that she had not, Kali is also German for potash, and these cases are about fertilizers.
Kali und Salz AG (which I shall call ‘K & S’) and Kali-Chemie AG (which I shall call ‘KC’) are the only two producers of potash in the Federal Republic of Germany. K & S is the applicant in Case 19/74, KC the applicant in Case 20/74. Both cases are brought under Article 173 of the EEC Treaty and, in them, the Court is asked by the applicants to declare void a Decision of the Commission dated 21 December 1973, made under Article 85 of that Treaty and relating to an Agreement between the applicants about the marketing of potash.
It is common ground between all three parties (K & S, KC and the Commission) that three main ingredients are required for plant growth, namely nitrogen (N), phosphate (P) and potash (K). It is also common ground that these three ingredients may, under modern methods of agriculture, be introduced into the soil either by the use of farmyard manure or by the. use of inorganic fertilizers.
A helpful piece of evidence before the Court (and one to which I shall have occasion to refer again) is a report on competition in the fertilizer industry in the Federal Republic of Germany made, at the request of the Federal Ministry of the Economy, by the Research Institute for Economic Policy of the University of Mainz. This report contains an interesting passage on the relationship between farmyard manure and inorganic fertilizers. The use of inorganic fertilizers, the report explains, stimulates the growth of those plants that serve as cattle fodder and so enables more cattle to be fed from each acre: this, in its turn, means a greater yield of farmyard manure per acre. So the use of inorganic fertilizers starts a ‘virtuous spiral’ in agriculture. I infer that farmyard manure generally contains all three of the main ingredients I have mentioned and also such ‘trace’ elements as are needed for plant growth.
Inorganic fertilizers are marketed either as straight or as compound fertilizers. A straight fertilizer contains only one of the three main elements I have mentioned, whereas a compound fertilizer contains either two of them or all three. A fertilizer containing all three is described as NPK, one containing nitrogen and potash as NK, one containing phosphate and potash as PK, and so on.
A farmer's choice between using straight fertilizers, or a compound fertilizer, or a combination of a straight fertilizer and of a compound fertilizer, will depend on a number of factors. Among these factors, according to the Commission, are the natural composition of his soil and the kind of crop he proposes to grow on it. The Commission has put in evidence to show that some soils, particularly sandy soils, and some crops, particularly root crops, like beet and potatoes, need more potash than others. All parties are agreed that another important factor is cost: compound fertilizers are more expensive to buy, but their use saves time and labour.
It is also common ground that in Germany, as elsewhere, there has been, proportionately, a steady increase in the use of compound fertilizers containing potash and a corresponding decline in the use of straight potash. Statistics put in by the parties abundantly prove this point. In the year 1972/73, 61·3 % of the potash consumed on German farms was in compound fertilizers and only 38·7 % in the form of straight potash. Ten years earlier the corresponding percentages were 45·3 % and 54·7 %. It seems indeed that German farmers are in this respect behind those of most of the other Member States. Thus in 1971/72 Italian farmers spread their potash as to 65·8 % in compound fertilizers and as to only 34·2 % in the form of straight potash. In Belgium and Luxembourg the corresponding percentages were 70·1 and 29·9, in Ireland they were 83·4 and 16·6, in France 83·7 and 16·3, in the United Kingdom 92 and 8 and in Denmark 96·5 and 3·5. Only in the Netherlands is more straight potash used than potash incorporated in compound fertilizers, the 1971/72 percentage for the former being 55·5 and for the latter 45·5. The explanation seems to lie in the fact that so much of Dutch farmland has been recovered from the sea. It appears that land recovered from the sea needs, proportionately, far more potash than other land.
Until 1970 there was in Germany a joint sales organization, to which all German potash producers belonged, the Verkaufsgemeinschaft Deutscher Kaliwerke (‘VDK’). The members of the VDK had bound themselves to sell all their potash products, except potash intended for the manufacture of compound fertilizers, through that organization.
In 1970 there was a reorganization of the German potash industry as a result of which the VDK was dissolved, and; K & S and KC were left as the only two potash producers in Germany. On 6 July 1970 K & S and KC concluded the Agreement that is in issue in this case. In essence that Agreement was to the effect that, as from 1 January 1971, K & S should buy from KC, at a price to be determined annually, so much of KC's production of potash as it did not either market otherwise or use for its own production of compound fertilizers. In fact KC produces a PK fertilizer which it markets under the name RHE-KA-PHOS. The Agreement was for a term of 10 years and it provided that, during 1979/80 at the latest, the parties should enter into negotiation with a view to its renewal. By the Decision in question, which was addressed to K & S and to KC, the Commission
1.
held that the Agreement constituted an infringement of Article 85 (1) of the Treaty;
2.
refused an application made by K & S and KC for exemption under Article 85 (3); and
3.
required K & S and KC to bring the infringement in question to an end.
By the effect of interim orders made by my Lord the President on 3 April 1974 and 8 July 1974, in KC's action, the operation of the Commission's Decision has been suspended pending Judgment in that action.
The Commission's Decision recites that K & S's annual production of potash amounts to 2100000 tonnes of K2O, representing about 87·5 % of German potash production, whereas KC's amounts to 300000 tonnes, representing about 12·5 %. These are approximate figures, based on the statistics for 1972, which was of course the last calendar year for which full statistics were available at the time when the Commission made its Decision. As we now know there was in 1973 a drop in KC's production to 280200 tonnes and an increase in K & S's to 2168400 tonnes.
KC has two potash mines, one at Friedrichshall and the other at Ronnenberg.
In 1972 Friedrichshall produced 184500 tonnes of K20, of which 118700 tonnes were used by KC itself in the production of RHE-KA-PHOS and the balance of 65800 tonnes was sold to K & S. Ronnenberg produced 121000 tonnes, of which none was used by KC itself, 16000 tonnes were sold by KC to another manufacturer of compound fertilizers in which it is a shareholder, and the belance of 105000 tonnes was sold to K & S. Thus, of KC's total production of 305500 tonnes, 118700 tonnes or roughly 39 % were used by KC itself, 16000 tonnes or roughly 5 % were sold to that other manufacturer and 170800 tonnes, representing the balance of about 56 %, were sold to K & S.
In 1973 the picture changed. In that year the Friedrichshall mine produced 179400 tonnes, of which as much as 136700 were used by KC itself and only 42700 tonnes were sold to K & S. Production at Ronnenberg was down to 100800 tonnes, of which 1000 were used by KC itself, 13100 were sold to the other manufacturer, and the balance of 86700 tonnes were sold to K & S. Thus of KC's reduced production, amounting, as I have said, to 280200 tonnes, 137700 tonnes or about 49 % went into its own RHE-KA-PHOS, a steady 5 % went to that other manufacturer, and 129400 tonnes or 46 % went to K & S. Of that 129400 tonnes over two-thirds came from Ronnenberg.
There are two points that I must make about these figures.
The first is that they do not merely reflect the sort of variation that can normally be expected in the performance, from one year to the next, of an industrial undertaking. They form part of a set of statistics covering more than the years 1972 and 1973 which show that there has been a steady increase in KC's use of the potash it mines in its production of RHE-KA-PHOS and a steady decrease in its sales to K & S. The latest figures before the Court, those for the year from 1 May 1973 to 30 April 1974, show that, in that year, KC's sales to K & S were down to 117000 tonnes.
The second point is that the Commission was made aware of these trends in the course of the administrative proceedings that led to its Decision. The Court called for production of, among other documents, KC's written observations to the Commission and the minutes of the hearing conducted by the Commission on 20 June 1973. In its written observations of 26 April 1973, KC produced (at p. 29) figures to show its increasing use of its own potash in the manufacture of RHE-KA-PHOS and emphasized that it was on the production and marketing of this that its efforts were concentrated. The minutes of the hearing of 20 June 1973 evince that Dr Roth, a member of the Board of Directors of KC, referred to those trends at some length, albeit with commendable caution as to the future.
Another set of figures that is, I think, pertinent is that relating to the way in which K & S disposed of KC's ‘surplus’ production, by which I mean that part of KC's production that KC neither used itself in the manufacture of RHE-KA-PHOS, nor sold to its associated manufacturer, so that it sold it to K & S under the Agreement. Your Lordships remember that in 1972 that surplus production amounted to 170800 tonnes. Of this, 17200 tonnes were sold by K & S for use as straight fertilizer in German agriculture and 36400 tonnes were sold to other German manufacturers of compound fertilizers, making a total of 53600 tonnes sold on the German market. The balance of 117200 tonnes was exported. The corresponding figures for 1973 are these. Of KC's total ‘surplus’ for that year of 129400 tonnes, 14100 tonnes were sold for use as straight fertilizer by German agriculture and 27200 tonnes were sold to other German manufacturers of compound fertilizers, making a total of 41300 tonnes sold in the German market; 88100 tonnes were exported.
Exports thus loom large in K & S's disposal of KC's surpluses. Unfortunately there is not before the Court a complete breakdown of these exports, by countries of destination or categories of purchasers. We know that, up to 1974, the main producers of potash in the EEC were the Federal Republic, France and Italy. In 1973 the Federal Republic produced about 2548000 tonnes, France 2031000 tonnes and Italy 133000 tonnes. Since 1974 the United Kingdom has also become a producer, of upwards of 600000 tonnes a year, owing to the opening by Cleveland Potash Ltd. of a mine in Yorkshire.
In 1972 the Federal Republic's, that is K & S's, total exports of straight potash amounted to some 1157000 tonnes. The main markets for these exports were Belgium and Luxembourg (206446 tonnes), Brazil (79546 tonnes), Poland (78641 tonnes), Denmark (77133 tonnes), the Netherlands (72799 tonnes), Austria (64262 tonnes) and the United Kingdom (46891 tonnes). It is said that, of these markets, Poland is a volatile one, whilst the United Kingdom, thanks to Cleveland Potash Ltd.'s new mine, has now become self-sufficient, if not a net exporter. There is also evidence that, in some importing countries at least, e.g. Denmark, the importers are, in the main, manufacturers of compound fertilizers.
For the sake of completeness, I should mention that German imports, described by the Commission as ‘practically insignificant’, amounted to 91479 tonnes in 1971/72 and 74046 tonnes in 1972/73. These figures include both straight potash and potash incorporated in compound fertilizers.
The Commission sees these cases as part of a campaign on its part to counteract the abuse by K & S and by the French State monopoly, the Société commerciale des potasses et de l'azote (‘SCPA’), of their dominant positions in the EEC. The other measures that the Commission has taken in that campaign are a Recommendation dated 25 November 1969 made under Article 37 (6) of the Treaty, concerning SCPA, and a Decision dated 11 May 1973 forbidding certain forms of cooperation between K & S and SCPA. The applicants say that whilst those other measures were warranted, and have been accepted, the Decision here in question was not and is not.
The applicants attack that Decision on five main grounds.
First they say that the Commssion was wrong in holding that the relevant market for the purposes of Article 85 (1) was the market for straight potash. They contend that the relevant market was that for all inorganic potash-bearing fertilizers, including compound ones.
Secondly they say that the Agreement between them does not come within Article 85 (1) because it imposes no obligation on KC to sell a single ton to K & S. It leaves KC free to dispose of its whole production independently, if it chooses to.
Thirdly they say that KC could not, as a matter of economic fact, dispose of its surplus production otherwise than by selling it to K & S, so that the Agreement (a) is not in fact susceptible of affecting trade between Member States and (b) cannot in fact have as its object or effect ‘the prevention, restriction or distortion of competition within the common market’ — with the result that Article 85 (1) does not apply to it.
fourthly tne applicants say mat tne Commisson, in its Decision, overlooked the principle established by decisions of this Court that an agreement can only come within Article 85 (1) if it affects competition to a significant extent. Here, they say, the share of the market that KC could on any view obtain is insignificant.
Lastly the applicants say that, it they are wrong in their contention that Article 85 (1) does not apply to the Agreement, the Commission should have granted them exemption under Article 85 (3).
My Lords, I would have no difficulty in rejecting the first two grounds put forward by the applicants.
As regards the relevant market, Your Lordships will remember that, in Cases 6 & 7/73 Instituto Chemioterapico Italiano S.p.A. and Commercial Solvents Corporation v Commission [1974] ECR, 265, I suggested, on the authority of the decisions of the Court that I there cited, that, in the context of Community competition law, a relevant market was one in which the products available were substantially interchangeable. I remain of that opinion. In the same case the Court in its Judgment held (ibid. at pp. 249-250) that a distinction must be drawn between the market for a raw material and the market for the products manufactured from that raw material.
These points seem to me pertinent here. The evidence shows that, nowadays, if not formerly, the major market for straight potash is as a raw material for the manufacture of compound fertilizers. In that market, manifestly, straight potash is not interchangeable with compound fertilizers. In the agricultural market there is unquestionably competition between straight fertilizers and compound fertilizers. But that does not mean that they are interchangeable. To the farmer who wants to grow potatoes on sandy soil (as I have seen some do here in Luxembourg) and who therefore needs to spread a lot of potash, it may be unreasonably wasteful to resort entirely to compound fertilizers for the purpose. On the other hand, to the farmer who wishes to grow cereals on (say) clay, and who is short of time, labour and perhaps machinery, straight potash is no satisfactory substitute for a well chosen compound fertilizer.
As regards the applicants second ground, I think the Commission is right when it says that the absence, in the Agreement, of any obligation on the part of KC to sell to K & S is immaterial. What is material is that, whereas there are in the Federal Republic two producers of potash, the effect of the Agreement is that there is, virtually, only one seller of it. (I say ‘virtually’ in acknowledgement of the fact that KC sells some 5 % of its production to an associated manufacturer). From the point of view of would-be purchasers of straight potash, the result of the Agreement is that there is no competition between the only two German producers.
There has been much controversy between the parties about Article 3 of the Agreement. This provides for the establishment of a biennial programme of sales by KC to K & S, specifying types of potash to be supplied, quantities and delivery dates. The applicants allege that this Article was inserted in the Agreement at the instance of the Bundeskartellamt and that it has never in fact been applied. The Commission does not accept this. My Lords, on the view I take, this controversy is irrelevant.
I come now to what I have called the applicants' third ground. The issues here are much more complex and much more difficult. In essence the question is whether, in the absence of the Agreement, KC could competitively sell its surplus production.
The applicants submit that it could not, owing to the cumulative effect of a number of factors, of which the main ones are:
1.
That KC would be a beginner in a market where it has never before sought to compete and which would be difficult to penetrate, because it is a market in which long term contracts between powerful groups of buyers and sellers are the rule;
2.
That KC's surplus production is essentially of non-granulated types of potash, for which demand is receding; KC would accordingly, in order to compete, have to install granulating plant costing some DM 10 million;
3.
That, in order to market its own surplus production of potash, KC would have to install storage facilities costing about another DM 10 million;
4.
That KC could not emulate K & S's performance in exporting by sea without acquiring, at great cost, a terminal, such as K & S possesses at Hamburg, for loading ships with potash;
5.
That, in the distribution of potash within Germany, transport costs play an important part; thus the distribution of RHE-KA-PHOS costs KC about DM 30 a ton, whereas, by centralizing orders for straight potash and arranging for them to be met from the factory nearest to the customer, whether belonging to K & S itself or to KC, K & S is able to keep the cost of transporting such potash down to an average of DM 17 a ton; KC estimates that, in seeking to market its own surplus production, it would incur additional transport costs of some DM 3·5 million a year;
6.
lhat, in order to market that production, KC would have to set up its own sales organization, including an advisory service to farmers, at an estimated cost of some DM 2 million a year;
7.
That the investment of DM 10 million in granulating plant, and of DM 10 million in storage facilities, together with the additional annual expenditure on transport of DM 3·5 million and on a sales organization of DM 2 million would be out of proportion even with KC's current turnover of straight potash, which amounts to some DM 29 million a year; such investment and expenditure are even more unthinkable in the light of the fact that that turnover is steadily decreasing;
8.
That KC's mines are old, having been brought into production at the beginning of the century and that their future life is limited:
9.
That the geological conditions at Ronnenberg have recently resulted in serious flooding, which renders the continuation of production at that mine (which accounts for over two-thirds of KC's “surplus”) problematic.
My Lords, some of those points are less impressive than others. Moreover, of those that I found at one time most impressive, two, namely those relating to granulation plant and to storage facilities, lost much of their force when, at the hearing of K & S's action, it was, in answer to questions of mine, categorically stated on K & S's behalf that K & S neither granulated nor stored any of the potash that it bought from KC. Such potash went straight from KC's factories to K & S's customers. When at the hearing of KC's action, this revelation was referred to by Counsel for the Commission, it drew no comment from those representing KC.
Nor do I think that the Court can attach any importance to the evidence about flooding at Ronnenberg, for that evidence did not exist at the time when the Commission made its decision. It appears that this flooding began to become serious in November 1973, i.e. about a month before the Commission issued its Decision. The Commission acknowledges that the fact of the flooding was mentioned to it but says that no particular argument founded on that fact was then addressed to it on behalf of the applicants. Nor do I find that it was. The first expert's report on the subject is dated 30 January 1974. This was followed by a report prepared by KC's own staff dated 13 February 1974, by a further expert's report dated 3 May 1974 and then by copious correspondence between KC and the Commission. The upshot of this correspondence is that the Commission is prepared to be persuaded by KC that it should reconsider its Decision on the footing that the evidence now adduced about the situation at Ronnenberg shows that, on any view, KC could not contemplate embarking upon the independent sale of its surplus potash. My Lords, I refrain from entering into the details of the evidence in question, partly because KC has asked the Court to treat it as confidential and partly because it seems to me irrelevant to the question the Court has to decide, which is whether the Decision of the Commission was valid when it was taken.
It was submitted on behalf of KC, on the authority of two Judgments of the Bundesgerichtshof (5 February 1968 and 17 May 1973) that, in a competition case, the Court should have regard to the facts known at the time of its decision. I would reject that submission. An action under Article 173 of the Treaty is not an appeal by way of re-hearing. It is a proceeding in which the Court is empowered to set aside the act complained of only if it finds that that act was unlawful on one (or more) of the grounds mentioned in the Article. An examination of the Judgments of the Bundesgerichtshof cited on behalf of KC shows that these were concerned, so far as material, with the position under Article 62 of the Federal statute of 1957 against restraints on competition (the “GWB”). That Article expressly provides that, on an appeal to an Oberlandesgericht against an administrative decision, new facts and evidence may be adduced. It is to be observed that, in contrast, Article 73 of the GWB provides that, on any further appeal to the Bundesgerichtshof itself, which can only be on a point of law, that Court is bound by the findings of fact in the decision under appeal.
The question remains whether the applicants have made out a sufficient case for the Court to set aside the Decision of the Commission, on the ground that that Decision was based on a misapprehension by the Commission of the possibilities open to KC to compete in the market for straight potash. I confess, my Lords, that, on that question, my mind has fluctuated. What has finally persuaded me to answer it in favour of the applicants is that there are two points with which, it seems to me, the Commission failed adequately to deal either in the text of its Decision or in its submissions to the Court.
It would, strictly, be enough to say that in my view the Commission failed adequately to deal with those points in the text of its Decision. Article 190 of the Treaty provides, among other things, that a decision of the Commission shall state the reasons on which it is based and, in many a Judgment, the Court has made it clear that this is no idle requirement. The Commission must state its reasons with sufficient clarity and particularity for the Court to be able to exercise, effectively, its jurisdiction under Article 173. But the fact that, in the present case, the Commission, not only did not adequately deal with these two points in its Decision, but failed to do so in its submissions either, leads me to think that the flaw in the Decision was no mere want of form, but was real and substantial.
Of those two points the first is that the tonnage of KC's surplus potash is declining annually. There is a reference in the Decision to the fact that KC is to an increasing extent using the potash it produces in the manufacture of RHE-KA-PHOS. But no conclusion is drawn from this as to the availability of straight potash for KC to market. On the contrary the impression is conveyed that the supply of this is steady at about 170000 tonnes a year. This seems to me a serious error of fact.
secondly, tne commission nownere states convincingly how it conceives that KC could go about marketing its straight potash independently. The Commission, no doubt, is unimpressed, as I am, by KC's assertion that it would need to develop an advisory service for German farmers, and equally unimpressed by its assertion that it could not sell to other manufacturers of compound fertilizers. But the fact remains that KC would have to create some sort of sales organization.
In its Decision, the Commission confines itself, on this point, to referring to the fact that KC “belongs to the important Solvay Group, which also has potash interests outside Germany in Belgium and in Spain”, and to asserting that KC “could sell its straight potash fertilizer independently” as it has done with RHE-KA-PHOS. The Commission does this, incidentally, not in the course of its reasoning on the applicability to the case of Article 85 (1), but in the course of its refutation of the applicants' claim for exemption under Article 85 (3).
As to the point founded on KC's successful marketing of RHE-KA-PHOS, it appears that, during the course of the administrative proceedings, the Commission put it to KC that it could market its surplus potash through the same sales organization as RHE-KA-PHOS. This suggestion was not maintained in the Commission's Decision. But it was revived with vigour in the Commission's submissions to the Court, and indeed put in the forefront of those submissions. The applicants demonstrated beyond the hilt that it was misconceived.
The reason, in a nutshell, is that, in order to sell a potash-bearing compound fertilizer, one has to emphasize its avantages over straight potash, and vice versa. It follows that the same sales organization cannot effectively market both. The Commission sought to show that this was not so by pointing out that the VDK, K & S, SCPA and a Dutch firm, KNIM, all marketed or market both straight potash and potash-bearing compound fertilizers, and that KC itself markets a straight phosphate fertilizer, RHENANIA-PHOSPHAT, through the same organization as RHE-KA-PHOS. It transpired however that the VDK, K & S and SCPA all marketed or market straight fertilizers and compound fertilizers through distinct sales organizations, that, in the case of KNIM, its sales of compound fertilizers represent less than 0·5 % of its turnover, and that sales of RHENANIA-PHOSPHAT represent only about 2 % of KC's turnover and are losing importance.
The point that KC belongs to the Solvay group seems to me inconclusive. That group, which is Belgian, owns a potash mine in Spain, but it does not itself market the production of that mine. As the Decision of the Commission it self records, all Spanish production (amounting to some 500000 tonnes a year) is sold centrally through the Commercial de Potasas S.A. Solvay's ‘potash interest’ in Belgium consist of a 25 % holding in a company called Cogepotasse. In a letter dated 26 February 1974 from Solvay to KC (Annex (h) to KC's Application) it is said that ‘il s'agit d'une participation purement financiere’. Nor is there any evidence whatever as to the size, nature or structure of the business of Cogepotasse. There is thus no evidence that Solvay would be in a better position to market KC's surplus potash than KC itself. Indeed, in that letter, Solvay says that it is not in a position to help in that respect.
The report, which I have already mentioned, made by the Research Institute for Economic Policy of the University of Mainz to the Federal Ministry of the Economy, concluded that the structure of the potash industry in the Federal Republic was such that effective competition was in practice impossible. The only course open to the Bundeskartellamt was to seek to restrain any abuse by K & S of its dominant position. The Agreement between K & S and KC should not be suppresed because of the danger that this would lead KC to reduce its production to the quantities needed for the manufacture of RHE-KA-PHOS. The Institute noted that these quantities were increasing.
My Lords, I take the Commission's point that the findings of the Institute were probably largely based on what its researchers were told by KC and K & S themselves. The fact remains that such were the findings of independent experts advising the Federal Government. In my opinion, for the reasons I have stated, the Commission has failed to adduce facts and arguments sufficient to show that they were wrong.
That being so, I can deal more shortly with the fourth and fifth grounds relied upon by the applicants.
As to the fourth ground, there is a line of decisions of this Court establishing that an agreement is not within Article 85 if it affects competition and trade between Member States only to an insignificant extent, having regard to the weak position of the parties to it in the relevant market. (See Case 5/69 Völk v Vervaecke Rec. 1969, pp. 302-303, Case 1/71 Cadillon v Höss Rec. 1971, pp. 355-358 and Case 22/71 Béguelin Import v G. L. Import Export Rec. 1971, p. 960). These decisions were in fact all concerned with exclusive dealer agreements, but there is, in my view, no reason why the principle they establish should not be applied to other types of agreement where appropriate.
The applicants contend that it should be applied in the present case.
That contention was met very briefly by the Commission in its Decision in a sentence in which it said that the quantities supplied by KC to K & S represented 13 % of German consumption or the total potash consumption of Belgium or Denmark. As I understand it, the figure of 13 % was obtained by comparing the figure of 170000 tonnes for KC's sales to K & S with the total German annual consumption of potash, whether in straight or in compound fertilizers.
The applicants state, by the way, that the Commission's figures for Belgian consumption are wrong, this being, they allege, nearer 340000 tonnes a year than 170000. But they concentrate their attack on the Commission's evaluation of the position in Germany. They say that the comparison that should have been made was between the sales by K & S on the German market of potash bought from KC and the total German consumption. This produces a percentage for 1973 of 3·5 %. In that year sales by K & S of KC's potash on the German market amounted, as I have mentioned, to 41300 tonnes whereas total German consumption amounted to 1165100 tonnes. Alternatively, the applicants say, the comparision that should have been made was between KC's production of ‘surplus’ potash (i. e. its sales to K & S) and the total combined production of KC and K & S, The former represented 7·1 % of the latter in 1971, 7 % in 1972 and 5·1 % in 1973. In the year from 1 May 1973 to 30 April 1974 (when, Your Lordships remember, KC's surplus production fell to 11700 tonnes the proportion was less than 5 %.
The applicants rely on a Notice issued by the Commission on 27 May 1970 (OJ C 64 of 2. 7. 1970) in which the Commission sought to indicate in general terms which agreements it would in practice consider to be outside Article 85 on the ground of their insignificant effect on competition and on trade between Member States. In this Notice the Commission stated that, in its view, Article 85 would not apply to an agreement which, among other things, affected not more than 5 % of the supply of the goods in question in the relevant part of the Common Market. But, as the Commission has pointed out in its submissions to the Court, that is not the only condition mentioned in the Notice. There is also a condition as to the combined turnover of the undertakings concerned, expressed in units of account. The maximum thereby set is far exceeded by the combined turnover of KC and K & S. In any case, the Notice, which is expressed to be subject to the Court's interpretation of Article 85, has no binding legal effect (see per Mr Advocate-General Dutheillet de Lamothe in the Béguelin case, Rec. 1971 at p. 968).
Of far more pertinence, in my opinion, are two closely connected points made by the applicants: first that the Commission failed to take account of the fact that KC's ‘surplus’ production was diminishing, and second that KC' s relevant market share for present purposes was not so much the share that it currently obtained for that production through K & S but the share that KC on its own would be able to obtain. These points are in my opinion valid, but they seem to me to be part of the argument in support of the applicant's third ground, rather than to constitute a separate ground for holding the Commission's decision void.
I turn to the applicants fifth ground, which relates to Article 85 (3). No question as to this will of course arise if Your Lordships share my view on the applicability of Article 85 (1). On the other hand, if Your Lordships do not share that view, it must be because Your Lordships consider that the Commission was well-founded in holding that KC could and would, in the absence of its Agreement with K & S, effectively market its ‘surplus’ production of potash, or at all events most of it.
On that hypothesis I can leave aside the arguments of the applicants to the effect that the Agreement meets the first requirement of Article 85 (3) because without it KC's surplus production could not be marketed, and even those to the effect that the Agreement makes for cheaper distribution of both KC's and K & S's output of straight potash and thereby confers on consumers a benefit in the matter of prices; for, it seems to me, the Commission was, on that hypothesis, clearly right in holding that the agreement failed to fulfil the requirement of paragraph (b) of Article 85 (3), i.e. the requirement that it should not ‘afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question’. The German output of straight potash is manifestly a ‘substantial part’ of the output of that product; on the hypothesis posed, there would be competition in respect of it; an the Agreement does afford to KC and K & S the possibility of eliminating that competition.
For that reason I would uphold the Commission's decision that the applicants were not entitled to exemption under Article 85 (3).
Having regard, however, to the view I take on the question of the applicability of Article 85 (1), I am of the opinion that the Commission's Decision should be declared void and that the Commission should be ordered to pay the costs of these actions, including the costs, which were reserved, of the interim applications in KC's action.