OPINION OF MR ADVOCATE-GENERAL ROEMER

DELIVERED ON 17 NOVEMBER 1960 (*1)

Contents

I — Preliminary remarks

2. Statement on the first opinion

3. Action for failure to act. Case 50/59

(a) The legal nature of the letter of the High Authority of 24 July 1959

(b) Admissibility of the objection of illegality

II — Further considerations in the sphere of admissibility

2. The limits of the objection of illegality

3. The objection regarding loss of rights

(a) Remarks on the background of the contested funds

(aa) The guarantee fund

(bb) The special reserve

(b) The applicants' benefit from those funds

(aa) The guarantee fund

(bb) The special reserve

(c) The behaviour of the applicants

(d) Legal appraisal of the objection of loss of the right to object

III — Whether the applications for annulment are well founded

(a) The third subparagraph of Article 50 (1)

(b) The previous establishment of a reserve fund

2. The amount of the guarantee fund

(a) The conditions in the second sentence of the first paragraph of Article 33

(b) Legal appraisal of the discretionary decision

2. Legal appraisal

(a) Legal basis for the construction of workers' housing

(b) Financing of the construction of workers' housing through the levy

(c) Financing of the construction of workers' housing by funds from the special reserve

3. The availability of the special reserve

Mr President,

Members of the Court,

In Joined Cases 41 and 50/59 the Court of Justice initially restricted the oral procedure to the questions of admissibility. Accordingly at the hearing on 5 May 1960 the parties only made submissions on the admissibility of the applications and on the admissibility of the objection of illegality which are important in the procedure. My opinion of 18 May 1960 had to be adapted to this limitation of the subject-matter of the procedure.

In subsequent deliberations the Court decided that the oral procedure should be continued and that the questions in dispute should be discussed in their entirety. On 28 October 1960 the parties set out their submissions in detail with regard to the substance of the case. Today I must express my views on those further submissions. Before I embark upon my task I should like to make some remarks on the previous course of the procedure and in addition to explain how I view my task at the present stage of the procedure.

I — Preliminary remarks

It might be inferred from the previous course of the case that the Court disagreed with my views on the questions of admissibility, that the Court considers irrelevant all the views which I have expressed on admissibility and considers that only discussion of the substance of the case is relevant. However, since the Court has not stated its views on admissibility, I shall not begin today to consider the substance of the complaints and instead I shall continue my consideration of the subject-matter of the dispute from the point at which I left off having reached the conclusion that the applications were inadmissible.

2. Statement on the first opinion

I must particularly emphasize that I stand by my appraisal of the admissibility of the applications and even now I suggest from the outset that they should be dismissed in accordance with the considerations contained in my first opinion. My conviction that this was the correct result remained unshaken by the further statements of the parties or by a critical review of my earlier investigations. Accordingly the views I express today on the further questions regarding the substance of the dispute only constitute an alternative in case the Court disagrees with my suggestion regarding admissibility.

3. Action for failure to act, Case 50/59

Case 50/59, an action for failure to act, does not call for further comment even as an alternative. In my view the reasons which I stated prove incontestably that the application is inadmissible. This view is quite inescapable if the action for failure to act is held to be admissible since the former application clearly pursues the same end as the latter. An inadmissible application against the decision of the High Authority contained in the letter of 24 July 1959 is incompatible with an action for failure to act, the purpose of which is to request a formal and binding decision of the High Authority with regard to the application submitted for a refund.

I should finally like to point out that my remarks at page 1002 of my first opinion on the applicants' arguments concerning the refund on grounds of natural justice seem to render further discussion superfluous. The applicants' submission in the reply of 15 January 1960 (pages 15 to 16 of the original document) that the individual refund of the levy owing is admissible, although there is nothing in the Treaty on this point and the power of the defendant to grant a refund constitutes an essential element in the competence conferred by the Treaty with regard to the levy, must be dismissed as being out of time.

In view of these facts the request for a refund lacks a basis corresponding to its importance and in particular fails to provide detailed, specified and objective grounds for the preferential treatment which has been requested. There is reason to wonder whether in those circumstances the applicants could have any serious expectation at all that the High Authority would give serious consideration to their request.

After this introduction it seems to me appropriate to recall the reasons which led me in my opinion of 18 May 1960 to suggest that the application for annulment should be dismissed.

(a) The legal nature of the letter of the High Authority of 24 July 1959

The letter of the High Authority of 24 July 1959 has the status of a contestable decision only to the extent to which it constitutes a refusal of a refund of the levy on grounds of natural justice. This appraisal follows inevitably from the wording of the request of 17 July 1959. The applicants request the refund of the levy payable by them for the financial year 1959-1960, invoking the poor condition of the market and the strained finances of their companies. However they do not make any complaints regarding the legality of the levy and they do not bring before the High Authority the economic and legal considerations upon which they base their complaint. The High Authority had thus no occasion to express a view on those points in its decision. It seems instead that the High Authority was justified from an administrative point of view in expressing an opinion only on the question which was submitted.

(b) Admissibility of the objection of illegality

On these facts I concluded that the only submission which was made in time (the objection that the general decision is illegal) was inadmissible: the contested individual decision is not based on the general decision the illegality of which the applicants maintain in the statement of reasons in their application constitutes a justification for not imposing the levy.

The contents of the contested decision describe what is at issue in the proceedings and provide the bounds of the legal discussion. If the terms of the decision are restricted solely to the admissibility of a refund on the grounds of natural justice it is quite impossible to dispute the admissibility of an application for the annulment of this decision. One must consider whether, with regard to the refund on the grounds of natural justice, a provision of the general decision on the levy was essential in that the finding in a particular decision constitutes an application of a general rule, valid for individual matters. It is quite clear that no positive provision of the general decision concerning the levy can bear this meaning in relation to the contested decision. The most serious complaint which could be raised in contesting a decision of refusal is that the general decision concerning the levy makes no.

provision for a refund on the grounds of natural justice (and this was not the applicant's intention in their submissions). The absence of a rule forming part of the general decision cannot be treated in the present case and at any rate the result cannot be that the lawfulness of the general decision as a whole is called in question. If it is assumed for the sake of argument that, apart from establishing the rate of the levy, the general decision had also contained a provision precluding the refund of the levy on grounds of equitability, the High Authority's reply to the applicants' request would have contained the following reference: ‘in accordance with Article X of the general decision concerning the levy a refund is precluded’. In the dispute regarding the legality of the High Authority's answer only this part of the general decision, through the objection of illegality, could have been brought into the debate and considered, because the statement of the High Authority which, as must riot be overlooked, is limited in its subject-matter, is only to that extent founded on the general decision.

I thus maintain that General Decision No 33/59 does not constitute the legal basis for the contested letter. The objection of illegality is inadmissible in the form in which it has been submitted.

II - Further considerations in the sphere of admissibility

An alternative considerations of the wider dispute in the proceedings requires me to disregard the result of my previous considerations. I must suppose that the objection of the illegality of the general decision on the levy is admissible either because the High Authority's request for payment contained in the letter of 24 July 1959 is to be considered as constituting a decision (which is naturally based on the general decision concerning the levy) or because it must be accepted that the general decision constitutes a legal basis which may be invoked in the refusal of the refund on the grounds of natural justice.

The applicants strenuously contest the general decision concerning the levy on the grounds that it is incompetent, that it infringes the Treaty and that it constitutes misuse of powers. In this connexion they put forward arguments the scope of which goes beyond the general decision. They call in question the funds established by the High Authority (the guarantee fund and the special reserve) (2) and infer that the general decision concerning the levy is unlawful because of its alleged inadmissibility.

The High Authority disputes the admissibility of this line of argument on various grounds:

The establishment of the funds is based upon financial, economic and social considerations which are not subject to review by the Court.

The establishment of the funds constitutes neither a factor in the individual decision nor in General Decision No 33/59 and accordingly it may not be contested through the objection of the inadmissibility of General Decision No 33/59.

The funds were partly set up many years ago and the applicants have in various ways benefited from them. Thus the applicants have lost the right to plead that the funds are illegal.

I shall first turn to these questions.

In other words: are the application and the decision as to the purpose of the levy and the other income of the High Authority subject to review by the Court?

The High Authority's attitude to this question is not completely clear from the written procedure. It may be inferred from certain remarks in the reply that it wishes completely to exclude the management of its budget from review by the Court. For example, at page 7 the establishment of its financial requirements is termed a political decision and it is emphasized that in imposing a levy of less than 1 % the High Authority is subject only to the supervision of the Parliament. Again the High Authority maintains at page 31 that the Court cannot claim to be the watchdog of the High Authority's financial policy. On the other hand, in its rejoinder the High Authority concedes that the decisions concerning the levy do not constitute political decisions preserved from review by the Court (pp. 3-4); review as to matters of law of the decision concerning the annual levy is not in general outside the jurisdiction of the Court of Justice (p. 25). Fixing the rate of the levy, however, requires, a margin of discretion in excess of that mentioned in the second sentence of the first paragraph of Article 33. It is an inherent characteristic of decisions of this nature that the framework for review by the Court as to legality is extremely narrow (pp. 3-4). Mention must finally be made of a point from page 30 of the rejoinder which reads as follows:

‘The concept “requires” employed as an economic criterion in Article 49 of the Treaty with regard to “funds” in the sense of “financial resources” [“Mittel” im Sinne von “Geldmittel”] does not itself relate to the amount but only to the substance. It determines the allocation of the funds from the levy but cannot be used as evidence before the Court to restrict the rate of the levy.’

From these arguments as a whole it can be inferred that the High Authority is not so concerned with a strict limitation of the review by the Court of matters of substance (the decision as to the ends for which the levy and other income is applied) as with the amount (the rate of the levy and the amount of the individual items of expense). It appears that this interpretation of the Treaty is more correct.

The levy which is held to be ‘required’ is fixed by the High Authority in accordance with Article 50 in a general decision. The Treaty contains a number of provisions imposing restrictions on the right to submit applications against decisions of Community institutions or the right of the Court to review them (cf. the first paragraph of Article 33; the second paragraph of Article 35 and in particular the third paragraph of Article 38). (3) On the other hand, the Treaty contains no provision prescribing special rules for decisions concerning the levy. The nature of these decisions provide no grounds for according them treatment of a different nature. In accordance with the structure of the Treaty the fixing of the rate of the levy is certainly dependent to a large extent on considerations of a political nature and with an economic aim. Nevertheless, it is also clear that the fixing of the rate of the levy is restricted by legal requirements and limits. In so far as review of the decision concerning the levy relates to the purpose of the levy (that is to say, to matters of substance) there are no difficulties regarding review by the Court and no objections against such review. The aims to be pursued by the High Authority are clearly indicated in the Treaty. In this the Community differs from a State which, because of its sovereignty, is all-powerful. Subjecting the decision on the aims of the levy and of other income to review by the Court accordingly does not constitute an unlawful restriction on the High Authority's freedom of decision. However, with regard to amounts, that is to say, in deciding the rate of the contribution for an objective prescribed by the Treaty, the High Authority must enjoy a wide discretion. In this case the Court's powers of review are restricted to a very narrow field, for example if the High Authority clearly exceeds its existing discretion. Subject to this limitation I consider admissible the applicants's arguments relating to the establishment of the funds and accordingly those relating to the purpose for which the general levy and other financial resources of the High Authority are to be applied.

2. The limits of the objection of illegality

The High Authority rightly emphasizes that in General Decision No 33/59 no mention is made of the establishment or maintenance of specific funds. In this respect the funds in fact do not constitute a ‘factor’ in this decision. The decision only fixes the rate of the levy for the year 1959-1960 and that is indeed done through reference to earlier decisions.

It is impossible to decide on the basis of the wording of the decision alone whether this levy is ‘required’ within the meaning of the Treaty since, as the decision is worded, it contains no detailed statement of reasons. Review of the decision concerning the levy thus necessarily involves extending the scope of the inquiry to include the budget of the Community in which the Community's financial conduct as a whole, including expenditure, the funds and their application and ultimately the income through fixing the rates of the levy, is fixed. The budget constitutes in this sense the basis for and necessary information on the decision concerning the levy. Past and present handling of the budget constitutes the background in law and in fact against which the criterion of ‘requirement’ will be tested. Inclusion of the budget accordingly does not exceed the objective framework of the dispute. I do not consider inadmissible the applicants' request to review the legality of the decision concerning the levy in terms of the High Authority's budget involving, as this does, a review of the destination of the existing funds.

3. The objection regarding loss of rights

This objection does not relate to forfeiture of the right to submit an application or the right to have the general decision concerning the levy declared void, as the application is directed against an individual decision of 24 July 1959 and indirectly against General Decision No 33/59 of 10 June 1959 published in the Journal Officiel of 22 June 1959. It should rather be considered whether the applicants, to support their application against this decision, can refer back to legal factors which occurred a considerable time ago, that is to the application of the levy and to other financial resources for the establishment of funds in previous years.

(a) Remarks giving the background of the contested funds

(aa) The guarantee fund

The guarantee fund, which is financed directly from the levy, is already mentioned in the First General Report of 11 April 1953 (p. 116). According to this report the fund amounted to 6000000 u.a.. It is stated in the Second General Report of 11 April 1954 that on 31 March 1954 the guarantee fund amounted to 27800000 u.a.

At the end of 1954 the guarantee fund contained 52500000 u.a., at the end of 1955 it contained 95000000 u.a., and since April 1956 it has contained 100000000 u.a. The highest point was mentioned in the First General Report of 15 March 1956. Since then the guarantee fund has continued unaltered.

(bb) The special reserve

The special reserve is formed primarily from the interest on liquid assets accumulated in the abovementioned fund which I must term the High Authority's financial means. At the end of 1954 the reserve amounted to 1500000 u.a. and has increased each year. At the end of 1958 the amount totalled 22700000 u.a. and on 30 June 1959 it was 25500000 u.a. In the 1959-1960 budget provision was made for a transfer of 5000000 u.a.

The development of this fund has always been described in the financial reports and general reports of the High Authority. Thus the special reserve is mentioned in the financial report for 1956 of 15 March 1957; at that time it amounted to 8700000 u.a. Furthermore in this report mention is made of applying these funds for constructing workers' housing (p. 16).

In the Fifth General Report of 13 April 1957 an account is given of the development of the special reserve from the second financial year up to the fifth financial year and the purposes for which it is to be applied are also mentioned.

(b) The applicants's benefit from those funds

(aa) The guarantee fund

Hamborner Bergbau AG obtained two credits amounting to approximately US $ 3000000 in 1954 and 1955 from the first American loan; in the beginning of 1957 a sum of US $ 2000000 was transferred to it from the second American loan.

(bb) The special reserve

The applicants benefited from the second programme for the construction of workers' housing by approximately DM 1800000 in 1957 and 1958 and from the third programme by about DM 800000 in 1958 and 1959, these programmes being financed in excess of 30 % from the special reserve. On 8 May 1959 the applicants requested and subsequently obtained a further credit amounting to DM 314800 under the third housing construction programme.

(c) The behaviour of the applicants

Before submitting their applications the applicants had not criticized the establishment and maintenance of the funds.

With regard to the establishment of the guarantee fund, its legality could have been contested as far back as the imposition of the levy for the financial year 1953-1954. The applicants consider that on the present volume of loans the admissible ceiling (16000000 u.a.) had already been exceeded by the end of 1953. In addition loans at that time only amounted to 117000000 u.a. and it was possible to submit objections against the establishment and application of the special reserve from the publication of the Financial Report of 15 March 1957, that is, from the financial year 1957-1958.

(d) Legal appraisal of the objection concerning loss of the right to object

The question arises whether the applicants were deprived of the right in the financial year 1959-1960 to contest the lawfulness of the decision concerning the levy with an argument based on the fact that the establishment and maintenance of the funds with the purpose for which they are presently applied is contrary to the Treaty, an argument which was available to them the previous year.

Objections to the admissibility of this argument exist from various points of view.

It could be said that whoever fails to contest a positive measure of the High Authority (directly or through the objection of illegality) has no right at a later date, without asserting that new facts have occurred, to request the removal of the consequences of that measure on the argument that the continuance of the measure constitutes an inadmissible omission on the part of the High Authority. The applicants could have protested against the establishment of the funds when the levy was imposed in the past. The applicants failed to do so and must thus be refused the right to call for the dissolution of the funds on an argument which could have been submitted against their establishment.

In addition the theory comes to mind that the right of application against a repeated measure is excluded. In this connexion I refer to French case-law (cf. Walone, ‘Droit Administratif’, Eighth Edition, p. 496):

‘With regard to regulations, provisions repeating an earlier regulation which was not contested within the limitation period do not cause the period to begin to run afresh’.

This case-law, indeed, does not correspond exactly to the present case but the main concept appears nonetheless applicable to it.

The establishment and the maintenance of the guarantee fund were decided in 1953. Later the fund was increased annually through revenue from the levy in implementation of this basic decision.

The basic content of the original decision, the establishment, enlargement and maintenance of the fund, thus reappears each year unchanged, merely complemented by special implementing regulations regarding the new allocation of specific amounts.

Fresh resources have not been transferred to the fund since the financial year 1956-1957. From this point onwards the repetition of an unchanged decision can be discerned in the maintenance of the fund.

Similar considerations apply to the establishment and enlargement of the special reserve, albeit subject to a reservation which must be discussed later, namely that relating to the fresh allocation of resources in the financial year 1959-1960.

The principle of legal certainty, good faith, loss of rights properly so-called and what is known as ‘estoppel’ in Anglo-Saxon legal systems must be considered.

‘The essence of an estoppel is that a party is not allowed to deny a state of facts which he has alleged to be true, either expressly in words or impliedly by conduct, on some previous occasion …’

The decisions of German courts on this question may be summarized as follows: the concept of loss of rights forms part of the principle of good faith which prevails in the sphere of public law and indeed in the law of court procedure.

The person concerned may not perform acts at variance with his earlier behaviour. However the mere passage of time is insufficient to bring about a loss of rights; the person concerned must through his behavior further create the impression that he acknowledges that the administrative measure is lawful and the authority must have adopted measures in accordance with the conduct of the person concerned.

Thus:

Bundesfinanzhof, judgment of 11 June 1958, Betriebsberater 58, Vol. 25;

Bundesverwaltungsgericht, judgment of 10 October 1957, Entscheidungssammlung, Vol. V, 26;

Hamburger Oberverwaltungsgericht, judgment of 31 January 1958, die Öffentliche Verwaltung 58, 306.

Cf. Stephen's ‘Commentaries on the Laws of England.’ 1950. III, p. 153; Schitzer, ‘Vergleichende Rechlslehre’ 1945. p. 280.

In the present case important factors exist with regard to these legal considerations to which reference has already been made in part. These factors include the following. Since 1953 the guarantee fund has formed the basis of the High Authority's loan policy and we can here disregard the point whether the High Authority has a legal duty vis-à-vis the creditors of the loan to maintain the guarantee fund at a specific level. It is sufficient that the loan creditors are acquainted with the establishment of this fund. Even though its existence at a specific level is not to be considered as an underlying condition of the loan agreements, its existence has nevertheless made an effective contribution to the High Authority's goodwill, capacity to make issues and obtain credit through the issue of securities, assets which would be considerably disturbed by the dissolution of the fund. Repercussions for negotiations on future loans cannot be excluded.

Since the applicants did not submit any complaint whatever against the High Authority's loan policy, the High Authority had grounds for assuming that the lawfulness of its measures could not be disputed. It may be accepted that if the High Authority had had submitted to it within the appropriate time a relevant and justified criticism of its financial policy it would have adapted in particular its loan arrangements (which were planned for ten-year intervals).

The same holds good for the establishment and application of the special reserve which for years has been granted to undertakings or their linked housing-construction companies for the building of workers' housing. A review of this credit policy and any repayment of the resources distributed as loans would, if indeed it were at all possible, involve difficulties and financial loss for the High Authority.

In view of this circumstance the applicant's criticism of the financial conduct of the High Authority must, in my estimation, be considered inadmissible. The theory of loss of rights does not entail an unfair curtailment of the protection afforded by the Court, since the right of application itself is not restricted. Restrictions must be indicated but applicable only with regard to the objection of illegality. On the basis of this objection a criticism can be made against the measures of the High Authority for which the period for lodging applications has expired. The objection of inadmissibility constitutes an enlargement, in accordance with system of protection by the Court afforded by the Treaty, of the right to institute proceedings. Because of its danger to legal certainty the objection of illegality must be kept within bounds if the smooth operation of administration is not to be jeopardized.

The applicants thereby claim that the coal crisis (a new fact) shows the legality of the funds in another light, an argument which perhaps should not be dismissed out of hand. They maintain that it is doubtful whether this crisis, affecting only one branch of production in the mining industry, necessitates a general review of previous financial conduct and a general exemption from the levy or whether special arrangements like those already adopted for the protection of the mining industry are sufficient.

The applicants maintain that the establishment of the funds was always illegal, that is, from the very beginning and for considerations of principle. However it is only now that they have discovered this illegality.

This explanation cannot prevail against the findings which I have just made excluding the objection of illegality. The financial measures of the High Authority have always been publicised. The lawfulness of these arrangements could always have been checked; this could have been expected of all persons liable to the levy even in preceding years. If such a check was not carried out it must now be precluded after the passage of a number of years.

In this connexion special remarks require to be made with regard to the special reserve in so far as it is maintained that it was increased in the financial year 1959-1960.

The arguments which have been previously mentioned are of course partially inapplicable to this transfer of funds from the interest on the capital. In this matter the behaviour of the applicants in the immediate past is important. The High Authority has declared without being contradicted that the applicants could have requested the grant of credit from the special reserve not merely in earlier years within the framework of the second and third housing construction programmes but also in April 1959.

Their argument that the establishment and application of the special reserve is contrary to the Treaty is at odds with this conduct.

In the oral procedure the applicants defended themselves against this objection by referring to the duties of the management of an undertaking which, despite doubts as to its legality, could not disregard the interest of their company in the financing available from the special reserve. This, however, does not justify the contradiction which can be discerned in the conduct of the applicants. The applicants can scarcely request the High Authority to apply the resources of the special reserve for budgetary requirements if, through requests for credit and receipt of resources from these funds, they concurred in another application of them and knew that these resources can only be replaced through loans which, if they can be obtained at all, entail difficult and financial sacrifice for the Community.

Accordingly the High Authority's objection that the applicants have lost their rights must prevail to this extent.

If this line of argument is accepted then no admissible arguments remain whereby the applicants can contest General Decision No 33/59 concerning the levy: the applications would have to be dismissed since there are no relevant, well-founded grounds of complaint.

However I shall not terminate my opinion with this finding and instead I shall give my views on the remaining important points in the proceedings, conceding, however, that these remarks are only of a subsidiary nature.

In its defence the High Authority has put forward a question for consideration and endeavours to infer from the answer to it that the applicants' contentions against the existence and the application of the guarantee fund are irrelevant. The High Authority states that, when the applicants press for the reduction or dissolution of the guarantee fund and explain that it is possible to dispense with the imposition of the levy if resources from this fund were to replace the income of the High Authority from the levy, they have drawn false conclusions: the reduction or dissolution of the guarantee fund would oblige its creditors to call up the loan, which would in itself require the guarantee fund to be used up and, if this were insufficient, it would be necessary to increase the levy, resulting in further calls on the persons by whom the levy is payable.

The applicants' reply to this point is ambiguous. Whilst at one point they state that they merely wish exemption from the levy imposed for the financial year 1959-1960. Elsewhere they explain in great detail why the guarantee fund and another fund must be dissolved. It is an important point in this argument whether, in the negotiations concerning the issue of its loans, in its offer to subscribers (principally in the United States and Switzerland) and in the Act of Pledge which governs relations with the Bank of International Settlements in Basel, an undertaking was given that the said guarantee fund which ultimately amounted to 100000000 u.a. should be left intact and continued as security so that any departure from this undertaking could have had legal or perhaps merely commercial, but none the less real, effects for the banks taking up the issue and for the individual holders of loan-stock.

I have taken pains to examine the available documents in this connexion.

Sections 605, 606 and 701 of the Act of Pledge are relevant: (4)

‘Section 605. The High Authority will maintain and collect levies, as provided in the Treaty … sufficient to provide, in addition to any payments to be made therefrom, for any payment of the principal of and premium (if any) and interest on the Notes which cannot be promptly and fully paid from the receipts of the High Authority from Project Loans made from its other funds; and the High Authority will apply such levies, to the extent required, to the payment of the Notes and interest thereon.

Section 606. The High Authority, considering that it is essential that all creditors, direct and indirect, of the High Authority shall have assurance that no one of them will receive any preference over any of the others as to the aforesaid levies which the Treaty authorizes the High Authority to maintain and collect and which underlie the credit of the High Authority, and considering that the levies and the guaranty fund resulting from them should be at all times available to protect, without discrimination, all engagements of the High Authority, whatever their form, hereby states that it does not propose to create, and agrees that it will not create, any mortgage, pledge or other priority on its revenues coming from the levies or on the accumulated levies from time to time resulting therefrom, or, except as provided herein, on any other assets of the High Authority.

Section 701. In case any of the following events … shall happen and be continuing:

default shall be made in the prompt and full payment of any instalment of principal of or interest on any Note or in the prompt and full payment of other satisfaction of any amortization obligation in respect of any Note, which shall not be cured by payment thereof within thirty days of the due date; or

there shall be a material breach of any other of the covenants or conditions contained in this Indenture or any indenture supplemental hereto or in the Notes, which shall not be cured within ninety days after written notice thereof shall have been given to the High Authority and the Depositary by the holders of not less than 25 % in principal amount of the Notes of any series at the time outstanding; or

the Treaty shall be modified in a manner that shall adversely affect the capacity of the High Authority to perform its obligations under this indenture or any indenture supplemental hereto or under the Notes and written notice of such modification shall have been given to the High Authority and the Depositary by the holders of a majority in principal amount of all the Notes at the time outstanding;

then and in each such case, the principal of all Notes then outstanding hereunder (if not already due) may be declared to be due and payable immediately by written notice given to the High Authority and the Depositary by the holders of not less than a majority in principal amount of all the Notes at the time outstanding …’

Furthermore a part of the prospectus of 9 April 1957 (p. 18) should be mentioned:

‘… The High Authority's Guaranty Fund amounted to the equivalent of US $35.9 million on June 30, 1954, US $75.0 million on June 30, 1955, and US $100 million on June 30, 1956. The High Authority does not intend to increase this fund for the present. It is the policy of the High Authority, however, to maintain a normal ratio between this fund and the outstanding obligations of the High Authority. The fund may, therefore, be expected to increase in the future if, in the judgment of the High Authority, as a result of increased commitments, a larger fund is required to maintain a reasonable relationship between the amount of the fund and the total amount of the outstanding borrowings and guaranties of the High Authority. The criterion for determining such normal ratio or reasonable relationship is whether the fund is large enough, in the opinion of the High Authority, to protect against any reasonable foreseeable interruption in the payment of interest on or amortization of the High Authority's' borrowings taking into account the service monies on the loans made by the High Authority to enterprises and its other available resources, as well as its other commitments. This will necessarily depend on conditions existing from time to time in the future. The present fund, in the opinion of the High Authority, more than satisfies such criterion. The High Authority makes no representation as to the time or amount of any changes that may be made in the fund in the future…’

The decisive and principal part of this wording reappears in the prospectuses of 24 June 1958 and 12 October 1960. The prospectus for the loan contracted in 1956 in Swiss francs has similar wording.

Page 2:

‘… To ensure the punctual service of its loans the High Authority may also have recourse:

to the right which the High Authority possesses under the Treaty to impose a levy (tax) on the coal and steel production of the industries of the Community;

(b)to the Guaranty Fund constituted with this levy to which reference is made in the balance sheet of the High Authority. The equivalent of this Guaranty Fund amounted to US $ 100000000 on 30 April 1956.’

Pages 9/10:

‘… As has been stated, service of the interest and amortization of the loan issued by the High Authority will be covered primarily through service of the interest and amortization of the credits which it has granted; to ensure the punctual service of its loans the High Authority may also have resource to the following means:

(a)above all to the Guaranty Fund constituted out of the revenue of the levy, the equivalent of the Fund amounting to 100000000 u.a. (dollars) on 30 April 1956. (This fund can be increased at any time if this should be necessary in order to maintain the usual relationship in financial institutions between the resources of the fund and resources obtained through loans) …’.

In any case these documents indicate no more than that the High Authority prudently refrained from giving an express obligation to maintain the guarantee fund at a specific level. Such behaviour must be recognized as proper and business-like conduct in commerce and finance. From the arrangements of the High Authority which have been produced it does not prima facie appear that the objection regarding relevance is well founded.

I must, however, point out that we have not been supplied with all the factors in the negotiations, for example we lack the documents concerning the declarations made to the American Securities and Exchange Commission and the negotiations with the banks taking part in the issue. These explanations are important because they relate not only to the issue but to obtaining a stock-exchange quotation for the loans. This also applies to the negotiations with the Swiss issuing houses. I cannot clearly discern how a change in the guarantee fund would have been assessed by the banks and security holders in New York or Switzerland participating in the loan. I did not wish to pass over this group of questions which takes up a considerable part of the submissions of the parties, but without further explanation I cannot answer the ultimate doubtful points which relate to the relevance and substance of the case. Nevertheless I considered that further questioning of the parties must be eschewed since it is possible to settle the case on other grounds.

III — Whether the applications for annulment are well founded

In the logical sequence of our investigation the question now arises whether General Decision No 33/59 concerning the levy is defective because, in view of the existing funds, the levy for the financial year 1959-1960 could have been dispensed with. This brings me to consider the legality of the establishment, maintenance and increase of the guarantee fund and the special reserve.

A — The guarantee fund

The function of this fund is to secure the loan service of the Community, as the High Authority has an obligation to the creditors to pay them with the resources from the funds if the High Authority's debtors do not meet their obligations.

(a) The third subparagraph of Article 50 (1)

As the applicants emphasize and the High Authority admits, the Treaty does not mention a guarantee fund. In connexion with the servicing of loans by the High Authority Articles 50 and 51 mention a reserve fund to be created from surplus interest in the guaranteeing of credits from loan resources. Nevertheless it is clear that this reserve fund is not identical with the guarantee fund in dispute.

Up to this point the High Authority had endeavoured to keep the costs for the loans granted by it as low as possible and to refrain from establishing a reserve fund. This cannot be opposed since the High Authority has power to establish the reserve fund; cf. Article 51 (3): ‘the High Authority may so determine its conditions for loans … as to enable a reserve fund to be built up …’

For an appraisal of the guarantee fund reference must thus be made not to Article 51 but to Article 50, as is stated in the Accounts' Report for the financial year 1954-1955 in Volume 2, p. 147. The third subparagraph of Article 50(1) reads thus:

‘The levies are intended to cover:

…

…

in the case of the financing arrangements provided for in Articles 54 and 56, and after recourse to the reserve fund, any portion of the amounts required for servicing loans raised by the High Authority which may not be covered by receipts from the servicing of loans granted by it, and any payment to be made under guarantees granted by the High Authority on loans contracted directly by undertakings’.

This in fact means that the resources from the levy may be used for servicing the loans of the High Authority.

(b) The previous establishment of a reserve fund

The applicants concluded from the said provision, for the first time, as it appears to me, in the oral procedure of 28 October 1960, that recourse to the levy was conditional upon the establishment of a reserve fund. The obligations of all the mining undertakings regarding the servicing of Community loans may only be invoked after the group of creditors have themselves endeavoured to cover the repayment guarantees.

In my opinion the following considerations are at variance with such a view.

According to the wording of Article 50 the establishment of a reserve fund and prior recourse to it are not conditions for the cover by funds from the levy of the guarantees of the High Authority, that is for the sureties and guarantees. This is so although in accordance with Article 51 the reserve fund can also be established by means of the conditions in the guarantees. There seems no justification for according different treatment of this nature to the credit operations of the High Authority. Accordingly, even within the framework of the service of loans, only the application of any existing reserve fund and not the establishment of a reserve fund is the condition for having recourse to the levy funds.

The High Authority is correct in pointing out that under the Treaty it has a power of appraisal with regard to reserve funds. It must have room for manoeuvre in its credit policy, above all in establishing the rates of interest for credits, as it is inter alia obliged to bring about, by levelling the rate of interest, the greatest possible uniformity in basic conditions in the financing of investments in the Community (5). The compulsory establishment of a reserve fund from the credit funds would hamper this task since the effect would be to increase the cost of credit.

The establishment of a reserve fund is subject to limitations which depend upon the state of the capital market. According to the circumstances the fund might be so small that it would be insufficient for the purposes of the service of loans. In such a case recourse to the levy would be unavoidable because the Community is liable to the creditors. Accordingly the obligatory establishment of a reserve fund of this nature would only be of slight economic use.

If it is possible to apply the levy funds to cover the servicing of loans without the prior accumulation of a reserve fund there is nothing to prevent a corresponding reserve for future liabilities, provided that the loans due are to hand or may be anticipated within a reasonable time and that it does not seem impossible that the High Authority could be obliged to repay the loan in the place of a defaulting creditor. I consider that in such a case the High Authority should not be constrained subsequently to impose a levy if there is a default in payment. A subsequent levy of this nature could involve considerable disruption of the economic arrangements of Community undertakings. Reserves for future liabilities are thus preferable, even from the point of view of the undertakings. Furthermore, I consider that the High Authority must be permitted to apply considerations, inter alia of those relating to market policy, that is to say, in supporting the levy and setting up reserves it may take into account future crises which might considerably reduce the return from the levy.

Accordingly Article 50 of the Treaty justifies the guarantee fund in the principle.

2. The amount of the guarantee fund

In the procedure the applicants have conceded that in establishing the guarantee fund the High Authority naturally enjoys a margin of discretion. As I have already stated this view is entirely correct.

(a) The second sentence of the first paragraph of Article 33

We must now consider whether the Court of Justice can at this point exercise its right of review.

The second sentence of the first paragraph of Article 33 reads thus:

‘The Court may not, however, examine the evaluation of the situation, resulting from economic facts or circumstances, in the light of which the High Authority took its decisions or made its recommendations, save where the High Authority is alleged to have misused its powers or to have manifestly failed to observe the provisions of this Treaty or any rule of law relating to its application’.

It cannot be disputed that fixing the amount of the guarantee fund comes under the examination of ‘the situation, resulting from economic facts or circumstances’, nevertheless the High Authority must in its considerations take into account the future development of production and the currency market, that is to say, the general economic situation, in considering to what extent the loans might become due and the likelihood that claims will be lodged against the High Authority itself for service of the loans.

Indeed the applicants expressly invoked the second sentence of the first paragraph of Article 33, alleging a misuse of powers and manifest failure to observe the provisions of the Treaty.

Viewed in its proper light Article 33 by itself does not provide grounds for examination by the Court. Indeed it cannot be necessary to prove a misuse of powers or manifest failure to observe the provisions of the Treaty since in that case the application could be entertained without further consideration. However some evidence for the said faults must be advanced, that is to say the applicants must put forward a prima facie case that the decision came into being through a mususe of powers or a manifest failure to observe the provisions of the Treaty.

I should like briefly to summarize the relevant arguments of the applicants.

It is stated in the application that the High Authority in its financial policy has failed to observe basic provisions of the Treaty (the principle that the levy must be kept as low as possible; the principle of a strict relation to requirements; the basic principle of limited authority). The maintenance of the fund moreover brought about a state of affairs which is contrary to the aim of the Treaty, namely the attainment of the lowest prices. This constitutes evidence of a manifest failure to observe the provisions of the Treaty and of a misuse of powers.

The applicants state (application p. 18): ‘in accordance with accepted banking criteria a guarantee fund should not exceed a twentieth part, that is to say 5 %, of the obligations which it covers'. ‘The basic rules of political economy, which are decisive in this matter, apply to all creditors and thus may be deduced as a clear percentage rate from the principle of banking practice regarding the usual ratio between the amount of the loan and the amount of the guarantee’ (reply p. 34).

In the principles set out on 31 July 1954 by the High Authority with regard to the financing of investment it was established that the guarantee fund should amount to 35000000 u.a. and it was noted that settlement of the loan (of US $ 100000000) in no way meant an end to the existing credit and guarantee structure of the High Authority.

cf. also the explanations to Parliamentary Committees (Gemeinsame Versammlung Dokumente 1954/1955 No 10. p. 19) or in the loan prospectuses.

The High Authority has placed extensive funds with commercial banks for the capital returns: under this heading come middle-term credits with up to five years to run. It accordingly acknowledges that it is not using its reserve against losses to the full extent.

The defendant has opposed the allegations of the applicants with a comprehensive statement of facts and with legal arguments.

An examination of the subject-matter of the dispute allows us at this stage to establish the following result.

In my opinion the applicants have neither satisfactorily established that there has been a manifest failure to observe the provisions of the Treaty nor sufficiently substantiated the suspicion of a misuse of powers. In accordance with the design laid down by the Treaty in Article 33 with regard to the jurisdiction of the Court of Justice, it follows from this finding that the margin of discretion within which the High Authority operates in the present part of the dispute cannot be considered by the Court. I think at this point that I can refrain from providing the reasons for this finding, in view of the applicants' arguments and the defendant's replies which I have not enumerated. For the sake of simplicity we should go beyond the restrictions of the second sentence of the first paragraph of Article 33 and, as a subsidiary theme, with all reservations regarding a somewhat inadmissible extension of the scope of the Court's examination, we should consider the discretionary decision of the High Authority so that the arguments as to law and the facts are discussed only once.

(b) Legal appraisal of the discretionary decision

In the course of the procedure we have heard that the total amount of the High Authority's obligations in connexion with the loans and guarantees amounted to 211800000 u.a. at 31 August 1960; it presently amounts to 270600000 u.a. following a new loan of 35000000 u.a. and guarantees amounting to 23800000 u.a. The relation between the guarantee fund and the obligations of the High Authority thus does not differ appreciably from what it was in 1954. Furthermore, it should be noted that the High Authority's earlier explanations on loan policy contained figures and thus are not entirely vague. They are not directly capable of establishing misuse of powers in the High Authority's behaviour in 1959, in relation to which the factual situation, which may have altered, is decisive.

This also applies to the other explanations referred to in the procedure, that is, the statements of members of the Assembly before the ratification of the Coal and Steel Treaty (6) or in the Common Assembly (7)

or the views of writers in various publications. (8) Binding principles of action for the High Authority cannot be inferred from them even although precise figures were mentioned.

In response to my questions about the dates of payment agreed regarding the individual amounts of the capital the High Authority has supplied us with detailed information on the investment with credit institutions of the resources from the guarantee fund. According to this information 106400000 u.a. will be available within nine months. The High Authority has also explained that most of their fixed-term accounts could if necessary be called in before they were due and they could be terminated provided that it accepted a reduction in the rate of interest agreed for the deposit. Such financial arrangements and alterations of agreements regarding the investment of funds are perfectly normal; they in no way indicate that the funds invested were dispensable.

In principle we ought not to disregard the fact that, in appraising the financial arrangements of the Community and the financial conduct of the High Authority and in particular the guarantee fund, we are dealing with factors in a supranational system which, when it was created, was decided by important political considerations whose political and economic consequences were, initially at least, not entirely perceptible. The European Coal and Steel Community represents a form of a new nature in international affairs and legal and economic organizations comparable to it do not exist. The institutions of this community, and above all its financial institutions, can be appraised in terms of national criteria only with the greatest reservations.

In the context of their specific complaints the applicants first placed quite particular emphasis upon the usual banking criteria regarding the relation between the loan and the capital covering it, inferring a specific ratio for the cover from ‘the basic laws of political economy, which … apply to all creditors…’. This postulate, advanced in a clear and simple form, is in fact unfounded. Basic laws of political economy are not laid down and are not recognizable in the form in which they have been put forward. This also holds good with regard to the six Member States and third countries which are creditors and for the relations regarding the Bank of International Settlements.

The applicants are wrong in their reference to alleged banking rules in that the High Authority is forbidden to engage in banking operations (Article 51 (4)) and thus the application of the rules of banking operations is also prohibited. The Treaty allocates the banking operations entailed by the financial tasks of the High Authority to the banks and furthermore (second sentence of Article 51 (1)) obliges the High Authority to observe the rules in force with regard to the issue of loans on the markets of Member States.

It is certainly incorrect that for the amount of the loan and the security capital a ratio of 100:5 is applicable to every debtor and thus also, for example, to an undertaking which endeavours to obtain a loan on the national capital market. The clearing banks and the commercial banks differ in this respect in that long-term loans are only granted for and on behalf of third parties and do not involve the liability of the banks themselves.

The applicants have in mind rules which apply in their country to certain banking institutions with regard to a special sector of the long-term capital market. Thus in the conduct of their business mortgage banks must not exceed a ratio of 20:1 or 15:1 between the amount of placements made (mortgage bonds) and the amount of the paid-up basic capital including a precisely determined reserve fund. Clear safeguard provisions have been laid down with regard to this ratio (supervision by the government and the definition of appropriate securities for the loans). (9) The loans granted by the mortgage banks are long term and are redeemable at annual amortization rates at the same time as the interest is paid, like the long-term loans of the High Authority. Nevertheless they differ in an important respect. The mortgages are restricted to immovable property in Germany, must not exceed a certain proportion of the security mortgaged and may only be granted by these banks because this is unlawful in terms of the rules governing their loan operations and because the risks in industrial loans are different from those in loans on German immovable property.

The difficulties with industrial loans has led in the national sphere to the adoption of special legal and organizational arrangements in order to meet these deficiencies. With regard to the Federal Republic, earlier methods of industrial finance should be disregarded and reference made to the Investment Assistance for Industry (Bundesgesetz of 7 January 1952) which was in force when the European Coal and Steel Community was established and which required industry to supply a lump sum of at least one thousand million to cover the urgent investment requirements of the coalmining and iron-manufacturing and energy industries. The cover was assured through the debtors' obligations under public law which are comparable with the obligations of the contributors to the levy. In other Member States governments have also adopted similar arrangements to assist in providing security for investment finance.

The applicants' argument that the calculation of the amount of the guarantee fund was mistaken in terms of the basic principles of political economy and because of failure to observe the principles of banking practice, thus emerges as false.

B — The special reserve

The special reserve consists of

interest from the funds which I have described as the capital of the High Authority, including interest on loans from the special reserve, and

fines and default interest.

Money from this fund was and is used to maintain cheap credit for the construction of workers' housing.

2. Legal appraisal

The applicants consider that the Treaty makes no provision for this use of the said income and that it is accordingly improper. The funds from the special reserve are earmarked in the same way as the general levy. However funds from the levy must not be made available as security for credit for the construction of housing.

Three questions thus arise in this connexion:

(a)Does the building of workers' housing constitute one of the tasks which the High Authority must perform?

(b)May funds from the levy be used for this purpose?

(c)Are interest and fines etc. restricted to the same purpose as the general levy?

(a) Legal basis for the construction of workers' housing

Article 3 (e) is not to be considered as the sole basis in the Treaty for the construction of workers' housing:

‘The institutions of the community shall…

promote improved working conditions and an improved standard of living for the workers in each of the industries for which it is responsible, so as to make possible their harmonization while the improvement is being maintained.’

This provision delineates the aims of the community but contains no enabling provisions with regard to the institutions of the community. It is acknowledged that in accordance with the principle laid down in Article 8 the High Authority is bound to ensure that the objectives mentioned in the Treaty are only attained in accordance with the provisions thereof, that is to say, in accordance with the provisions regarding its powers contained in the Treaty (cf. also Article 46 of the Treaty).

In this respect the second paragraph of Article 54 is relevant:

‘With the unanimous assent of the council, the High Authority may by the same means assist the financing of works and installations which contribute directly and primarily to increasing the production, reducing the production costs or facilitating the marketing of products within its jurisdiction.’

It seems to me that workers' housing must be regarded as installations which contribute directly to increasing production since such construction can retain labour for the undertakings and obtain new labour for them.

In this connexion I refer to a passage in the Belgian documents relating to the ECSC Treaty:

‘The second paragraph of Article 54 does not relate to individual producer undertakings but to works and installations which benefit the production of the Community as a whole, as for example the construction of houses for workers, constructing a canal, coaling stations, warehouses etc. Since the construction of such works can have a beneficial or adverse affect on specific countries, provision has been made for a unanimous decision of the Council of Ministers, in order to safeguard the interests of each country’. (11)

(b) Financing of the construction of worker's housing through the levy

The list of uses for the levy contained in Article 50 of the Treaty is detailed and exhaustive. The High Authority is also of this view, since it admits that the principle that funds must only be used for the purpose for which they are allocated is applicable to the levy. See the reply of the High Authority to a Parliamentary question, Journal Officiel 1953 p. 176:

‘The Treaty provides an exhaustive list of the uses to which the levy may be put.’

This principle forms a consistent element in the system of the Treaty which, instead of providing a general competence for the High Authority, contains precisely-described powers for individual cases. This seems understandable in view of the novelty of the supranational institution and in view of the poor opportunities available under the Treaty for political control of the High Authority.

Article 50 does not mention as a purpose for which the levy may be used the financing of institutions established under Article 54. So far as this article is relevant it merely concerns covering any portion of the amounts required for servicing loans which may not be covered by its own borrowing. The conclusion must be drawn that in this sole contingency the Treaty makes provision for the joint liability of the community undertakings with regard to the financing of investments. Nevertheless investment must not in general be financed with fund contributed by all the undertakings of the community, that is, with the levy. The second sentence of Article 50 (1) also corroborates this argument: in this sentence only the non-repayable aid under Article 56 is mentioned as opposed to the other matters listed in Article 56 and in particular the financing of the conversion programme.

From this it is clear that funds from the levy cannot be used for financing the works and installations mentioned in Article 54.

(c) Financing of the construction of workers' housing by funds from the special reserve

Is the High Authority's income which goes to make up the special reserve also subject to strict limitations as to its use?

The Treaty contains no provisions on this point which, as the applicants emphasize, is partly explained by the fact that when the Treaty was concluded it was not expected that revenue from interest would accrue on a large scale. Nevertheless the capital of the High Authority latterly produced a considerable income from interest which was mostly assigned to the special reserves. In comparison with this the other sources of the special reserve (fines and default interest) are much less important.

The treatment in law of this income of the High Authority must be investigated in the light of general principles and with regard to the basic structure of the Treaty.

In support of their argument the applicants recall the general principle of law ‘accessor-rium sequitur principale’