BETWS Anthracite Ltd. v DSK Anthrazit Ibbenburen GmbH

I start with the parties. The Claimants, whom I shall call Betws, own and run an anthracite colliery in South Wales. In 1994, there was a management buy-out of the colliery from British Coal who were minded to close it. The Defendants, whom I shall call Preussag, are a producer of anthracite in Germany and sold anthracite into the United Kingdom through exporters and wholesalers.

Anthracite, as a coal product, comes in a number of grades, the finest of which is sold to power stations and the larger sizes largely to households. Some of the smaller material is made into briquettes for use in home heating. Anthracite has the highest carbon content of all types of coal. “It is a high grade, almost smokeless fuel with a low proportion of volatile components. It has a low flammability, but gives off constant, intense heat. Because of these properties, it has always been highly suitable for use in industry and above all in the home” [Commission Decision 1999/184/ECSC].

Betws say that Preussag had unlawfully used state aid given to them by Germany. They rely upon a Decision of the Commission published on 29 July 1998, which determined that Preussag had misused, in 1996, DEM 9.8 millions and, in 1997, DEM 6.8 millions of aid “so as to operate a predatory and discriminatory pricing policy thus distorting competition between it and the British producers of anthracite, including the Claimant” [paragraph 6 of the Points of Claim referring to Articles 1 and 2 of the Commission Decision]. Betws say that as a result of the misuse of aid by Preussag they have suffered loss and damage which they calculate to be about £4.5 million.

Preussag deny that the Commission’s Decision, when properly understood, refers to “any alleged predatory and discriminatory pricing policy capable of distorting competition between the Defendant and British producers of anthracite, including the Claimant”. The operative part of the Decision makes no reference expressly or by implication to any relevant predation or discrimination. The only references to discrimination in the Decision concern differences in prices as between different Member States. Further, the Decision makes no reference to any predatory pricing policy.

Since there has been argument about the Commission Decision and its nature and extent, I annex to this judgment a full copy of it. The Decision itself contains 87 paragraphs, preceded by the word “whereas”. There then follow 6 “Articles” preceded by the words “HAS ADOPTED THIS DECISION”. This has relevance to one of Preussag’s arguments, namely that the only operative part of the Decision is contained in the Articles appearing after the words in capital letters cited above.

What follows is simply a short summary of the Decision which was published by the Commission on 29 July 1998: “on aid granted by Germany to the companies Sophia Jacoba GmbH and Preussag Anthrazit GmbH for 1996 and 1997”. It will be convenient to refer to the two German companies as Sophia Jacoba and Preussag.

The Commission record that an English company called Celtic Energy Limited [Celtic] had lodged two complaints with the Commission relating to the misuse by Sophia Jacoba and Preussag of State Aid. These complaints were investigated by the Commission and they were formally notified to Germany who responded in October 1997. Comments were sought from other Member States and ‘interested parties’. Such comments were duly received from the United Kingdom and “several competitor companies” and the German coal producers, and duly forwarded to Germany. The Commission recorded that, on 12 June 1998, there was lodged with it a complaint from Betws “about the sale of German sized-anthracite in the Community Market and more particularly in the United Kingdom” but that this complaint was lodged too late so that it was not taken into account by the Commission in reaching its decision. Preussag in turn sent to the Commission a paper setting out its position in relation to the formal notification given to it by the Commission.

The Decision continues:

“The complaints in question relate to the sale in 1996 and 1997 by [Sophia Jacoba] and [Preussag] of sized-anthracite subsidised in the Community. The extremely favourable prices (compared with production costs) offered by these companies on the Community market and primarily in the United Kingdom are said to have been possible only through the use of State aid paid by Germany under Decision No 3632/93/ECSC [the Commission Decision which established Community rules for State aid to the coal industry]. This aid which, according to the complaint, covers a substantial part of the companies’ production costs, is said to have been used for an unauthorised purpose.

The Commission indicated that they considered the complaints and replies and had various meetings “in order to analyse the problem in greater depth”. They record the fact that the anthracite market in the Community mirrors “the difficulties facing the Community coal industry: decline in demand (especially in the household market), growing competition from foreign imports and high production costs in some sectors. In relation to Preussag, the Commission recorded that the cost of production per tonne was ECU 152; whereas Celtic’s cost of production per tonne was ECU 43. This was due to geological conditions: Preussag’s anthracite was being extracted from deep mines whereas the geological conditions for Celtic were more favourable. Anthracite is a high-grade almost smokeless fuel, which gives off constant intense heat. The raw mined anthracite undergoes several processing stages to separate “the fines” from the nuts or sized-anthracite. There is a market for ‘fines’ in the power industry at a price of DEM 60-70, representing about 60% of the pit production, as compared to the higher commercial value for the larger sizes of DEM 190 per tonne, which represents about 20%-30% of the pit production. The Commission noted that the marketing of anthracite traditionally concerned mainly ‘sized anthracite’. And this market is geographically limited to the traditional coalmining regions of the Community including the United Kingdom. The market for German anthracite in the United Kingdom was served through Hull and the market lay between Hull and the South coast. Preussag started exporting to the UK in the middle 1970’s.

The Commission record that Celtic, on privatisation of British Coal, took over several anthracite producing pits in Wales. It decided to expand its business in England and opened up a distribution centre in Hull, which is where most of Preussag’s exports to the UK were coming in, and where their main market was. In order to capture the east coast market, Celtic priced their anthracite in Hull at the same price as their anthracite in Wales; in other words, they had assumed the cost of transport. In response, Preussag decided to lower their prices and “a process of mutual undercutting of prices” was triggered and continued until the end of 1997. The Commission say that their investigations show that “at least in the period 1996-7” Preussag’s prices were consistently lower than the prices offered by successor companies to the British Coal. It noted that in January 1996 the price difference was £8 per tonne [Preussag £93 per tonne and Celtic £101 per tonne] and in October 1997 the price differential was £9.40 per tonne [£94 per tonne and £103.40 per tonne respectively]. It noted that the imports from China at these dates were being sold for £94 per tonne in January 1996 and £102.94 in October 1997. The Commission noted that Preussag were concerned about the competition in Hull and that in their annual report for 1996 Preussag recorded that it was able to increase its market share “by means of an elastic price policy”. They note that Preussag’s exports to the UK rose by 20% between 1995 and 1996 and sales increased in the same period by 49%. “The growth in exports is all the more remarkable as it took place in difficult market conditions.” The Commission said:

“It can be concluded from the above that the prospects for the Community sized-anthracite market are less than promising and that the market is in steep structural decline.”

The Commission formed the view that Preussag had pursued their policy in the UK market

“with the aid of subsidies which were used indirectly for purposes not provided for in Commission Decision No 3632/93/ECSC and 96/560/ECSC of 30 April 1996 on German Aid to the coal industry in 1995 and 1996.”

They wrote to Preussag accordingly and received their responses. They did not accept Preussag’s arguments. In essence, the Commission found that German Aid was permitted in relation to the fines sector of the market [that is, for power generation] but was being used to subsidise the production costs across the board. It noted that

“..the accounts do not make a clear distinction between the companies’ earnings and State aid. In other words, [Preussag] treat aid as part of their turnover and do not distinguish between the consumption sectors, regardless of whether they are subsidised or – as Germany claims in the case of industrial and household sectors – non-subsidised.”

The Commission concluded that the State aid, which had been authorised under the two decisions referred to above, enabled Preussag to sell sized anthracite at prices which did not cover the costs of production.

“By using the aid for the purposes described, the companies have infringed the specific conditions of [the two Decisions] with the result that the aid cannot be considered compatible with the common market. ….. The Commission therefore considers that … DEM 56.6 million to Preussag was used to support the production and sale of anthracite for the industrial and household sectors and that the prices charged did not cover the production costs. … It is clear from the Commission’s investigations, the volumes of anthracite sold and the prices charged that part of this aid - … DEM 9.8 million for [Preussag] – led to distortion of competition incompatible with the common market in the Community market for sized-anthracite for industry and households, in contravention of [the 1993 Decision]. [Preussag] must therefore repay those amounts to Germany. … The Commission’s investigations have shown that part of [the 1997] aid, namely DEM 6.8 millions for [Preussag] led to distortion of competition …As the aid in 1997 was paid in anticipation of a Commission decision, Germany must require the Company to repay the sum of DEM 6.8 millions …On the basis of the principle put forward by Germany that aid payments are to be limited to coal production destined for power generation and the Community steel industry, Germany undertakes to ensure that sales of sized anthracite in the industrial and household sectors will be made at prices which cover the costs of production.”

Article 1 recited that DEM 9.8 million of aid to Preussag was used “improperly in breach of [the 1996 Decision]”. Article 2 provides that DEM 6.8 millions paid to Preussag in anticipation of a Commission Decision was used improperly in breach of Decision No 3632/93/ECSC. Article 3 imposes a duty on Germany to recover those amounts from Preussag. Article 4 required Germany to inform the Commission of the measures it had taken to comply with the Decision. In future, Germany shall supply all the information required in order to verify compliance with the 93 Decision and “with the present Decision”. Article 6 says that the Decision is addressed to the Federal Republic of Germany.

The Claimants, Betws, were represented by a distinguished practitioner who specialises in EC law, Mr Mark Brealey QC, assisted by Sarah Lee; the Defendants were represented also by a distinguished practitioner in the field, Thomas Sharpe QC, assisted by Paul Mitchard, solicitor-advocate. I am greatly indebted to both counsel for their interesting and well-presented arguments. This case raises two points of law of some complexity and which impact on the whole of the case. Mr Sharpe QC submitted that Betws has no cause of action, and this is the first issue. I was invited to take this as a preliminary issue but declined. The witnesses had come to court ready to give evidence and it seemed to me advisable that the whole case should be considered. But as a matter of structure, if nothing else, it seems to me desirable that I should start this judgment with a ruling on that question. The second question concerns the evidential effect of the Aid Decision to which I have just made extensive reference. In addition to these two points of law, there are a number of factual issues. Essentially, Preussag argue that they were involved in a price war and either had to leave the market place in the UK or protect their trading position by making price cuts; they would have acted no differently had they not received that proportion of the state aid identified by the Commission as improperly used [namely DEM 9.8 million + DEM 6.8 million = DEM 16.6 million]; that Betws have not proved any loss caused by any misuse of State aid.

In order to understand the issue it is necessary, first, to identify and explain the Community’s legislation under which coal aid may be given by States to their coal industry.

Article 88.1 of the Treaty provides that if the Commission considers that a State has failed to fulfil an obligation under the Treaty “it shall record this failure in a reasoned decision after giving the State concerned the opportunity to submit its comments. It shall set the State a time limit for the fulfilment of its obligation.” In default, the Commission may bring the State before the ECJ which “shall have unlimited jurisdiction in such cases”. Article 88.2 empowers the Commission to require a Member State to abolish or alter the aid when the Commission finds that aid granted by a State is not compatible with the Common Market “or such aid is being misused”. If the State concerned does not comply with a Commission decision then either the Commission or another “interested” Member State may refer the matter to the Commission. Article 88.3 provides as follows:

“The Commission shall be informed, in sufficient time to enable it to submit its comments, of any plan to grant or alter aid. If it considers that any such plan is not compatible with the common market having regard to Article 87, it shall without delay initiate the procedure provided for in paragraph (2). The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision. [my emphasis].

It is common ground between the parties that the last sentence of Article 88.3 has direct effect and parties affected, such as competitors of the entity to whom the aid is being granted, may bring proceedings in the national courts against the State concerned seeking appropriate relief to stop the aid being granted or continued. The Commission has the exclusive right to decide whether aid is compatible with the Treaty, but the national courts have a duty to protect the rights of individuals in cases where there has been a breach of Article 88.3.

In October 1995 the Commission, by Notice, issued guidance in relation to State aid, and in particular “guidance on co-operation between national courts and the Commission in the State aid field”. The Guidance has no legal effect as such, but it explains the Commission’s thinking on aid issues. It emphasises that individuals have rights to challenge Commission decisions on State aid in the European Court. The Notice acknowledges that “concern is frequently expressed that the Commission’s final decisions in State aid case are reached some time after the distortions of competition have damaged the interests of third parties.” The Commission indicates that it will not always be possible to act promptly and that national courts “may be better placed to ensure that breaches of the last sentence of Article 88.3 are dealt with and remedied.”

“The national court’s role is to safeguard rights which individuals enjoy as a result of the direct effect of the prohibition laid down in the last sentence of Article 88.3 The court should use all appropriate devices and remedies and apply all relevant provisions of national law to implement the direct effect of this obligation place by the Treaty on Member States. A national court must, in a case within its jurisdiction, apply Community law in its entirety and protect rights which that law confers on individuals; it must therefore set aside any provisions of national law which may conflict with it, whether prior or subsequent to the Community rule. The judge may, as appropriate and in accordance with applicable rules of national law and the developing case law of the Court of Justice, grant interim relief, for example by ordering the freezing or return of monies illegally paid, and award damages to parties whose interests are harmed.

The Court of Justice has held that the full effectiveness of Community rules would be impaired and the protection of the rights which they grant would be weakened if individuals were unable to obtain redress when their rights are infringed by a breach of Community law for which a Member State can be held responsible, the principle whereby a State must be liable for loss and damage caused to individuals as a result of breaches of Community law for which the State can he held responsible is inherent in the system of the Treaty, a national court which considers, in a case concerning Community law, that the sole obstacle precluding it from granting interim relief is a rule of national law, must set aside that rule.”

And at paragraph 22 of the Guidance Notice the Commission said:

“The Court of Justice has held that a national court is bound by a Commission decision addressed to a Member State under Article 88.2 where the beneficiary of the aid in question seeks to question the validity of the decision of which it had been informed in writing by the Members State concerned and where it had failed to bring an action for annulment of the decision within the time limits prescribed by Article 230 of the EC Treaty.”

There was, at the relevant time, a Coal and Steel Treaty [the Treaty of Paris] which was in force. It established the European Coal and Steel Community. Article 4 recognised as incompatible with the common market for coal and steel, various practices which “shall accordingly be abolished and prohibited within the Community, namely [(b)]

“measures or practices which discriminate between producers, between purchasers or between consumers, especially in prices and delivery terms or transport rates and conditions, and measures or practices which interfere with the purchaser’s free choice of supplier.”

This part of the article has been held by the ECJ to have direct effect: Banks 2: HJ Banks & Co Ltd v The Coal Authority and Secretary of State for Trade and Industry [20 September 2001] Case C-390/98.

The pleaded claim refers to the Decision of 29 July 1998. The pleading recites, at paragraph 5, the essence of the Decision and, in the next paragraph, asserts that the Commission ruled that Preussag had in 1996 misused DEM 9.8 million and had in 1997 misused DEM 6.8 million

“so as to operate a predatory and discriminatory pricing policy thus distorting competition between it and the British producers of anthracite including the Claimant”.

At paragraph 7 of the Claim, the pleading reads:

“By virtue of Preussag’s unlawful misuse of State Aid contrary to Article 4(b) ECSC Decision 96/560 ECSC and Decision 3632/93 ECSC, the Claimant has suffered loss and damage.”

The defence states that the only reference to discrimination in the Decision relates to differences of prices of anthracite sold by Preussag to different Member States. The discrimination was not against Betws and there was no reference in the Decision to predatory pricing. Paragraph 4 of the Defence continues:

“Unless it is meant by paragraph 7 that Article 4(b) ECSC and/or Decision 96/560 and/or Decision 3632/93/ECSC is/are of direct effect, which is denied, the pleading is embarrassing as there is no proper reference to any duty owed to the Claimant by the Defendant and no allegation of breach of such duty. Accordingly there is no cause of action, alternatively, there is no reasonable prospect of success.”

The Reply to this part of the Defence states that the cause of action

“arises by virtue of the following:

(a)

Preussag was under a duty, which it owed to the Claimant, not to distort competition between it and Claimant by misusing the State aid granted to it. This duty was imposed by Article 4(b) ECSC by Decision 96/560 and Decision 3632/93.

(b)

This breach of duty is actionable at the suit of the Claimant by virtue of Decision 1999/184. Article 1 of [that Decision] provides that Preussag improperly used the aid paid to it for 1996 in breach of Decision 96/560. Article 2 of Decision 1999/184 provides that Preussag improperly used the aid paid to it for 1997 in breach of Decision 3632/93. Decision 1999/184 is of direct effect and may be relied on by the Claimant in these proceedings to establish the breach of duty owed by Preussag. The Defendant is bound as regards issues of fact and law by Decision 1999/184. [Note: the references to Decision 1999/184 are to the Commission Decision to which extensive reference has already been made].

(c)

Further or alternatively, this breach of duty is actionable at the suit of the Claimant by virtue of Article 4(b) ECSC and/or Decision 96/560 and/or Decision 3632/93. These provisions may be relied on directly in these proceedings by the Claimant to allege misuse of state aid irrespective of Decision 1999/184.”

I turn next to the two Decisions referred to in the text of the 1998 decision to which extensive reference has been made. The first decision is that numbered 3632/93ECSC of 28 December 1993 “establishing Community rules for State aid to the coal industry.” This is commonly referred to as the Coal Aid Code and expired, as did the ECSC, on 23 July 2002. In 1993 it was clear that, unless subsidised, the coal industry throughout Europe would not be able to compete with coal imported from outside the Common Market for power generation. Accordingly, the new set of rules was designed to permit subsidy but only in very controlled circumstances.

The second Decision is dated 30 April 1996 and is called “Commission Decision on German aid to the coal industry for 1995 and 1996”. After a number of recitals the Commission recorded their decision authorising Germany to assist its coal industry by providing aid totalling DM 2 708.5 million for 1995 and DM2 539.2 million for 1996 “for the supply of coal and coke to the Community steel industry …” and “aid totalling DM 7 500 millions for payments to the German coal industry …” and “aid totalling DM 97 million for 1996 to enable mining undertakings to maintain their underground labour force …” and “aid totalling DM 200 million for 1996 for the undertakings of ….. Sophia Jacoba and Preussag to cover exceptional commitments.”

Mr Brealey QC referred me, first, to the decision of the ECJ in what is popularly called Banks 1: HJ Banks & co Ltd v British Coal Corporation [1994] ECR I - 1209. Banks was an open-cast coal mining company which operated in the UK. It objected to the agreement made between British Coal and the main electricity generators which guaranteed British Coal the right to supply coal to them at fixed prices. Banks, through the organisation to which it belonged, made complaints to the Commission that the arrangements constituted breaches of Articles 4(d), 60, 65 and 66(7) of the ECSC and Articles 85 and 86 of the EC Treaty. The Commission rejected their complaint. The organisation then brought proceedings in the ECJ challenging the lawfulness of the Commission’ decision. At the same time Banks started proceedings in the UK courts for damages against British Coal, alleging breaches of the various articles. The UK court referred various questions to the ECJ and the Banks’ judgment is the ECJ’s decision on the reference. The Court held that

The reason why Banks failed in their action was simply because the Commission had not made the necessary Decision, which is a pre-requisite to a cause of action. Here, the Commission have reached a Decision [the Aid Decision] and there is no similar bar to Betws succeeding. It is a fundamental principle of the coal and steel regime under the ECSC that State aid should not distort competition and where it does those who are adversely affected must be given a full range of remedies in the national courts. Individual companies who are affected by Commission Decisions which are individual in character, such as the Aid Decision, may challenge them in the ECJ. They are as bound by them as the party, namely the German State, to whom the Decision is addressed.

Mr Brealey then took me to the case of Banks II Case C-390/1998 [2001] ECR I - 6117. Banks was still complaining about the subsidy to British Coal and its successors and the fact that royalties had to be paid to British Coal [and their successors] for every tonne of coal won from the ground, whereas RJB Mining which acquired the large part of British Coal’s English mining business [and assets]. Banks contended that the royalties demanded of it constituted a form of discrimination within the meaning of Article 4(b) of the ESCS, since its main competitor [RJB] were not obliged to make such payments. The Court held that Article 4(c) did not have direct effect whilst Article 4(b) did:

“Article 4(b) of the ECSC Treaty, in so far as it concerns discrimination between producers directly confers rights on individuals which the national courts must protect.”

For the purposes of a claim for discrimination there was no requirement for a prior Decision by the Commission. The court concluded that Banks’ claim that they should be retrospectively exonerated from the royalty payments could not be accepted but that that conclusion was without prejudice

“to any actions which British Coal’s former competitors might bring, if the conditions were met, for compensation for any damage caused to them by the competitive advantage enjoyed by British Coal and the State companies which succeeded it.”

So, Mr Brealey argues, this shows that a competitor who has been damaged as a result of the use or misuse of unlawful State aid can sue for compensation for the damage caused to them by the (unlawful) competitive advantage. Preussag is responsible for the unlawfulness. It has an obligation to use the aid conferred on them properly and that obligation is owed to competitors such as Betws. A remedy against the State is not enough: the State may not be at fault; it cannot supervise everything. This case “does not give any clear guidance” as to whether Betws can sue Preussag.

I was then referred to the decision of the ECJ in the case of TWD Textilwerke Deggendorf GmbH v Germany 9 March 1994 [1995] 2 CLMR 145. In this case the Advocate General was Mr Francis Jacobs. He succinctly encapsulated the question at issue in the first paragraph of his Opinion:

“This case raises an important question of principle concerning the system of remedies established by the EEC Treaty: namely, whether a recipient of State aid which the Commission has declared unlawful may, when called upon by the national authorities to repay the aid in accordance with the Commission’s decision, challenge the validity of the decision before the national courts, and before the Court of Justice on a reference from the national court under Article 177 of the Treaty, even though it failed to challenge the Commission’s decision in the Court of Justice directly under Article 173 of the Treaty.”

The ECJ held that although the State was the addressee of the Commission’s Decision, the undertaking in receipt of the aid also had a right to challenge the lawfulness of the decision before the ECJ and that if it failed to exercise that right of challenge within the stipulated time limit then the Decision became definitive against him. Therefore, as Mr Brealey submitted, Preussag were equally definitively bound by the Decision of the Commission in this case.

Apart from SFEI , Mr Brealey referred me to Case C-453/99 Courage v Crehan [2001] ECR 1-6297. Mr Crehan was a tied tenant of Courage, the brewers. He paid more for his beer than was charged by Courage to non-tied outlets. Courage said that the difference was more than made up by the advantages accorded to him as a tied tenant. In due course the tenancy came to an end and Mr Crehan refused to pay an amount of royalties which Courage said was owing and sought to set-off, against the claim, damages which he claimed he had sustained as a result of a breach of Article 85. The ECJ were concerned to ensure that there was an effective remedy for a breach of Article 85. Effective protection requires that the complainant should be compensated for his damage and the State is under a duty to lay down procedural rules to guarantee such protection. Thus, the Court ruled that a party to a contract which was in breach of Article 85 of the EC Treaty “can rely on a breach of that article to obtain relief from the other contracting party” and Article 85 “precludes a rule of national law under which a party to a contract liable to distort competition within the meaning of that provision is barred from claiming damages for loss caused by performance of that contract on the sole ground that the claimant is not a party to that contract.”

Thus, in summary, this is a case where Preussag were a party to the Decision in the sense that they are bound by it and although not an addressee of the Decision they had sufficient locus standi to take issue with it and seek the assistance of the European Court. They received the State Aid and, according to the commission, in a finding which is binding on this court, misused the aid. Betws would have a claim against Germany but it should also have a claim against Preussag. This is not a case where the recipient of the aid has committed no wrong independently of the State. Both the aid itself, and the way it was used in practice were wrong.

Mr Sharpe submits that the Claimants are seeking to invent a new cause of action, a new community law tort. The essence of the Commission’s Decision was a ruling on a complaint made against Germany, the State, and not against Preussag, the undertaking. Although Preussag was a person interested who therefore had rights to challenge the Decision, that does not alter the nature of the Decision itself. There is a fundamental distinction between Commission Decisions which are directed against undertakings, as under Articles 81 and 82 of the EC Treaty, and decisions which are directed against the State. The Commission had power to deploy its powers under Articles 2, 3, 4 and 60 of the ECSC against the undertaking, but did not do so. Unlike the position under the EC Treaty, under the equivalent provisions in the ECSC, (the analogue of Articles 81 and 82 namely Article 65 and 66.7), these Articles are not of direct effect and a Commission Decision is a pre-requisite to there being a viable cause of action. Thus, with aid under the coal regime, no complaints could be made between undertakings unless and until there had first been a ruling by the Commission. Only then could the Decision against an undertaking be imported into the national courts as proof of the infringement of the aid regime. Thus, had the decision been directed against Preussag rather than against the German State, Betws would have had private rights of action. But no such action could have been brought without, first, a Commission Decision directed against an undertaking. Effectively, the Commission concluded that Germany had failed to discharge the burden of proof upon it to show that it had administered its aid scheme in conformity with the authorisation decision [96/560] and the Coal Aid Code. The Coal Aid Code is addressed only to the State and Article 4C is not addressed to Preussag but only to Germany. Germany was ordered to reclaim a small proportion of the total aid which it had made, with the Commission’s authority: a total of 3% of the authorised aid. That was the only part of the aid which had not been properly authorised. The money was reclaimed by Germany, with interest, from Preussag. Had Germany sought to introduce its coal aid programme without Commission authorisation then Betws could have come to the UK court and sought injunctive relief against Germany relying on Article 9.4 of the Coal Aid Code, which is of direct effect. The Commission has exclusive jurisdiction to determine the legality of an aid, but the courts of a Member State have the right to enjoin a Member State from granting an aid which has not been properly notified and approved. That is the division of responsibility between the Commission and the national courts.

He submitted that the decision of the ECJ in the SFEI case and the opinion, in that case, of the Advocate General, determines the case against Betws, namely Case C-39/94 Syndicat Francais de L’Express International (SFEI) & Others v La Poste & others [1996] ECR 3547. In relation to postal services in France, a service provider in competition with the State Postal Service made a complaint to the Commission, firstly against France and secondly a complaint of a possible infringement of Article 86 by the Post Office as an undertaking. In addition, SFEI brought proceedings against the Post Office in the Tribunal de Commerce, Paris asking the Court to declare that the arrangements referred to constituted State aid within the meaning of Article 92; a further declaration that the aid was unlawful because it had not been notified to the Commission; a declaration that the Post Office had been guilty of unfair competition; that the Post Office had abused their dominant position in the market place and had infringed the principle of equality in competition; an injunction to restrain the Post Office from granting any further assistance to an entity within its organisation; and an order that that entity should repay the unlawful State aid which it had received and an order that the defendants pay to the claimants damages. The Court referred a number of questions to the European Court of Justice including the question whether, if there had been unlawful State aid

“must the damage suffered by the undertakings competing with the undertaking that receives the aid as a result of the latter’s lack of due diligence also be compensated for in accordance with the rules of national law in order to remedy the breach of the provisions of Community Law at issue?”

The Advocate General, at paragraph 77 noted that repayment of the unlawful aid might not be a wholly adequate response to a breach of prohibition of the last sentence of Article 93(3) “in particular where the aid has resulted in a loss of profits and market share for competitors”. He went on to say that the State itself might also – in addition to recovering the aid from the payee – be subject to claims for damages brought in the national courts on the basis of Community Law by competitors who incur loss or damage as a result of measures unlawfully implementing aid. He continued:

“Contrary to SFEI’s view, the Court’s existing case law does not impose on recipients of aid the obligations to make good loss or damage incurred by competitors as the result of unlawful implementation. As already noted, it merely states that recovery of aid cannot be resisted on grounds of the recipient’s legitimate expectations.

……

Moreover, I do not think that the Court should extend its case law so as to confer on competitors a remedy in damages against recipients of aid. As the French Government points out, Article 93 lays down a procedure to be followed by the Commission and the Member States. It is upon the latter that the obligation to notify aid to the Commission rests. I do not, moreover, share SFEI’s view that such a remedy is necessary in order to ensure the effectiveness of the prohibition in Article 93(3). The various remedies outlined above, including where appropriate, an order for recovery and possibly an award of damages against the Member State are capable of providing an effective response to a breach of that prohibition.”

Accordingly Francis Jacobs answered the question at issue

“While Community Law may make a Member State or public body which unlawfully grants aid liable in damages, it does not oblige the recipient of such aid to make good loss or damage sustained by a competitor as a result of the unlawful grant of aid, unless the receipt of such an unlawful payment in corresponding circumstances gives rise under national law to liability in damages to third parties.”

In its judgment, the Court noted that the machinery for reviewing and examining State aids established by Article 93 of the Treaty “does not impose any specific obligations on the recipient of aid”. First, the notification requirement and the prior prohibition on implementing planned aid laid down in Article 93(3) are directed to the Member State. Second, the Member State is also the addressee of the Decision by which the Commission finds that aid is incompatible with the common market and requests the Member State to abolish the aid within the period determined by the Commission. That being so, Community Law does not provide a sufficient basis for the recipient to incur liability where he has failed to verify that the aid received was duly notified to the Commission. That does not, however, prejudice the possible application of national law concerning non-contractual liability. If, according to national law, the acceptance by an economic operator of unlawful assistance of a nature such as to occasion damage to other economic operators may in certain circumstances cause him to incur liability, the principle of non-discrimination may lead the national court to find the recipient of aid paid in breach of Article 93(3) of the Treaty liable.” Therefore, the court concluded that the recipient of aid which was unlawful because of non-notification and who did not verify notification cannot incur liability solely on the basis of Community Law.

As to discrimination, that is defined in Article 4(b) of the ECSC. That provision “in so far as it concerns discrimination between producers, directly confers rights on individuals, which the national courts must protect.” –Banks II ECJ [2001] 20 September. However, this article has no bearing on the issues in this case, as Mr Brealey properly accepts that Betws have not been discriminated against within the meaning of that Article. He did not formally abandon his position in his closing arguments, but it seems to me that no question of discrimination of which Betws could make complaint has occurred. The discrimination noted by the Commission [paragraphs 25 and 56] is discrimination between the prices for Preussag’s anthracite in different Member States [discrimination on grounds of nationality]. As a competitive producer in and selling to the UK market, I do not see how Betws could be harmed by any discrimination in Preussag’s pricing throughout Europe.

The Claimants, Mr Sharpe submitted, misconstrue the passage in Banks 1 to the effect that in the absence of a Commission Decision individuals cannot challenge the compatibility of an aid measure before the courts. Mr Brealey QC takes that sentence to mean that once the Commission has made a Decision individuals can rely on it. That is correct up to a point. Individuals can rely upon it against the State; without the decision they cannot. The Decision does carry with it an effect which is binding on the courts but only within the scope of its application. Here the Decision is directed to Germany. The duty to comply with the state aid rules and the Authorisation Decision lie upon the State. The only possible target for Betws would be the German State under the Francovich principle.

Do Betws have any rights under Community law in relation to the Commission’s Decision on the misuse of State aid? Betws had drafted a complaint against Preussag; Celtic had drafted its complaint against Germany and Preussag, but the Commission proceeded against Germany only. The Commission found that Germany were in breach of Article 4(c). Commission Decisions on State Aid are always directed to the State. The national courts will assist the Commission in preventing the State from skewing the market through improper aid, but such action may be brought by a competitor of the entity which received the aid, against the State, although procedurally, the recipient of the aid may intervene. The prohibition in Article 4(c) of the EC Treaty does not have direct effect.

Mr Brealey does not contend that as a matter of English Law the recipient of an unlawful aid, who thereby damages a competitor’s business, is liable to the competitor for the damage caused. On the facts, this is not a case which could give rise to one of the economic [‘aiming at’] torts which form part of our law. His case is firmly put on the basis of a Community Law tort. The possibility that national law might provide a remedy, as contemplated by the ECJ in their decision in SFEI, does not arise. Accordingly, the SFEI decision cannot be distinguished. It is true that that case was concerned with aid which had not been notified; whereas here the aid was not lawfully or used. But that does not alter the principle. Particularly where the misuse amounts to no more than using the aid in the way the State contemplated but contrary to the Aid regime under the Coal Aid Code.

In my view there is no cause of action in Community Law for the claim advanced by Betws. Specifically, there is no cause of action by Betws against Preussag on the ground that Preussag has used unlawful State aid to the detriment of their competitors including Betws. The Aid Decision was directed not to Preussag but to the German State. At best, Betws would have a claim against Germany. The Commission’s Decision is something of a hybrid in the sense that Preussag were mentioned in it; they were given an opportunity to make submission to the Commission and were presented with a copy of the Decision; and they had a right to challenge it before the ECJ. To that extent, it could be said that they were in an analogous position to a ‘party’ to the Decision. But it seems to me that the formal position is and remains that the Decision was made under a power granted to the Commission to make decisions against the State. The Articles of the Decision are entirely confined to action which the State must take; no order or relief was granted against Preussag. The decision has direct effect only within the scope of its application, namely a claim by Betws against Germany to compel it to recover the State Aid from Preussag. It gave no private right of action otherwise. Had the Commission wished to pursue an undertaking such as Preussag they had power to do so, but have not exercised that power. Had, for example, the Commission been of the view that Preussag had been guilty of predatory or unfair pricing then it would have exercised its powers under Articles 2, 3 or 4 and 60(1) of the ECSC. But this is not a Decision aimed at unfair pricing; rather it is a Decision directed to State Aid. I can see no difference between this case and the SFEI decision of the ECJ. In that case an entity used State aid which was unlawful because it had not been notified to the Commission. In this case, Preussag used/misused State aid which was unlawful because the aid was given for one purpose but was used for another, as was inevitable under the accountancy conventions which applied and the way the coal producers costed their production. In other words the aid which Germany gave did not, in the Commission’s view, properly distinguish between production costs of anthracite for use with power stations and that used in the domestic market. The production costs of anthracite produced for the home market was subsidised to the extent identified by the Commission, namely 3% of the total subsidy. Had Preussag not been subsidised in this way and had Preussag been required to sell anthracite into the UK domestic market at prices which included the full cost of production then it could not have maintained its share of the market. The allegation of “misuse” adds nothing to the structure of the Decision.

Therefore, if there is no Community Law tort there is no claim. I am reinforced in my view that this is the correct interpretation of Community Law by Mr Brealey’s book, written with Mark Hoskins entitled “Remedies in EC Law”, second edition published in 1998. In Chapter 7, “Damages”, the learned authors wrote:

“ … not all breaches of Community Law can give rise to an action for damages against private parties, since not all provisions of Community Law impose duties or obligations on individuals. For example, a directive does not have horizontal direct effect and cannot, by itself, impose obligations on individuals. A breach of a directive is not, therefore, a wrong actionable at the suit of another. Similarly, the system for reviewing State aids established by Article 93 of the EC Treaty [new Article 88] imposes no specific obligations on the recipient of aid. Consequently, the recipient is not liable to pay damages to a competitor for failing to verify that the aid was duly notified to the Commission.” [my emphasis]. The footnote reference to the highlighted passage is the SFEI case.

Mr Brealey suggested that the next edition of his book will reflect the advancement of the law as he has submitted it to be. But I think he is trying to extend the boundaries of European Law too far. There is no indication, as I read the decisions of the ECJ, that that court would favour a claim brought by a competitor against the recipient of unlawful aid. The reference in Banks II to the possibility of a claim by Banks continuing in the national court must be seen in its context. Banks had a viable claim under Article 4(b) which is of direct effect. He was suing an emanation of the State. Betws has no cause of action against Preussag on either ground. Mr Brealey’s argument that the national courts of a State are under a duty to protect competitors, and competitors have rights to complain of unlawful aid against the State under article 88.3, says nothing about the right of a competitor to bring proceedings against the recipient of the aid. His argument that it is the duty of the courts to provide the injured party with an effective remedy against the State, which includes a right to obtain damages (the doctrine of effective legal protection), also does not get him home. If there were a cause of action against Preussag, I would agree with Mr Brealey that the courts would be required to provide Betws with an adequate remedy in damages, if appropriate, so as to ensure an effective remedy for a wrong. The problem for Betws is that there is no wrong in law, in my judgment. The position seems to me to be acte clair in the light of the SFEI case. And I can understand the policy reason behind that decision. The structure of the Coal Aid Code is to ensure that the Commission must determine whether there has been an infringement with regard to the granting of the aid. Such a decision is a prerequisite to a viable action. [The position would be different if there was a claim under Article 4(b) which has direct effect]. If the Commission makes a Decision directed to the State, then I can see reasons why an action against the State by an injured competitor should not be viable. But to create a Community law tort which enabled a competitor to sue the recipient of unlawful aid would be to open a potential floodgate. It is not suggested in argument that a tort, if it existed under Community Law would be restricted. How far would an entity which was indirectly affected be able to sue; for example retailers of coal. Whilst I accept, as Mr Brealey put it, that “breach is a matter for community law and then the national courts apply their own laws to determine the extent of liability” questions will arise as to the foresee ability requirement and the extent to which the wrongdoer’s knowledge of the people likely to be affected is a pre-requisite. On the evidence here, Betws would not have been a ‘target’ of Preussag’s price war; although they would be bound to be affected to some extent; and there might be a number of other producers also affected, of whom Preussag might have been wholly unaware. These issues would need to be considered by the ECJ before it created a new Community tort of the kind suggested.

The second issue is the extent to which the Decision of the Commission is binding on this court: is the decision merely that which is contained in the Articles or does it include the preamble which sets out the Commission’s findings and reasoning leading to the conclusions. On this issue I am sure that Mr Brealey is correct. Article 14 provides that “decisions shall be binding in their entirety.” This Article distinguishes between “decisions” “recommendations” and “opinions”. Article 15 requires that “Decisions shall state the reasons on which they are based.” In the absence of authority I would have thought it abundantly clear that a Decision includes the reasons which are required to be stated in it. The fact that the reasons, which are an integral part of the Decision are contained in a Preamble makes no difference. Merely to regard the Decision as comprising the six Articles would emasculate the Decision. A Decision without reasons is not a lawful Decision. In my view this position is confirmed by the ECJ in the Banks I decision where the Commercial Court sought a ruling on whether the Commission’s Decision was binding both on the facts and the law, and the answer was yes. Further, I take the view that the following propositions are established in the English cases:

Had I been required to consider the merits of the claim made by Betws, it would first have been necessary to identify those parts of the facts found by the Commission which would be binding upon me.

In my view the following findings from the Commission’s decision are binding upon me and I cannot go behind them:

Because I regard myself as bound by these findings, I am unable to accept the evidence of Herr Schneider when he rejects the Commission’s criticisms of the subsidy arrangements between Germany and the two main producers.

The same applies to that part of Herr Kalenscher’s evidence in paragraph 73 and 98 of his witness statement which contradicts findings of the Commission.

“Preussag did not receive any state aid funds or subsidies in relation to the British anthracite market (nor in relation to any part of the home heating market). The fact that it received the DEM 16.6 in state aid which the European Commission later decided had been misused in 1996 and 1997 had no bearing on its commercial decision to reduce its prices.” [Paragraph 98]

That paragraph conflicts with sub-paragraphs (12) and (13) above.

However, the Commission’s findings do not involve any assessment of the effect which Preussag’s pricing policy had on the British market or on Betws in particular. I must make further findings of fact based on the evidence which I heard.

I start with the evidence of Herr Kalenscher who was the head of sales and marketing at Preussag from 1 January 1996. The facts, rather than his comments on them are reasonably clear from the contemporary documents referred to in his evidence and may be summarised thus:

The perception of the market during the relevant period from Betws’ point of view is, not surprisingly, not quite the same as the view from Germany. The evidence comes from Mr Cook who is not only the owner but the mine manager of Betws colliery. I take the following facts from his evidence:

I am afraid that I do not feel able to place any reliance on what Mr Dunn told me in evidence. He was a former employee of British Coal and on privatisation joined Enerco of which he holds 33% of the shares, the balance being held by a German company. The reason why I take this view is that Mr Dunn has managed to get himself into a position of conflict. Initially he was invited by Preussag’s advisers to be an expert witness. But he was not independent enough to fulfil that role. During the relevant events he had been acting for Betws and soliciting the custom of Preussag. He was directly involved in the matters in issue. Furthermore, he had given a witness statement to Betws’ solicitors about this case. In this confused state of play it is difficult to be confident as to the hat he is wearing at any one moment. In a memo addressed to Betws solicitors he wrote that he felt that Betws had a strong argument “if we follow the leads set by [Celtic] and endeavour to demonstrate the cost, loss of profit accrued to Betws as a direct result of unfair competition in a fast-declining market segment. All my papers suggest that the lead role was played by Celtic and that the German producers merely reacted in the only way possible to retain market share.” When asked about this, he said that he had changed his mind about whether the competition had been unfair. I am afraid I think Mr Dunn had so compromised himself by taking up different and conflicting roles that nothing he said could be regarded as reliable.

I turn next to the parties’ submissions on the issue of causation and quantum. The thrust of Mr Sharpe’s attack was directed to causation rather than to the quantum figures as such, which had been prepared by Dr Rix, whom I found to be a reliable witness. The parties were agreed that the test for causation is simply this:

Mr Sharpe in a forceful submission challenged the concept that Betws had suffered any loss from Preussag’s unlawful conduct [if any]. He submitted as follows:

On behalf of the Claimants, Mr Brealey argued:

I can draw the following conclusions from the evidence and from the findings by the Commission:

The claim is put under four heads:

Dr Rix put forward two calculations: the first was based on the assumption that but for Preussag’s involvement, Betws would have charged more for its output than it was able to do. The assumption that is made under this head is that Betws would have continued to price its products at the 1994 level. I regard that contention as fanciful. This was a contracting market subject to the vagaries of the weather and to the risk of imports from non-European sources and there was stiff competition within the domestic market. In any event, the unlawfulness on which the action is founded occurred in 1996 and 1997 and not before. It seems to me that the starting point cannot be earlier than 1995, that is the price ruling immediately before the wrongful acts occurred. Therefore the basis of the calculation is that set out at page 32 of the closing submissions of Betws which gives a total figure of lost revenue of £1,022,000. This is the additional price which Betws could have charged had Preussag not been in the market. But this figure seems to me to require some sort of discount to reflect the possibility that these would not have been the ruling prices due to other competitive forces such as Celtic’s desire to dominate the market and the threat of cheap imports. As a figure, there is nothing wrong with it as such. But it needs adjustment for contingencies.

If prices had been higher than Betws overdraft would have been lower and also so would the interest payments. The evidence shows that Betws cash position dropped during the summer of 1996 when Betws went into overdraft reaching deficits of £400,000 and remained in overdraft throughout 1996 and 1997. The increase in overdraft meant an additional £52,000 in interest and because the repayment of the loan was deferred there were additional interest payments of £71,000, making a total of £123,000.

I am asked to conclude that had Preussag left the market, Betws would have increased its output and sell a further 5,000 tonnes of anthracite. It is said that the revenue which it lost on this potential extra production was £1,400,000 using the same figures for price as were used under Head 1.

Betws commenced a feasibility study on the Four Feet seam in 1998. It is Mr Cook’s case that had Preussag been out of the market as from the beginning of 1996 then the feasibility study would have been completed earlier and there would have been a smooth transition from working the Red Vein to the four foot, because development work could have been undertaken alongside the production of the Red Vein. The loss under this head is put at £1,830,000.

As I have already indicated, for understandable reasons, Mr Sharpe concentrated his attack largely on the legal issues and on causation and much of Dr Rix’s work on the detail of the quantum calculations remained unchallenged. I can express my conclusions shortly. In relation to Head 1 there must, as I have said, be a discount for contingencies. Preussag might have taken a little time to leave the market place; there may have been stiff competition from Celtic and possibly from non-European imports. Prices would undoubtedly have been higher had Preussag not made their dramatic and unlawful price cut in January 1996. To take account of what one might call the imponderables, I would scale down the first head of claim to a round figure of £750,000. Under Head 2, the figures would need to be re-worked as the revenue lost would have been smaller than calculated. I have adjusted the figure by 25% and arrive at a rounded figure of £90,000. I regard the claim under Head 3 as speculative. An increase in production of that magnitude strikes me as improbable and for that reason I would not have allowed anything under that Head. In relation to the fourth head, I regard the claim as too remote in law and too speculative in fact and would have awarded nothing under that head also. Therefore, had the claim succeeded, I would have awarded a total of £840,000. As it is, Betws do not have a viable claim against Preussag and the claim must, therefore, be dismissed.