CELEX: 61961CC0017
Language: en
Date: 1962-05-25 00:00:00
Title: Joined opinion of Mr Advocate General Lagrange delivered on 25 May 1962. # Klöckner-Werke AG and Hoesch AG v High Authority of the European Coal and Steel Community. # Joined cases 17/61 and 20/61. # Mannesmann AG v High Authority of the European Coal and Steel Community. # Case 19/61.

OPINION OF MR ADVOCATE-GENERAL LAGRANGE
   DELIVERED ON 25 MAY 1962 (
         1
      )
   
      Mr President,
   
      Members of the Court,
   I shall refrain, as indeed the applicants have done, from even summarizing the history of the equalization scheme for imported ferrous scrap and in particular the disputes to which the equalization levy for ‘group ferrous scrap’ has given rise. Your judgments of 17 July 1959 and 22 March 1961 in the SNUPAT cases appear to me to have settled most of the questions of principle which arose in this field and the applicant companies are really rather engaging in these cases in a sort of rear-guard action showing in this respect a skill which the inherent difficulty in this kind of warfare makes particularly praiseworthy.
   Before looking at the substance of the case I should like to offer an observation on the question of admissibility although no objection on the ground of inadmissibility has been raised by the High Authority.
   Each of the applicants is a holding company, or shall I say a parent company, having control both over the companies producing steel and using scrap and over the processing companies who recover the scrap. Moreover, according to the argument of the High Authority, contrary to that of the applicants, the parent company does not have the character of an undertaking within the meaning of Article 80 for the purposes of the application of the equalization scheme; this character belongs to the subsidiary company alone on the premises of which the scrap is used and it alone is liable to the levy. Is then the parent company properly qualified to take proceedings in this case? This question may well be asked seeing that under Article 33 an application for annulment is available only to undertakings and their associations, the ‘undertakings for the purposes of this Treaty’, especially of Article 33, as defined in Article 80.
   I think we can disregard this objection. Even if the attitude defended by the High Authority be accepted as regards the concept of an undertaking for the purposes of the application of the equalization scheme (a question to be looked into later), it is no contradiction to admit also that a question of principle involving the entirety of the ‘Konzern’ should be dealt with administratively by the parent company and that the latter, after applying to the High Authority and receiving from it an answer amounting to a decision, should refer this decision to the Court. The parent company clearly has an interest entitling it to make an application, even if the levies are due from the subsidiaries. It can therefore fairly be admitted that in the circumstances it is an ‘undertaking’, for the purposes of Articles 80 and 33 read together, qualified to institute proceedings just as, for example, an association of undertakings is so qualified. As to the substance, I shall permit myself to deal in logical order with the various questions put rather than examine the three applications one by one. Although the representatives of the applicants have, especially in theoral proceedings, stressed different aspects, the questions at issue are in principle the same except for some particular points such as the clauses concerning ownership. Here then is the order in which I shall examine the grounds of complaint raised.
   
            1.
         
         
            Is the imposition of a levy on the disputed scrap contrary to the basic Decisions governing the financial arrangements?
         
      
            2.
         
         
            Assuming that it is in accordance with those Decisions, are they not illegal as being contrary to the Treaty?
         
      
      Under the first heading it is maintained: (1) that the ferrous scrap at issue is not ‘bought scrap’ which alone is assessable and for the following two reasons: (a) there is only a single undertaking and that is the parent company; and (b) there is no purchase in civil law; (2) the imposition of the levy involves discrimination.
   
      Under the second head, on which Mannesmann lays particular stress, it is also maintained that imposition of the levy consitutes discrimination in relation to competing undertakings whose works are operated under a single company. Such undertakings should be subjected to the levy in the same way as the applicants and if the basic Decisions are not considered to allow this, then they are illegal.
   A — The legality of the imposition of the levy in relation to the basic legislative Decisions
   1. Is the scrap at issue bought scrap ?
   (a) The concept of an undertaking
   In the first SNUPAT judgment, the Court was called on to interpret the concept of ‘bought scrap’ as distinguished from ‘own resources’ and based its whole reasoning on the notion that it is the consumption of scrap and not the market transaction in scrap which gives rise to the equalization levy; it follows that all consumers as such are liable to pay contributions for the purpose of financing the equalization fund. The freedom from the levy of own resources thus appears as an exception, and moreover a justified exception in the view of the Court, but one which must be interpreted restrictively; it cannot be extended to so-called ‘group’ scrap which must be regarded as bought scrap.
   The first judgment admits by implication that for the functioning of the equalization scheme, or at least as regards the collection of the levy, the concept of an undertaking attaches to the legal person and not to the economic unit. However, the second SNUPAT judgment sets this out in the most formal and even most general terms. So we read (Rec. 1961, p. 151):
   ‘that the concept of an undertaking for the purpose of the Treaty is the same as the concept of a natural or legal person, since the Treaty uses this concept primarily to define persons with rights and obligations arising under Community law.’
   Further (p. 153), in connexion with Hoogovens and Breedband, it is stated ‘actually this is not a case of a single undertaking butoftwocompaniesdistinct in law, each having a legal personality.’ Nothing can be more clear: two companies distinct in law, engaged in production in the coal or steel industry, are necessarily two undertakings for the purposes of Article 80.
   In these circumstances it seems pointless to follow the arguments of the parties on the degree of integration of the ‘Konzern’, particularly in the case of Klockner which lays its main stress on this point: total or almost total ownership of the capital of the subsidiaries, unity of control, a single imposition of turnover tax, investment policy entirely in the hands of the parent company with which the High Authority has moreover been in contact on this subject, the existence of an ‘Organschaft’, contracts for taking over profits and losses, clauses prohibiting purchase of scrap from outside sources etc. All these arguments have been set aside expressly or by implication by the decisions of the Court which has irrevocably and unreservedly rejected the concept of ‘group scrap’ maintaining the concept of an undertaking which I have already mentioned attaching to the legal person.
   For this reason no doubt another argument was advanced in course of the proceedings and has been impressively defended in particular by Professor Aubin on behalf of Hoesch: it lies in the recognition that, according to the decisions of the Court, only a legal person can be an undertaking, but maintaining that this undertaking is not the ‘Konzern’ but the parent company. It alone is engaged in production, that is to say, in the working of the undertaking denoted by the ability to exercise its will decisively, by its power and by the assumption of all commercial risks. The concept of ownership is not enough to define own resources. The ratio legis for the exemption of own resources is that an undertaking in the course of its productive activity can recycle the ferrous scrap (and this moreover is something which the Court has recognized) ; so it is not individual ownership which is the moving force in this whole process, but the power of the ‘Konzern’ as the expression of a collective will vested in the parent company.
   Brilliantly as this argument was expounded, in fact it only revives familiar arguments on the economic unity of the ‘Konzern’ and the legal consequences which German law to a greater or lesser degree infers from this unity. But it appears to me irrelevant in relation to the Treaty and to the decisions of the Court. Article 80 in fact defines ‘undertaking’ as
   ‘any undertaking engaged in production in the coal or the steel industry.’
   The undertaking for the purposes of Article 80, although necessarily a natural or legal person as your decisions state can obviously only be the undertaking on whose premises there is manufactured one of the products appearing in Annex I, which defines the expressions ‘coal’ and ‘steel’. This applies particularly as regards the collection of the general levy which
   ‘is due from each undertaking in the tonnage of its assessable production’ (Article 4 (1) of Decision No 2/52),
   as I recalled in my opinion in the Phoenix-Rheinroh and other cases (Rec. 1958-1959, p. 194). I assume that levy payments are made by the subsidiaries and not by the parent company. The same must apply to the equalization contribution, which constitutes a debt from the steel producing company based on the tonnages of bought scrap which it consumes in its factories. As it is a question here of the consumption of scrap, it is the industrial productive activity which is the decisive criterion, not the financial and administrative activity carried on by the holding company. The ferrous scrap is therefore an ‘own resource’ of the subsidiary and not of the parent company, and, when this resource comes from the arisings of another subsidiary processing another product, it is indeed bought scrap.
   (b) The alleged absence of purchase within the meaning of civil law
   It is with some diffidence that I venture into the realm of German civil law. But the criterion of civil law laid down by the Court in its decisions compels me to follow the parties into this realm.
   Let us first consider the rloesch case, which Professor Aubin has presented to you. A clause retaining ownership has been produced in the form of a letter dated 29 August 1953 addressed by Westfalenhiitte, Dortmund, to Hohenlimburger Walzwerke containing the following passage (I translate):
   ‘Arisings from products and other residues recovered in course of the processing of those products which you are unable to use are not sold to you; they remain our property and will be credited to you up to the value of the scrap when a general account is taken of all deliveries of semi-finished products.
   We ask you to take care that arisings and other residues from our deliveries, which you are unable to use, be kept separate from arisings from the processing of products which you receive from third parties.’
   According to the applicant such a retention of ownership is in conformity with paragraph 950 of the German Civil Code under which
   ‘whosoever, by working or processing, creates a new movable article acquires the property therein unless the value of the work or processing is substantially less than that of the material used. . ,’
   which would be the case here. In any event, this provision is not a peremptory rule and permits of the question of ownership in the sense intended by the interested parties being settled on a contractual basis.
   Against this the High Authority sets another provision of the Civil Code, paragraph 93, which reads:
   ‘The constituent parts of a thing which cannot be separated from it without destruction either of the parts or of the thing or without fundamental change in their nature (essential components) cannot be the subject matter of separate rights,’
   whence it follows that, so long as the steel ingot is not processed, there cannot be two proprietary rights, one in the ferrous scrap element ultimately to be recovered in the form of arisings and the other in the remainder. Moreover paragraph 93 is of a mandatory nature and derogation from it cannot be made by agreement. On this I will read from Staudinger's Commentary on Civil Law, Volume II, Part 2, page 226:
   ‘a retention of property in the essential component parts of a thing is also impossible’ (cf. § 93).
   To meet this objection Hoesch maintains that there are no separate rights in the ingot. This remains the property of the steel-works as long as it is not processed and the company processing it does not become its owner until after it has been processed and then of course becomes owner only of the new product resulting from that processing. Therefore the arisings have always remained the property of the steel-works to which they are returned.
   But this analysis does not seem to me to accord with the clauses retaining ownership. They read, it shouldbe remembered, that ‘the arisings from products and other residues recovered in course of processing of those products . . are not sold to you’. This admits that other elements of the ingot are sold. There is thus clearly a retention of ownership in an essential component part of a thing which cannot be separated without its destruction or without a fundamental alteration in its nature, to repeat the words of paragraph 93 which is contrary to the abovementioned paragraph.
   In fact everything takes place between the two companies as if there were on the one hand a transfer of the semi-finished product, let us say the ingot, to the processing company, and on the other a transfer by that company of the arisings to the company running the steel-works, with a book-keeping settlement between the two companies. The letter of 29 August 1953 itself provides that the residues ‘will be credited to you up to the value of the scrap when a general account is taken of all deliveries of semi-finished products’. Account is therefore taken first of the price of the semi-finished product delivered (obviously in the form in which it then is, including the as yet unsevered scrap which will come from it afterwards), then, after the arisings have been produced and the tonnage can be ascertained, the processing company is ‘credited’ with the value of this scrap which goes back to the steel-works. Is this not a perfect description of a delivery of this scrap against payment of a price?
   Finally it may be asked — and I say this only in passing — whether the final clause, compelling the processing company to keep the arisings from deliveries from the steel-works separate from arisings from the processing of products received from third parties, can be easily complied with in all cases and whether it is always easy to check that this has been done.
   So much for Hoesch.
   As regards Mannesmann, the situation arising from the document produced (the contract of 23 December 1957 between Mannesmann-Hüttenwerke and Mannesmannröhren-Werke) is even more obvious. It is said therein that the former ‘delivers for processing… raw material’ to the latter at an accounting price. It is clear that the company entrusted with the processing (unless it acts as a hired worker, which no one claims) acquires the raw material, as delivered to it, and becomes owner of it before and not after processing; it follows that the retention by the steelworks of the property in the scrap which is ‘potentially’ in the raw material is contrary to paragraph 93 of the Civil Code.
   To finish off on this point, may I add that, if the Court were to entertain any doubt on a question arising exclusively on the private law of a Member State, it may be asked whether the Court should not remit it for a preliminary ruling to the competent courts of that State. This is done in France on questions relating to civil status or property outside the competence of the administrative courts when the main action requires a decision on such a question.
   However, I do not think such action appropriate in this case. In fact, although your decisions on equalization closely followed a criterion of civil law, I think there remains a certain measure of autonomy in this respect. We must not forget the purposes for which the legislative provisions relating to the basis of the contribution and the determination of the persons liable were enacted and the basic principles of the system, that is, in essence, the common interests of all consumers of ferrous scrap. This justifies first as broad a basis as possible and secondly the principle that the essential criterion should be the consumption of scrap, as the Court has recognized.
   Therefore, even if, which I do not myself believe, a doubtful marginal case were at issue, the balance should lean towards imposition of the levy based on scrap delivered by one company to another against payment of a price, even if only a book-keeping figure were involved and there were no certainty that all legal requirements of the contract of sale were fulfilled.
   2. The complaint of discrimination
   The subjection of the disputed scrap to levy involves discrimination to the disadvantage of integrated undertakings as against those which, working in comparable conditions, operate their branches under a single company.
   In fact this situation follows from the application of the legislative decisions and the Court's interpretation of the definition of bought scrap and own resources. The applicants have not found it difficult to recognize but they maintain that the legislative decisions are contrary to the Treaty which prohibits discrimination. We thus come to the second question.
   B — The legality of the legislative decisions
   You are aware of the arguments developed on this subject, especially by the representatives of Mannesmann. These arguments are based essentially on the complaint of discrimination because the system permitted by the High Authority adversely affects the competitive position of integrated undertakings operating as several companies as against undertakings integrated under a single company, for example Mannesmann as opposed to Phoenix-Rheinrohr, the organization and activities of which are in every way comparable apart from this one difference.
   The logical consequence of this argument is that scrap moving between the factories of an undertaking integrated under a single company should be subjected to the levy except perhaps for that recovered within the steelworks itself. However the applicants do not go so far as to make a claim in this sense and moreover such a claim would not be admissible because they are not objecting to an express or implied decision refusing to impose the levy on their integrated competitors for scrap thus recovered. They only adduce from it an argument based on the illegality of the legislative decisions which do not allow such imposition of the levy.
   Nevertheless the fact remains that, if this point in their application were conceded, the levy on them would cease without being imposed on their competitors.
   I have read the statements and listened to the explanations of the applicants' representatives on this subject with great interest, and they have not been without relevance. I myself raised the questions in my opinion in the Phoenix-Rheinrohr and other cases (Rec. 1958-1959, pp. 203 et seq.) whether the logic of the system should not lead to imposing the levy on scrap passed from one works to another even if they belong to the same legal person.
   But the Court has categorically dismissed this argument and taken care to justify the exemption of an undertaking's own arisings on the basis of ownership just as it had rejected exemption on the same basis to group scrap.
   We read in the first SNUPAT judgment (Rec. 1958-1959, pp. 305-306):
   ‘in other words any intervention attempting to distort or actually distorting competition artificially and significantly must be regarded as discriminatory, and incompatible with the Treaty, whilst measures which take account of the internal organization of an undertaking and the use by it of its own resources cannot be regarded as discriminatory;
   the use of its own residues by a single undertaking producing steel and using ferrous scrap amounts to a production recycling of one of its by-products’.
   Here indeed the undertaking is regarded as a legal person; the judgment therefore applies both to the steel-works' own arisings re-used in that steel-works just as arisings recovered in later stages of production, as for example rolled iron or sheet steel since the various processes are carried out on behalf of the same company.
   The only reservation which the Court made in its judgment refers, as you know, to the case of an undertaking not producing steel and therefore one not under the jurisdiction of the Community but forming part of a group with the undertaking using the scrap (in which case there is clearly no problem since the exemption of group scrap is not permitted and this a fortiori) or carried on under the same company.
   
   When scrap recovered in works where a semi-finished or finished product included in the nomenclature of Annex I is concerned, the non-imposition of the levy is deemed legal if the works are operated under the same company as the steel-works.
   This answer is clearly confirmed and explained by the second SNUPAT judgment in relation to double imposition of lew (Rec. 1961, p. 154):
   ‘in its judgment in Joined Cases 32 and 33/58, the Court ruled against double imposition of the levy only to the extent that this would affect one and the same undertaking and not in the case where the levy would be apportioned between several separate undertakings’.
   All this goes to show that the Court considers the criterion of legal personality not only as a ‘clear and objective’ criterion, as the High Authority likes to call it (which is obviously insufficient), but also as justified in law.
   In fact, as I observed in my opinion on the Phoenix-Rheinrohr and other cases, to which I may perhaps refer yet again (Rec. 1958-1959, p. 205):
   ‘It may be said that, in spite of the analogy which certain situations may present, at least in extreme cases, there is in general a difference between integrated undertakings and one undertaking operating several works.’
   It must not be torgotten that we have to judge the complaint of discrimination in relation to a legislative system, that is to say, within a general framework, and not to examine an individual case. The comparison between Mannesmann and Phoenix-Rheinrohr can only serve as an example to illustrate the effects of the legislative system laid down by Decision No 2/57 and others. In other words, it is not sufficient to establish that the application of the legislative system involves certain inequalities as between Mannesmann and Phoenix-Rheinrohr, because the answer to that would be that the inequality arises from the difference in their legal structure and that, for this reason, the two undertakings are not in comparable positions. It must be proved that, as a whole and in general, the criterion adopted is irrelevant or purely arbitrary, so that of itself it involves discrimination and is therefore contrary to the Treaty. This argument is formally rejected by the Court's decisions.
   In these circumstances I must not, I think, expand on the controversy which divides Mannesmann from Phoenix-Rheinrohr on the similarities or differences which they exhibit with regard to the nature of their respective activities. I will limit myself to showing that, according to the explanations given both in the written and oral procedures, it seems that the ‘technical relationship’, in the words of your judgment in Joined Cases 42 and 49/59 (the second SNUPAT judgment) is closer and the stages of production less diversified in the case of Phoenix-Rheinrohr than in that of Mannesmann. The two situations are not therefore directly comparable.
   It is true that in the Pont-à-Mousson judgment the Court admitted that the High Authority would be exceeding its powers if, even by way of a general legislative system, it adversely affected the competitive position of the parties concerned:
   ‘more seriously than was established to be necessary after a thorough examination of the interests involved or, in any event, if it had a substantial adverse effect on that position’ (Rec. 1958-1959, p. 477).
   On the first point the Court's decisions on the two SNUPAT judgments once again give a clear answer: the combination, or more precisely the simultaneous application, of the two rules (imposition of levy on group scrap on the one hand, exemption of ‘own resources’ of scrap moving between the works of the same company on the other) has been held to be in conformity with the Treaty and the requirements for the proper functioning of the equalization scheme.
   On the second point, the Pont-à-Mousson judgment is careful to explain what is meant by ‘substantial adverse effect’ on the competitive position of an undertaking (Rec. 1958-1959, p. 478):
   ‘this would only be the case if it were established that by reason of these decisions, the effects of which the applicant has been in a position to assess for several years, the competitive position of the applicant had substantially worsened, for example, if the total volume of its sales had noticeably fallen; but on the other hand it is not sufficient that, following the intervention of the High Authority, certain distortions of the respective cost prices of the applicant and its competitors had occurred.’
   In the present case we are limiting ourselves to a comparison of the burden of the contribution in relation to the tonnage consumed: the requirements of the Court in this field are far from being satisfied.
   Finally, it seems that the requests of the applicants are in direct contradiction to the Court's decisions in the two SNUPAT judgments the first of which, whilst refusing to admit exemption from (or non-imposition of) the levy on group scrap, no doubt had in view the case of undertakings which had already appeared before the Court and whose actions had been dismissed only on the ground of inadmissibility.
   As regards costs, Mannesmann (Application 19/61) claims that it should not bear them even if it were to lose its case. Its reason is that, according to the disputed Decision and above all according to the letter signed by the Secretary-General of the High Authority, whereby this Decision was notified to the applicant, it appeared that there might be confusion on the question whether the High Authority had intended to reject a request for exemption or to make known its attitude on the legality of the imposition of the levy.
   I see no purpose in this distinction: the disputed Decision, which alone matters, is perfectly explicit and makes it very clear that the levy is due.
   I am therefore of the opinion:
   
            —
         
         
            that the applications should be dismissed; and
         
      
            —
         
         
            that the costs, including those of the intervener, should be borne by the applicants.
         
      (
         1
      )	Translated from the French.