OPINION OF MR ADVOCATE-GENERAL MAYRAS

DELIVERED ON 7 NOVEMBER 1973 ( 1 )

Mr President,

Members of the Court,

Introduction

Article 74 of the Treaty establishing the European Economic Community laid down the principle of a common transport policy. Article 75 described the procedure whereby this policy was to be implemented by the Council, which was made responsible for drawing up the rules applicable to international transport to and from the territory of a Member State or passing across the territory of one or more Member States.

The Council also determines the conditions on which non-resident carriers may operate national services within a Member State.

Finally, it makes any other necessary provisions.

Article 77 governs the system of aids in the field of transport. It is a fact that transport is among those sectors which traditionally enjoy aids or subsidies from States or public bodies. Of course, under Article 92, these aids are, in principle and in the absence of provision to the contrary in the Treaty, incompatible with the common market. Article 77 is specifically designed to make transport an exception to the general rule and to give States authority to grant aids to their transport undertakings as necessary for coordination of transport or to provide compensation for ‘obligations inherent in the concept of a public service’ which are imposed on them.

The nature of these public service obligations or duties is defined in Regulation No 1191 of the Council of 26 June 1969, whose purpose is also to set out the way in which compensation due to transport undertakings shall be determined.

Why these provisions?

Transport is undoubtedly one of the keys to the common market; it is vital for the success of all economic activities and its importance continues to grow. Moreover, States have, traditionally and continuously, intervened in the operation of national transport systems; there is scarcely a sector under such strict control whether as regards safeguards, flow of traffic, prices and tariffs, taxation, administrative structures or conditions of employment.

Since before 1958, accordingly, there were national transport policies, differing from country to country, some of them firmly based on State control, others, on the contrary, trying to reconcile a certain freedom of operation with concern for the protection of users' interests.

In this situation, the establishment of the common market meant the progressive replacement of different national policies by a single Community policy.

Finally, while some States stressed the complementary nature of transport and had introduced rules which made it subject to the requirements of the national economy (as in France, Germany and to a lesser extent, Belgium and Luxembourg), others were obliged to put their transport undertakings in as competitive a position as possible to bring them into line with other industrial and commercial undertakings; their intention was to enable them to put themselves on a financially sound basis. The Netherlands, in particular, had already adopted this course.

Today, partly due to the existence of the Community, it appears to be generally agreed that transport undertakings, public or private, must be put in a position which enables them to balance income and expenditure. Where certain objectives of economic or social policy continue to be pursued through the medium of the transport system, it is required that the undertakings should be compensated or reimbursed for the financial burdens devolving on them as a consequence.

This is the purpose of Regulation No 1191/69. It is a fact that certain transport undertakings, particularly the railways, are burdened with public service obligations, which can appear in three forms:

— obligation to carry

— obligation to operate

— various tariff obligations.

These obligations, justified in the past, especially in order to ensure the provision of adequate transport services for the public, and to protect users against excessively high rates, are in some cases no longer justified. They obstruct the commercial freedom of the undertakings. This is why the regulation provides that, unless these obligations are found to be indispensable, they should be terminated, and also that, if they are maintained, the attendant financial burdens shall be the subject of compensation to the carriers.

It is in the context of this Community instrument that the dispute has arisen, before the Netherlands Raad van State, between the Netherlands Railway Company (NS) and the Netherlands Government, represented by the Minister of Transport, and it is certain provisions of this Regulation that the Raad van State asks you to interpret.

I — Facts

On 16 June 1970, acting under the Regulation of the Council, the Netherlands Railway Company applied to the Secretary of State for termination of all public service obligations and consequently the termination of the obligation to operate and to carry, as well as termination of the tariff obligation, in respect of every kind of passenger traffic on the network which it was authorized to operate. The company considered that the obligations imposed on it under the Netherlands Railways Law of 1875 produced ‘economic disadvantages’ within the meaning of Article 5 (1) of the Regulation. In the event of the Secretary of State not being able to approve, wholly or in part, the applications for termination of the public service obligations, the company expressed its readiness to examine, in conjunction with the Administration, the method of calculating the compensation which it considered to be due to it in that event.

On the following 24 June the company, pointing out that, during recent years, bulk-loaded transport had involved it in serious financial losses, asked to be relieved of the obligation to operate and to carry, and submitted a group ‘restructuring proposals’ designed, the company stated, to re-establish financial equilibrium in this sector of railway transport. In a letter of the same date it also applied for temporary compensation payments in the mail traffic and express freight sector.

Finally, on 29 June 1970, after taking cognizance of the fact that the Secretary of State was contemplating granting such payments in the goods sector during the restructuring period, the company made its position clear on the subject of the way in which compensation for maintenance of certain public service obligations should be calculated. Pointing out that the Secretary of State had, in this field, applied the principle of assimilation of passenger and goods transport in accordance with the method of differentiated results, the company contended that this method would have the effect of making goods transport responsible for financial burdens which would have been incurred in any event, even if this type of transport were no longer provided.

In view of the Administration's attitude, and in order to safeguard its rights under Regulation No 1191/69, the company declared that it was obliged to apply for termination of all its public service obligations, including the tariff obligation, in respect of all types of goods transport on lines it was licensed to operate.

On 30 December 1971, after an exchange of correspondence and negotiations, the Minister of Transport took a series of decisions.

By the first of his decrees, he laid down that, in order to ensure the provision of adequate transport services, the obligations laid on the Netherlands Railway Company to operate and to carry in regard to passenger traffic must be maintained and that, in consequence, the company would, for the year 1972, be granted compensation for the financial burdens resulting from maintenance of its public service obligations. Compensation was fixed at about 230 million florins.

In a second decree, he granted the company's application and, in respect of the whole network, terminated, as from 1 January 1972, the obligations to operate and to carry as regards bulk-loaded railway goods traffic.

Finally, also on 30 December 1971, he addressed a letter to the licensee communicating his view on the subject of express freight deliveries and mail traffic; no question arose concerning the period after 1 January 1973 because, from that date, these services would be taken over in their entirety by the firm of Van Gend and Loos. The only point at issue, i.e. the amount of compensation due for maintenance, during the year 1972, of the public service obligations in respect of the goods traffic still catered for by the company, was governed by Article 2 of the draft Law on the regulation of the company's financial position.

The Minister added that, generally speaking, there could be no question, in the case of this category of transport, of tariff obligations within the meaning of Regulation No 1191/69.

The Netherlands Railway Company, acting under the Law on appeal against administrative decisions (B.A.B.), appealed to the Crown against these decisions by the Minister. In the course of proceedings before the Section for Administrative Litigation of the Raad van State, which had been charged by the Crown with the duty of recommending a settlement, the appellant, after raising certain questions of interpretation concerning Regulation No 1191/69, requested that a reference be made to the Court of Justice of the European Communities for a preliminary ruling under Article 177 of the Treaty of Rome. The Section for Administrative Litigation considered that it was proper to accede to the request and, by decree of 26 January 1973, which made specific reference to Article 177, Her Majesty the Queen of the Netherlands authorized the Section for Administrative Litigation to request your Court to rule on three questions of interpretation relating to the Community Regulation concerned.

II — Applicability of Article 177 of the Treaty

Before approaching these questions, some thought should be given to the question whether, given the organization, jurisdiction and procedure of the Netherlands Raad van State which, in contentious proceedings on an administrative matter, does no more than proffer advice to the Crown, which need not be accepted, is to be regarded as a court or tribunal within the meaning of Article 177 of the Treaty.

In fact, it is the Crown which, in a reasoned judgment, takes the final decision in an action; in this field, the system of ‘residual jurisdiction’ has survived in the Netherlands.

To find an answer to the question, which calls into question the applicability of Article 177 and, consequently, your own jurisdiction, it is necessary to recall the historical origins of the Raad van State and to indicate how, after a long process of development, this body acquired jurisdiction to examine the legality of acts of administration without, however, affecting the sovereign's prerogative.

As in most other European states, the organs of the State in the Netherlands developed gradually out of the disintegration of the ‘curia regis’. At the end of the Middle Ages the general administration of the country was the responsibility of the King's Council and, under Burgundian rule, a Government Council existed with similar powers. Towards the middle of the sixteenth century, transfer of the administration of the country to a Governor-General gave birth to a new and more distinct type of organization, in which the Raad van State became the consultative body on all Government matters.

This state of affairs was clearly called into question in 1581 and during the whole of the period during which there was a conflict of jurisdiction between the Raad van State and the States-General.

Then, in the nineteenth century, after the influence first of the French Revolution and, later, the First Empire in the Netherlands and resulted in adoption of the French system then in force for settlement of administrative disputes, there was a reaction. After 1814, most administrative cases were sent to the ordinary courts.

Nevertheless, the constitutions of 1814 and above all of 1815 preserved the Raad van State's role as a consultative arm of Government which, as expressly provided for in the latter constitution, must be heard ‘on all proposals sent by the King to the States-General or by the States-General to the King and on all measures of home policy’.

Nevertheless, the Crown retained jurisdiction to settle differences which arose between provinces or between municipalities as well as substantial powers of supervision over local authorities.

The advent of parliamentary government and Ministerial responsibility called into question the function of the Raad van State. Though some wanted this institution to be the Government Council of the Crown and, more particularly, of every Ministerial department, that it should continue to be responsible for drafting laws and decrees, and that, finally, it should become the supreme court for administrative cases (which could be the subject of normal legislation), in the second half of the nineteenth century a political movement developed in favour of abolishing the Raad van State, but it came to nothing.

The Raad van State meanwhile remained the consultative arm of the Government, and no longer of the King, as is set out clearly in Article 28 of the Law of 21 December 1861 under which consultation with the Raad van State is in all cases prescribed by a Minister acting, however, under an authority granted by the Sovereign. In the same way, the settlement of pleas addressed to the Crown, which ruled after receiving the advice of the Raad van State, was systematized for the first time under the Law of 1861 which made provision for cases to be heard in open court before the Raad, in adversary proceedings with the parties participating.

Later instruments and, finally, the Law of 9 March 1962 improved on this procedure. Moreover, the Law of 20 June 1963 on appeals against administrative decisions (Wet B.A.B.) created a new channel of administrative appeal to the Crown, ruling on the advice of the Raad van State, which has not replaced either appeals brought before the ordinary administrative courts or those which continue to be addressed direct to the administrative authorities. The new channel is available in cases where a decision of a central authority was not hitherto appealable.

In view of the procedural safeguards provided, the jurisdiction which has devolved on the Litigation Section of the Raad van State and on the Crown, and the authority thus created to annul administrative acts, the system at present applicable leads one to believe that appeals brought before the Crown on advice from the Raad van State has lost the purely administrative character which it originally had. It has become a genuine means of legal redress, even though a decision is in the end given only by way of ‘residual jurisdiction’.

Though the Sovereign is, by right, President of the Raad van State, a survival of the old concept of a Government Council, he no longer in fact acts as such: the Vice-President of the Raad van State has replaced him. Moreover, one of the basic responsibilities of the Raad relates to settlement of administrative actions. The Law of 1962 governs the working of the section for administrative disputes, commonly known, on the French model, as the ‘Litigation Section’.

Its task is to hear appeals and to recommend a decision to the Crown. It consists of a president and at least four members. In fact, it is divided into chambers, and there are eleven of them at present.

When the Crown refers an appeal for the advice of the Section, the file is sent to the Section, the parties are informed and they may make written submissions and submit documents in support of their case. The president of the Section has power to make preparatory inquiry of the authorities involved in the case.

After completion of the written procedure, the parties can make all submissions in open court; they can call witnesses; the Section can call other witnesses, obtain fuller information and, if it wishes, make an inspection of the place or thing in question. In this way, the principle is observed that both parties should be heard.

On the completion of the oral procedure, the Section decides on the advice to be given which, with a reasoned decree in draft form, is submitted for decision of the Crown.

While it is true that the Minister concerned can refuse to adopt the draft decree, if, as a result, the Royal decree departs from the advice given by the Section, this advice must be published in the official journal along with the Minister's report to the Crown.

To ensure that, in this event, the Minister does not make use of his powers without real justification, the law lays down that the Minister's dissenting opinion shall not be issued before it has been discussed with the Minister of Justice. If the latter is himself involved in the case, consultation must take place with the Prime Minister.

In short, though one cannot state that the Litigation Section has the last word, there is in my view no doubt that the decisions made on its advice by the Crown are judicial in character.

And this is all that Article 177, as it has been interpreted in this Court, requires.

You have ruled, for instance, that a national institution is entitled to make a reference for a preliminary ruling, provided that it ‘exercises a judicial function’ and that, in its view, an interpretation of Community law is needed before it can take a decision, without paying any heed to the fact that the decision to refer arose from summary proceedings for an injunction. I refer to: Judgment of 14 December 1971, Politi, in Case 43/71, Rec. 1971, p. 1048; and (by implication) the judgment of 10 October 1973, Variola, in Case 34/73 (roneoed).

In the same way you have admitted applications for a preliminary ruling not only from courts, in the narrowest sense, viz. tribunals forming part of a judicial hierarchy whether exercising jurisdiction in civil, criminal, administrative or social matters, but also from certain specialized bodies on the periphery of the ordinary judicial structure. This applied particularly in the case of an institution which, in the context of a private scheme of health insurance in the Netherlands, was empowered to settle certain disputes. You took the view that the ‘Scheidsgerecht’, the body concerned, which had been properly constituted in accordance with Netherlands law, charged with the duty of taking cognizance of disputes defined in that law, required to rule in law and not in equity and, finally, subject to rules of procedure appropriate to adversary proceedings, similar to those governing the operation of ordinary law courts, may properly take advantage of the facility provided under Article 177; and that, accordingly, the question of interpretation brought before you was admissible (Judgment of 30 June 1966, in Case 61/65, Vaassen-Göbbels, Rec. 1966, p. 394).

These same considerations can, a fortiori, be applied to the Litigation Section of the Netherlands Raad van State, a body set up by the constitution and entrusted by the legislature with certain judicial powers and, at the same time, consultative responsibilities on legislative and administrative matters, and whose composition, also laid down by law, is the surest guarantee of impartiality and independence. Though the Raad only adopts reasoned advice, to which the Crown must give the Royal assent, this advice is tendered strictly in accordance with a procedure based on that applied in adversary proceedings.

The fact that decisions settling disputes proceed from the Crown only confirms that H. M. the Queen of the Netherlands is herself involved in the dispensation of justice. This is, moreover, illustrated in the present case by the fact that, in referring to Article 177 of the Treaty of Rome in her reasoned decree of 28 February 1973, the Sovereign felt it her duty to give the Litigation Section formal authority to apply to you for a preliminary ruling on questions of interpretation of Community law. In so doing, did she not intend to bind the Crown, in the decision it would be called upon to take in the main action, to accept the ruling of your Court on interpretation?

For these reasons, I believe that the questions brought before you have been properly referred under Article 177 of the Treaty of Rome and that it is your duty to deal with them.

III — The general structure of Community regulations on public service obligations imposed on transport undertakings

Before delivering my opinion on the answer which should, in my view, be given to these questions, it is necessary to describe the general structure of Regulation No 1191/69, whose interpretation has not previously been the subject of any decision of this Court.

The principle on which it is based is termination by the Member States of public service obligations in transport, particularly rail transport, except in cases where their continuation is considered essential in order to ensure the provision of adequate transport services in the light of the state of the market in transport, the state of supply and demand, and the needs of the community.

By this means, the Council intended to eliminate the disparities created for transport undertakings by public service obligations imposed by the States and whose financial burdens are liable to cause substantial distortion of the conditions of competition. The Council thought fit to leave the States, in principle, free within their respective jurisdictions to adopt measures terminating or maintaining such obligations.

On the other hand, because of the financial burdens which, as a consequence, devolve on undertakings, the Council allowed the latter to submit applications for termination to the competent national authorities provided that these obligations involve them in economic disadvantages to be determined in accordance with common procedures laid down in the Regulation.

The second principle brought out in the Regulation, but which was in fact the outcome of a decision of the Council dated 13 May 1965, is that maintenance of any public service obligation involves an obligation on the part of the State to compensate for the financial burdens which thereby devolve on the undertaking, the right to compensation dating from the decision to maintain the obligation.

Finally, as the third principle, compensation for the financial burdens must be made in accordance with Community procedures which take into account the effect which termination of the obligation would have on the undertaking's activities.

To put these principles into operation, it was essential for the Regulation to define public service obligations. This is what was done in Article 2 of the Regulation by declaring that these obligations are those which, if the transport undertaking were considering its own commercial interests, it would not assume to the same extent or under the same conditions. This refers, of course to obligations and financial burdens which are not inherent in the commercial and financial management of an undertaking and which are not determined solely by consideration of the revenue which the directors expect it to earn.

In this context, Article 2 defines three categories of obligations:

— the obligation to operate, defined as the obligation to ensure the provision of a service satisfying fixed standards of continuity, regularity and capacity and, as a consequence, involving the duty to maintain routes, equipment and installations in good condition, even after certain services have been withdrawn;

— the obligation to carry, i.e. to carry passengers or goods at specified rates and subject to specified conditions;

— finally, the tariff obligation, which consists of applying rates fixed or approved by public authority but which are contrary to the commercial interests of the undertaking and which result from the imposition of special tariff provisions, or the refusal of the competent authority to modify them, in respect of certain categories of route, passenger or goods.

The Regulation specifies that this definition shall not apply to obligations arising from general measures of price policy or to measures taken with respect to transport rates and conditions in general with a view to the organization of the transport market.

IV — The concept of tariff obligation within the meaning of Regulation No 1191/69

The first question of interpretation referred to the Court concerns the definition of tariff obligation.

The terms in which this question has been couched are certainly far from satisfactory: in asking you whether the Minister of Transport's view that the Netherlands Railway Company is under no tariff obligation is based on an incorrect interpretation of Article 2 (5) of the Regulation, the Litigation Section seems to be inviting you to determine how far the Minister's decision is consistent with Community law.

You have no more jurisdiction to resolve a conflict between Community law and a decision of an organ of a Member State than you have to apply Community law to a particular case.

But, in your decisions, you have consistently recognized your competence to extract from the wording of the questions referred by the national court the factors involving an interpretation of Community law, in such a way as to enable that court, in the light of the evidence, to resolve the legal problem submitted to it.

In the present case, therefore, you have a duty to give a Community interpretation of the concept of tariff obligation in the context of Regulation No 1191/69, particularly Article 2 (5).

It should be noted in passing that you will not have to declare yourselves one way or the other on whether the question referred is or is not relevant as regards the passenger traffic carried on by the appellant in the main action.

Counsel for the Minister explained at the bar that, for this category of transport, the compensation granted on account of the maintenance of the obligation to ensure, in accordance with the requirements of the public service, the provision of passenger transport covered the whole of the financial burdens devolving as a consequence on the undertaking. On this question it is for the national court alone to rule.

As regards the meaning of the words ‘tariff obligation’, the argument advanced by the Netherlands Railway Company tends, in my view, to confuse two different concepts:

— that of the obligation to carry, which Article 4 (2) defines as being to accept and carry ‘passengers or goods at specified rates and subject to specified conditions’;

— that of the tariff obligation, in respect of which Article 2 (5) lays down precise and cumulative requirements on the subject of fixing rates, viz. application of rates ‘fixed or approved by any public authority’ which are contrary to the commercial interests of the undertaking and which result from the imposition of, or refusal to modify, special tariff provisions.

These are two fundamentally different aspects of price policy which cover both the fixing and alteration of tariffs.

As is well known, most railway companies are under an obligation to draw up a tariff, in other words the obligation, imposed by legislation, to publish their rates in a schedule so that all users may know in advance the rates and conditions applicable to every category of transport provided. This requirement to fix and publish a tariff relates only to the obligation to carry.

But it does not necessarily mean that the tariff is fixed or approved by the supervising authority, usually the Minister responsible for transport. Subject to compliance with any general provision laid down by the public authorities on price control, nothing affects the undertaking's autonomy as regards its tariff and the rates charged.

And, even if the Minister has the power to authorize or approve tariff proposals which the railway undertaking is obliged to submit, this does not necessarily mean that the carrier is under a tariff obligation within the meaning of Regulation No 1191/69.

In fact, for such an obligation to be created, it is essential first, that, in particular for certain categories of transport or on certain routes, special tariff provisions should be imposed by the Minister and, second, that these provisions should be contrary to the commercial interests of the undertaking.

This is an explicit requirement of Article 2 (5) which, in this respect, does no more than apply the principle embodied in Article 2 (1), viz. that the public service obligation is not one which the undertaking would assume on its own account or, at least, would not assume to the same extent or under the same conditions if it were considering only its own commercial interests and the return on capital invested.

Thus, the definition of tariff obligation given in Article 2 (5) of the Regulation does not cover all obligations of this kind which are capable of being imposed on transport undertakings. A tariff obligation is conceived as something specific.

In this connexion, it is not without interest that, in the draft Regulation which the Commission submitted to the Council on 26 May 1967 (OJ EC No 248 of 13 October 1967), it was declared that both approval by public authority and publication of tariffs ‘shall above all promote the organization of the transport market in Member States’ and, accordingly, cannot in themselves constitute tariff obligations whose maintenance creates a right to compensation within the meaning of the Regulation.

Of course, this was only a preparatory document but it confirms the limited scope which, in its Regulation of 1969, the Council itself gave to the concept of a tariff obligation by including in it only obligations liable to entail economic disadvantages for the undertakings or for certain categories of transport and, on this account, to distort competition in this field.

Accordingly, although you are not called upon to decide the point, it does not seem to me that the tariff system applicable to the Netherlands railways under the Law of 1875, which in this respect has remained unamended, in itself involved a tariff obligation within the meaning given to these words by the Regulation of the Council. Indeed, Article 28 of the Law does no more than provide, in general terms, for approval of the tariffs by the Minister of Transport and their publication; similarly, Article 30 requires tariff alterations to be published at least a month before they come into effect. Though Article 29 empowers the Government, in certain cases, to impose a tariff reduction and, on the assumption that this would produce a reduction in the operator's net profits, further provides for compensation at the State's expense for the loss sustained, this enactment appears in practice to have been implemented only in exceptional circumstances. On the other hand, according to Kapteyn's study on the Netherlands railway system, the railways are, as regards passenger traffic, subject to the system under which fares must be published and applies without variation and, as regards goods traffic, subject to a system of published maximum rates which are fixed by the operator and submitted for approval by the Minister. Subject to compliance with these maxima, the company is free to suit itself in drawing up its schedule of tariffs and, in respect of certain users, can make private agreements which are not published.

V — Can the concept of ‘economic disadvantages’ under Articles 4 and 5 of Regulation No 1191/69 be applied to disadvantages which make themselves felt during a single year?

The second question referred to the Court relates to a concept embodied in Articles 4 and 5 of the Regulation. Transport undertakings are not, in fact, permitted to apply for termination in whole or in part of a public service obligation unless it involves them in ‘economic disadvantages’.

Under Article 5 (1) these disadvantages exist ‘where the reduction in the financial burdens which would be possible as a result of the total or partial termination of the obligation … exceeds the reduction in revenue resulting from that termination’.

Under Article 5 (2) these economic disadvantages ‘shall be determined on the basis of a statement, actualized if necessary, of the annual economic disadvantages represented by the difference between the reductions in the annual financial burden and in annual revenue that would result from termination of the obligation’.

The Raad van State asks whether under these provisions, correctly interpreted, economic disadvantages can exist only in cases where they make themselves felt over a sufficient period of time, in any case more than a year.

In theory, the question appears to receive a clear answer from the terms of Article 5 (1) which, in defining economic disadvantages as the difference between the reduction in the financial burdens and in revenue from operations, lays down no condition governing the length of time during which these advantages must be shown to exist.

Article 5 (2), whose only purpose is to lay down the basis on which the disadvantages must be assessed, covers the possibility — actually, the most likely one to occur — in which the disadvantages extend over a period of several years and specifies that it is on the basis of annual statements, actualized if necessary, that the calculation must be made.

This clarification was necessary because the most common situation is one in which a public service obligation is maintained for an indefinite period.

Moreover, any transport service running at a loss during a given financial year may well show that it is paying its way or even making a profit in the course of later financial years.

As company results are, in principle, set out in the balance at the end of each financial year, it is desirable that account should be taken of the difference between the reductions in the annual financial burdens and in annual revenue that would result from termination of the obligation. That can only be done by reference to the balances in the annual accounts concerned, actualizing them where necessary.

But this method of calculation in no way excludes the possibility that the period during which the economic disadvantages become evident may be as short as a single year.

And, apparently, this was how the question was put in the action brought before the Raad van State.

As the railway company asked the Minister to terminate all the public service obligations under which it laboured, especially in respect of mail services, he took the view that, at least as regards this category of transport, the question of economic disadvantages did not arise because, according to the company itself, this form of transport would be operated at a loss only during the one year 1972 and, thanks to steps which would then be taken in respect of this part of the operation, it would be paying its way again in 1973.

So the real problem facing the national court, is, in fact, to establish whether, in view of the maintenance of the public service obligation in this field during the single year 1972, economic disadvantages can or cannot, in reality, be placed on the debit side of the undertaking's balance sheet for that financial year. It will be for that court to rule on this question and you are not called upon to take part in the debate.

But, should the Netherlands court answer this question in the affirmative, I believe that the inclusion, for the purposes of calculating any compensation, of disadvantages recognized as existing for only a single year, is not inconsistent with the provisions of Articles 4 and 5 of the Regulation.

VI — Compensation: method of calculation

The third question concerns the method of calculating the compensation payable by the State to a railway undertaking which provides, over the same network, a passenger service and a goods service in a situation where the obligation to carry is maintained only for the first category and is terminated for the second.

Under Article 6 (2) of the Regulation, compensation is determined in accordance with common procedures defined in Articles 10 to 13.

According to the first paragraph of Article 10 (1), the amount is, in principle, equal to the difference between the reduction in the financial burdens and the reduction in the annual revenue of the undertaking which could result from the total or partial termination of the obligation involved.

Thus, the amount is determined by the extent of the economic disadvantages caused by the obligation being maintained.

However, as is made clear in the second paragraph, if these disadvantages have been calculated by apportionment of the total costs incurred by the undertaking as a result of its transport activities among the various parts of those activities — above all, between the passenger sector and the goods sector — the amount of compensation is equal to the difference between the costs allocable to that part of the undertaking's activities affected by the public service obligation and the corresponding revenue.

In that case, must the total costs of the undertaking be apportioned between the two categories of traffic, allocating to each of these categories its proportionate share of common costs, as, in the present case, was done by the Minister of Transport, or, as the railway company maintains, must the whole of these common costs be taken into account in calculating the compensation due in respect of passenger traffic, in view of the fact that goods traffic is no more than a secondary operation and that, in any case, it is passenger traffic, where the public service obligation is maintained, that has to bear the whole of the common costs?

Without needing to go into the technical explanations given in court, we must not lose sight of the fact that the question is of great practical importance and, because common costs represent a major proportion of the overall costs, considerable financial interests are involved.

These outgoings, which the terminology of transport economics defines, particularly on the railways, as those arising simultaneously from the provision of a number of services, cannot be charged to any one of them.

Nor do they correspond to a given category of costs sui generis, but are found under every heading of expenditure in a railway undertaking: outgoings on operations, staff, permanent way and buildings, energy, financial charges and general expenditure.

They are the opposite of so-called chargeable costs which have a direct technical relationship with the provision of a particular service i.e. with a given category of transport.

In a single-production undertaking, for example in a railway undertaking providing only for goods transport (a rather exceptional possibility), the allocation of common costs presents no difficulty as it is done by simple division of the amount of the costs by the number of production units, in our example, metric tons per kilometer.

In a multi-production undertaking, on the other hand, the common costs must be charged to the items produced, i.e. divided proportionately between the different categories of transport and therefore subjected to a process of apportionment by means of a scale of apportionment.

The scale of apportionment cannot be determined with any degree of precision, and a certain tolerance must be allowed for in working it out, so it is not surprising that the Regulation of the Council was not able in this respect to supply concrete formulae for calculation, either for the allocation of common costs or for the determination of chargeable costs.

But, for the purpose of the interpretation you are called upon to make, the issue is no less than the principle of the distribution of costs in a situation where, notwithstanding a decision to maintain the public service obligation in respect of passenger traffic and at the same time to terminate it in respect of goods, the undertaking continues to carry goods on the basis of its own commercial considerations, the form in which the operation is carried on not affecting the matter one way or the other.

These circumstances are clear evidence of a multi-production undertaking and, in that case, it is a normal procedure to allocate the common costs proportionately between passenger traffic and goods traffic.

And in calculating compensation, this is clearly the solution which emerges from the third paragraph of Article 5 (1) and the second paragraph of Article 10 (1), taken together.

In the wording of the first of these provisions: ‘where the obligation to operate or to carry covers one or more categories of the passenger or goods traffic on the whole or a substantial part of a network, the financial burden which would be eliminated by terminating the obligation shall be estimated by allocating among the various categories of traffic the total costs borne by the undertaking by reason of its transport activities’.

This passage refers, of course, to the method of calculating the economic disadvantages which, as we saw, determine the amount which the undertaking is entitled to receive as appropriate compensation for the public service obligation being maintained.

There can be no doubt, therefore, that the second paragraph of Article 10 (1) refers to this situation in order to make clear how compensation is to be calculated when the economic disadvantages have been assessed by allocating the total costs among the different parts or categories of the transport operation.

The costs which are directly and specifically chargeable are allocated in their entirety but only to the category of operation which continues to be burdened with the public service obligation; the common costs, which constitute a substantial proportion of total costs, must, on the other hand, be the subject of apportionment.

To decide otherwise would, as the Commission has pointed out, be contrary to the objective laid down in advance of Regulation No 1191/69 by the Council's Decision of 13 May 1965, which was to eliminate distortion of competition liable to result from the imposition on transport undertakings of certain public service obligations either by terminating these obligations, or by granting compensation for the financial burdens which they entail.

To make passenger traffic bear, on its own, the whole of the common costs on the ground that, as the Netherlands Railway Company suggests, the goods service is, in terms of history and economics, no more than a subsidiary operation, would in fact have the indirect but undoubted effect of providing a State subsidy for goods traffic now free of all public service liabilities.

Indeed, it would mean not only enriching the company without good cause but distorting competition, especially as regards transport undertakings carrying goods otherwise than by rail.

Finally, to adopt the interpretation suggested by the appellant in the main action would be to court the risk of encouraging claims for very substantial compensation on the part of railway companies in certain member countries other than the Netherlands — companies which are in general called upon to shoulder heavy public service obligations.

In my view, the argument advanced by the Netherlands company would have substance only if it had discontinued the goods transport operation or, at least, only if it provided this category of transport itself or through a subsidiary, at a level of capacity significantly lower than when it was previously catered for under public service conditions.

I am therefore of the opinion that

1. There is a tariff obligation within the meaning of Article 2 (5) of Regulation No 1191/69 of the Council only when the following two conditions are satisfied: (a) the rates fixed or approved by public authority result from the imposition of, or refusal to modify, special tariff provisions, in particular for certain categories of passenger, for certain categories of goods, or on certain routes; and (b) when the rates are contrary to the commercial interests of the undertaking.

2. Economic disadvantages within the meaning of Article 5 (1) of the Regulation can subsist over a period of a single year in a case where, for example, the public service obligations are maintained for that year and, when the year ends, the undertaking makes effective use of the opportunity offered it to discontinue the transport service concerned.

3. Where, without any public service obligations being involved, a substantial goods service is maintained over the whole or a major part of a railway network, compensation to be paid for the financial burdens common to passenger and goods traffic in a situation where the public service obligations are maintained only in respect of passenger traffic, must be calculated on a basis which takes the two categories of traffic into account i.e. by taking into consideration a proportion of common costs.

( 1 ) Translated from the French.