Transocean Marine Paint Association v Commission of the European Communities (17/74)

Contents

In Case 17/74SADOLIN OG HOLMBLAD A/S, 2300 Copenhagen S., Denmark;F.A.C. VAN DER LINDEN AND CO., 2153 Hamburg-Neu Wulmstorf, Germany;KONINKLIJKE BRINK/MOLYN BV, Rotterdam, Netherlands;STORRY, SMITHSON & CO. LTD ., Hull HU5 1 SQ, Yorkshire, Great Britain;DE CONINCK NV, B-2060 Merksem, Belgium;ASTRAL, SOCIÉTÉ DE PEINTURES, VERNIS ET ENCRES D'IMPRIMERIE, Paris XVI^e/ France;URRUZOLA SA, Madrid 5, Spain;VENEZIANI ZONCA VERNICI SPA, Trieste 34147, Italy;DURMUS YASAR VE OGULLARI PAINT, VARNISH AND RESIN WORKS, Izmir, Turkey;PATTERSON-SARGENT, New Brunswick N. J. 08903, USA;ANTILLIAANSE VERFFABRIEK NV, Willemstad, Curaçao, Dutch West Indies;NIPPON PAINT CO. LTD ., Osaka, Japan;NIPPON PAINT (SINGAPORE) CO. PTY. LTD ., Singapore 3;NIPPON PAINT CO. LTD., Hongkong;PACIFIC PRODUCTS INC ., Manila, Philippines;SPARTAN PAINTS PTY LTD ., Melbourne, Victoria, Australia,members of the TRANSOCEAN MARINE PAINT ASSOCIATION, ofDELFTSE PLAIN, 37, Rotterdam, Netherlands, represented by F. Salomonson and P. Vogelenzang, with an address for service in Luxembourg at the chambers of Ernest Arendt, 34b, avenue Philippe IIvCOMMISSION OF THE EUROPEAN COMMUNITIES, 200, rue de la Loi, Brussels, represented by its Legal Adviser, D. R. Gilmour, with an address for service in Luxembourg at the offices of its Legal Adviser, Pierre Lamoureux, 4, boulevard RoyalTHE COURTcomposed of: R. Lecourt, President, C. Ó Dálaigh and Lord Mackenzie Stuart, Presidents of Chambers, A. M. Donner, R. Monaco, J. Mertens de Wilmars (Rapporteur), P. Pescatore, H. Kutscher and M. Sørensen, Judges,Advocate-General: J. P. WarnerRegistrar: A. Van Houttegives the following

Judgment

Facts

The facts and the arguments of the parties submitted during the course of the written procedure may be summarized as follows:

I —Facts and procedure

1.The Transocean Marine Paint Association (hereinafter referred to as ‘the Association’) is an association of undertakings manufacturing, inter alia, marine paints. Formed in 1959, it consists of a group of medium-sized undertakings and has as its object the creation in common, in respect of marine paints, of a world-wide sales network, necessary for the sale of this type of paint, the establishment of which would however greatly exceed the capacity of the individual members of the Association. By combining, these undertakings seek to put themselves in a position to compete in this field with the major international firms which all use, for the sale of their marine paints, the world-wide networks which they possess for the marketing of their products as a whole.With this object in mind, the members of Transocean manufacture marine paints of indentical composition, market them under a common trade mark (Transocean) and submit their products to quality control. Members are free to determine prices. On the other hand, members are allocated an individual sales territory. Although any member may sell within the territory of another member, it may do so only on payment of a commission to the member may sell within the territory of another member, it may do so only on payment of a commission to the member concerned. A commission is also payable when a member sells, under its own individual trade mark, other paints in the territory of a member and when a member passes on to another an order which it is itself unable or unwilling to execute.This agreement enjoyed, for a period of five years expiring on 31 December 1972, the exemption provided for by Article 85 (3) of the Treaty, through a Decision of the Commission of 27 June 1967 (OJ 163 of 20. 7. 1967, p. 10). The authorization obliged the Association to keep the Commission informed, inter alia, of ‘any change in the composition of membership’. At that time the Association consisted of eighteen undertakings, five of which were established in the Common Market.

2.On 22 October 1972 the Association applied for the simple renewal, for a period of ten years, of the exemption granted in 1967, but the Commission did not follow this course. It considered, just as in 1967, that the agreement was covered by the provisions of Article 85 (1) and that exemption on the basis of Article 85 (3) was justified, but, in view of changes which had occurred since 1967 in the competitive situation, such exemption must be subject to stricter conditions than those imposed by the original Decision.In this connexion, the Commission puts forward the following factors:(a) the total turnover of the Association and its percentage of the market in marine paints had considerably increased;(b) the turnover of one group of members, Nippon Paint, had increased substantially and this group accounts for 60 % of the turnover in marine paints of the Association;(c) five members had withdrawn, eight new members had joined;(d) two members, Astral (France) and Urruzola (Spain), had formed links with two large paint manufacturing groups, AKZO and BASF, which are not members;(e) a movement towards concentration had occurred both in the marine paints sector and in the general paints sector.These circumstances led the Commission, by its Decision of 21 December 1973, to subject the exemption to new conditions set out in Articles 2 and 3 of that Decision. Under Article 2, it requires the abolition of certain commissions which the members had agreed to pay one another when they executed orders in each other's territory.The terms of Article 3 are as follows:‘This Decision is subject to the following obligations:1. That the Commission shall be informed without delay of the following matters:(a) Any amendment or addition to the Agreement,(b) Any decision taken by the Board of Directors or the result of any arbitration held, pursuant to the restrictive provisions of the Agreement, in particular Articles 3 to 9 thereof,(c) Any change in the composition of membership,(d) Any links by way of common directors or managers between a member of the Association and any other company or firm in the paints sector or any financial participation by a member of the Association in such outside companies or vice-versa including all changes in such links or participations already in existence.2. A report is to be submitted by the Association annually to the Commission on the activities of the Association and in particular on improvements in the production and marketing of marine paint products achieved.’.The application is directed against Article 3 (1) (d) and therefore aims at the annulment of part of the contested Decision. Drawn up on 1 March 1974 by all the members of the Association, the application was lodged at the Registry of the Court on 4 March 1974.Upon hearing the report of the Judge-Rapporteur and the opinion of the Advocate-General the Court decided that there was no need for any preparatory inquiry.

II —Conclusions of the parties

The applicants claim that the Court should:— annul the Decision of 21 December 1973 of the Commission of the European Communities, insofar as it obliges the applicants to inform the Commission of any links by way of common directors or managers between a member of the Association and any other company or firm in the paints sector or any financial participation by a member of the Association in such outside companies or vice-versa including all changes in such links or participations already in existence;— order the Commission to bear the applicants' costs.The Commission of the European Communities contends that the Court should:— dismiss the applicants' conclusions as unfounded;— order the applicants to bear the costs.

III —Submissions and arguments of the parties

According to the applicants, the Commission, by imposing the obligation set out in Article 3 (1) (d) of the Decision of 21 December 1973, has infringed both rules of procedure (Articles 2 (1) and 4 of Regulation No 99/63/EEC of the Commission of 25 July 1963, OJ No 2268/63 of 20. 8. 1963) and rules of substance (Article 85 of the Treaty and Article 8 (1) of Regulation No 17, OJ No 204/72 of 21. 2. 1962).

A —Infringement of rules of procedure

1.Article 4 of Regulation No 99/63 provides that ‘The Commission shall in its decisions deal only with those objections raised against undertakings and associations of undertakings in respect of which they have been afforded the opportunity of making known their views.’ Under Article 2 (1) of the same Regulation the objections raised by the Commission against undertakings and associations of undertakings must be communicated to them in writing. But, according to the applicants, the condition or obligation imposed by Article 3 (1) (d) of the Decision does not appear in the notice of objections of 27 July 1973, nor was it mentioned at the hearing of 27 September 1973, as can be seen from the minutes of that hearing.Consequently, at no time did the applicants have the opportunity to make their observations on the condition or obligation in dispute. They were therefore unable to direct the Commission's attention to the fact that the obligation infringes the rules of the Treaty and of Regulation No 17, and to the fact that it constitutes a heavy burgen for the Association.They make the observation that, among the members of the Association, a number of the more important ones are established outside the Community. Even thought members who carry on business within the Community are fully prepared to discharge their obligation to inform the Commission, the position is not necessarily the same for those situated in distant areas outside the Common Market and they could find it embarrassing if they were obliged to make known information regarding financial participation or links by way of common directors or managers when traditionally, in their own countries, such information is of a confidential nature.The insecurity which this situation has provoked is such that the applicants, if they had had the opportunity, would have strongly urged the Commission to limit the disputed obligation. The Commission's infringement of the obligation of cummunication imposed on it by Article 4 of Regulation No 99/63 has consequently caused the applicants serious damage.

2.In its statement of defence the Commission denies having committed an infringement of essential procedural requirements resulting in the nullity of the said obligation.(a) It considers that Article 2 (1) which provides that it must inform undertakings and associations of undertakings in writing of objections raised against them and Article 4 of the same Regulation which allows it to take account in its decision only of objections in respect of which undertakings or associations of undertakings have been afforded an opportunity to make known their views, do not apply to the conditions or obligations provided for by Article 8 of Regulation No 17. The Regulations implementing Articles 85 and 86 of the Treaty have consciously drawn the distinction between ‘objections’ and ‘obligations or conditions’.(b) In any event, the Commission denies that it made no mention of the problem of links with other undertakings. First, the Commission refers to the notice of objections of 27 July 1973 in which it is stated that renewal of the exemption could only be envisaged subject to certain conditions and obligations, which include:‘…(c) In addition to complying with the conditions laid down in Article 4 of the Decision of 27 June 1967, the members of Transocean must notify the Commission without delay regarding any change in the participatory position of the associates'. (in the original Dutch text: deelnemingsverhoudingen van de leden; in the French translation attached as an annex to the statement of defence: composition de l'association).’In addition, the reference in the notice of objections to the links existing between two members of the Association, Astral and Urruzola, and the AKZO and BASF groups, and the Commission's fear that, as a result of these links, Transocean, AKZO and BASF would cease to compete with one another or would coordinate their sales policies, clearly reflected the Commission's concern regarding the links between the Association's members and undertakings in the paints sector in general.In its reply to the notice of objections the Association was, moreover, at pains to point out that the fact that some of its members were owned by two large non-member undertakings did not have any adverse effect on the competitive position of the members in question or of the Association as a whole. Accordingly, even though the precise terms of the obligation relating to information which was ultimately imposed were not disclosed to the Association beforehand, the general concern of the Commission, as well as the general terms of the obligation, are clearly evident in the notice of objections, in the reply of the applicants and in the minutes of the hearing of 27 September 1973. It follows from the judgments of the Court of 21 February 1973 (Case 6/72, Europemballage Corporation and Continental Can Company Inc. v Commission of the European Communities, [1973] E.C.R. 215) and 15 July 1970 (Case 41/69, ACF Chemiefarma NV v Commission of the European Communities, Rec. 1970, p. 661) that the Commission has the power to impose in each case any conditions or obligations, the essential basis and nature of which have already been communicated to the parties at some earlier stage of the procedure, whether or not the exact terms of those conditions or obligations had been previously disclosed.(c) The Commission also points out that Article 11 of Regulation No 17 authorizes it to ask for information, whether or not the possibility of such requests has first been canvassed with the parties. This power would be unnecessarily restricted if such information could be obtained by way of an obligation attached to an exemption only if it had been canvassed with the parties at some earlier stage of the procedure.The question referred to the Court raises the point whether the Commission can, for the purpose of keeping a better check on the effect on competition of an agreement enjoying the exemption under Article 85 (3), anticipate the procedure provided for by Article 11 of Regulation No 17/62 in a case where it is necessarily familiar with the sector which it is required to observe, and subject the grant of the exemption to the obligation of supplying automatically the information necessary for this control.

3.In their reply the applicants observe that the Commission does not quarrel with their objection that they were not informed beforehand of the precise terms of the obligation. It is the precise form in which the obligation was laid down which is the basis for the objection.The obligation put forward in the notice of objections relating to the notification of ‘any change in the participatory position of the associates’ (in the original Dutch text deelnemingsverhoudingen van de leden; in the French translation composition de l'Association) which was not accompanied by any statement of reasons, did not indicate to the applicants that the obligation was intended to cover not their relations inter se and with the Association, but their relations with non-member companies.Nor is it correct to say that the Commission's general concern with regard to links between members of Transocean and other paint-producing undertakings is apparent from the notice of objections and the minutes of the hearing. The only fact which emerges is that the Commission was concerned about the particular case of BASF and AKZO because it presumed they held an important position in the marine paints market. It did not specifically express concern about the impact on the marine paints sector of the strength of those companies in the paints sector in general.The applicants' reply to the notice of objections concentrated, moreover, on the fact that in the field of marine paints, AKZO and BASF were less important than the Commission supposed.The applicants contest the Commission's argument based on the distinction between the objections, which must be notified to the parties concerned before the decision, and the obligations attached to the grant or the continuance of an exemption, which are not subject to the above requirement.(a) They point out firstly that a decision to impose conditions or obligations on the addressee of an exemption affects the rights and duties of the addressee and thus affects its interests. By imposing the obligation without having heard the parties concerned, the Commission deprives the latter of the opportunity to influence its decisions, thereby violating general principles of administrative procedure.(b) Secondly, as the concept of ‘objections’ is nowhere clearly defined, it is necessary to examine it in the light of the system established by Regulation No 99/63 and of the purpose of Articles 2 and 4 of that Regulation. The purpose of Regulation No 99/63 is clear: proceedings can only be regular if parties subject to the competence of the Commission have the opportunity to present their views on intended decisions of the Commission before such decisions are taken. As for the system established by Regulation No 99/63, it is based on Article 19 of Regulation No 17, a provision which is itself intended to implement Article 8 of that Regulation.The applicants reject the case law (Cases 6/72, Europemballage and 41/69, Chemiefarma) invoked by the Commission, since neither relates to a case of exemption.They also point out that, contrary to what the Commission appears to think, they did not intend to make a separate ground of objection out of the damage which the obligation in dispute causes them. The existence of this damage nevertheless justifies the applicants' claim for a prior hearing on this matter.The applicants also dispute the relationship which the Commission establishes between Articles 11 and 8 of Regulation No 17. According to the applicants, Articles 8 and 11 are different as regards their subject matter and were drawn up with different purposes in view. It is not permissible to widen the sphere of application of Article 8 so as to ‘anticipate’ the procedure of Article 11. The use of Article 8 to accomplish the more general tasks of supervision of the market under Article 11 constitutes a misuse of powers.In this case the obligation to keep the Commission informed of financial ties and ties relating to directorships, in the form in which it is imposed, greatly exceeds the powers which the Commission holds by virtue of Article 11. That Article allows the Commission to obtain information relating to such links only where it has some justification for thinking that they jeopardize competition within the EEC. It certainly has no right to impose an obligation to inform it, on an automatic and regular basis, of the existence of such ties. Only Article 8 allows this to be done, but with the limitations inherent in the purpose of that provision.Finally, the Commission cannot, in any case, even within the context of Article 11, exercise an unlimited competence in respect of members of the Association outside the Common Market.

4.In its rejoinder the Commission observes, firstly, with regard to the lack of prior communication of the precise terms of the obligations attached to the exemption, that it is not, in this connexion, under any express obligation.Secondly, the applicants cannot claim to have failed to understand the full import of the notice of objections with regard to this matter. The terms used, namely ‘deelnemingsverhoudingen van de leden’ (in the English translation, participatory position of the associates; in the French translation, composition de l'Association) cannot have the narrow meaning of internal relations between the members of the Association, as such an interpretation is excluded, given the Commission's concern over the Association's links with large groups operating in the paints sector in general. The Commission considers that the arguments put forward in reply to the notice of objections, analysing the structure of the market and the links between undertakings in the paints sector, show that the applicants had understood that the Commission's concern was not restricted to ties with AKZO and BASF alone, which were cited by way of example.As regards the right of the Association to a prior hearing on the obligations attached to an exemption, the Commission considers that the applicants were not deprived of this right but simply chose not to exercise it. It rejects the argument based on the system established by Regulation No 99/63, which contains provisions implementing Article 19 of Regulation No 17, which refers expressly to the decisions relating to exemption governed by Article 8 of Regulation No 17. In the Commission's opinion, Article 8 of Regulation No 17 gives it three powers: the power to take decisions, the power to impose conditions and obligations and the power to revoke or amend. Article 4 of Regulation No 99/63 refers only to the first of these powers. While refusing to accept any limitation on its right to impose conditions stricto sensu, the Commission admits that if it were a question of a condition which is, in fact, in the nature of an objection, such a condition must be communicated beforehand. But even if the condition were of such a nature, the notification need only relate to what E.K. Mestmäcker, cited by the applicants, describes as ‘the essential content of the obligations to be imposed on the undertakings’ (Europäisches Wettbewerbsrecht, Munich 1974).It follows from the judgments in the Europemballage and ACF Chemiefarma cases, the relevance of which the applicants are wrong in contesting, that if, in stating the objections properly so called, the Commission is only obliged to set out ‘in a summary, yet explicit manner, the essential facts’ on which it bases its arguments, the same must apply, a fortiori, to conditions and obligations attached to an exemption.Examining the argument of the applicants according to which it is a misuse of powers to use the powers conferred by Article 8 for the purpose of carrying out its general duty of supervision of the market under Article 11 of Regulation No 17, the Commission considers that the applicants have been unable to adduce proof of such a misuse of powers. In its judgments of 8 July 1965 (Joined Cases 3 and 4/64, Chambre syndicate de la sidérurgie francaise et autres v High Authority of the ECSC, Rec. 1965, p. 568) and of 16 June 1966 (Joined Cases 52 and 55/65, Federal Republic of Germany v Commission of the European Economic Community, Rec. 1966, p. 228), the Court of Justice has stated that it is necessary to point ‘convincingly to facts and circumstances indicating the probability that in this instance the High Authority, through want of foresight or serious lack of care amounting to disregard for the purpose of the law, has pursued objectives other than those for which the powers provided by the Treaty were conferred upon it’. The assertions of the applicants are not, as required above, ‘convincing’ and do not establish a ‘serious’ fault. The applicants have shown, on the contrary, that the Commission acted within the limits of its powers and used them for the purposes for which they were intended. The Commission agrees with the applicants' statement that the particular duty of investigation under Article 85 (3) justifies and makes necessary a special right on the part of the Commission allowing it to impose an obligation to divulge information in the future.The Commission's argument is therefore that:1. Article 8 of Regulation No 17/62 gives it an unlimited power to impose all obligations which it considers to be relevant to the control of the exemption;2. It can at any time seek the information in question on an ex post facto basis in accordance with Article 11 of Regulation No 17/62 without being under any obligation to hear the parties beforehand;3. If the Commission is not under any such obligation in the case of information requested ex post facto there would seem to be no reason why, pursuant to Article 8 of Regulation No 17/62, it should not, in an appropriate situation, impose a continuing obligation to provide such information during the currency of an exemption.As far as the question of extra-territorial application is concerned, the Commission is of the opinion that if one of the members of the Association declines to supply the information requested it would be justified in imposing a penalty on the Association, since the latter sought the exemption on a collective basis. Furthermore, there is a real risk that a member, outside the Community, might engage in activities which may adversely affect the competitive situation inside the Common Market, compelling the Commission to withdraw the exemption.

B —Infringement of rules of substance

1.The applicants consider that in formulating the obligation attached to the exemption the Commission ought to have drawn two distinctions: first, between the marine paints sector and the general paints sector; second, with regard to the ties between members of the Association and other undertakings, between those which have a real influence on the Common Market and those which do not.By failing to draw these distinctions, the Commission infringed Article 85 (1) and (3) and Article 8 of Regulation No 17.In effect, when the Commission wishes to subject the grant of an exemption to conditions or obligations, in pursuance of Article 8 (1) of Regulation No 17/62, it is restricted by two fundamental limitations:(a) Under Article 85, the Commission is only competent in respect of cases of restriction of competition which have effect within the Common Market; an obligation to supply information in this connexion can therefore only apply to competition within this market;(b) As the problem of the grant of an exemption only arises where, in one or more particular markets, it can be established that competition is restricted, the conditions to which the exemption is subject may only relate to the threatened market, in other words that relating to the products in question. Any other conclusion could give the Commission leverage in markets where the requirements of Article 85 (1) are not fulfilled, and where, accordingly, it has no right to impose conditions.The obligation imposed in Article 3 (1) (d) of the Decision of 21 December 1973 has infringed the two limitations set out above, since the relevant market was only that in marine paints within the Common Market, as appears clearly from the minutes of the hearing of 27 September 1973 and as has been accepted by the Commission in its Decision of 21 December 1973 and, previously, in that of 27 June 1967.Despite the above, the Commission judged it appropriate to impose obligations also covering the general paints sector and ties between members which affect competition only in territories where the Commission has no jurisdiction whatsoever.In its statement of defence, the Commission asserts that, having the right to attach conditions to the grant of an exemption, it was obliged, under the circumstances, to keep abreast of changes in the paints sector as a whole, which, wherever they take place, produce or may produce effects on the competitive situation in the Common Market.It recalls that the essential characteristic of the agreement to associate is the fact that, by grouping together, it was to enable medium-sized undertakings to ‘enter more actively into competition with the big marine paint manufacturers already represented in all the major countries, which would result in an increase in the supply of products and an improvement in the sales structure in the marine paints sector’ (Decision of 27 June 1967, OJ 163 of 20. 7. 1967, p. 10, Section III (1)).The admission into the Association of larger undertakings or the formation of links between members of the Association and such undertakings, or with undertakings in related spheres of activity, would or could affect the Commission's decision as to whether the criteria for the application of Article 85 (3) had been satisfied.The Commission agrees with the opinion of the applicants that the relevant market is that in marine paints. On the other hand, the Commission denies that its power is limited, at this stage of the procedure, by the ‘territoriality of Community law’. While the exact confines of the jurisdiction of the Community in respect of actions taking place at least partly outside its territorial limits are not settled, it is established that the Commission is entitled to take cognizance of and to seek to regulate any activities coming within the functional competence of the Community which, although taking place outside the territorial limits of the Community, produce effects within it.The Commission does not contest the general proposition that obligations or conditions relate only to the market in question and are limited to the territory of the Common Market. However, there are exceptions: first, as regards the question of territoriality, the Commission, for the reasons set out above, is entitled to take cognizance of activities which, although carried on at least in part outside the Community, produce effects within its territory. Second, as regards the relevant market, the Commission is entitled to seek to regulate the effects produced by undertakings seeking an exemption, even if these activities emanate from other sectors of the economy which are not at that moment the subject of proceedings under Article 85. Such a power exists provided that such effects produce or are likely to produce, or give reasonable ground for fearing that they may produce, material changes in the competitive position of the undertakings in question in the relevant market. This conclusion is confirmed by Article 11 of Regulation No 17/62, which confers on the Commission the power not only to conduct an inquiry into the sector concerned, but also to carry out ancilliary inquiries in related fields. The Commission has, on the basis of Article 11, the right, from this moment, to seek the information in issue. If such a right exists in pursuance of Article 11 and is not limited in the sense contended by the applicants it would be incongruous to limit the corresponding powers of the Commission under Article 8 of Regulation No 17. The facts of the case lend support to the position adopted by the Commission. After the Decision of exemption granted on 27 June 1967 and based on the fact that the Association was one composed of medium-sized undertakings which, in order to improve their competitive position, had grouped together, two of these undertakings formed on links with the AKZO and BASF groups. Such links arouse, with good reason, the interest of the Commission, especially when they affect the structure of the companies concerned to such an extent as to create the relationship of parent company to subsidiary. The position is similar in respect of links with non-member paint manufacturers, not active in the marine paints market, or only marginally so, since these links would be capable of affecting the relative financial strength of the members of the Association and could compromise their competitive position withhin the marine paints market. Even if the existence of links with the AKZO and BASF groups does not, at the moment in the Commission's opinion, have any appreciable effect on the marine paints sector, it would, were this position to change, merit, at the very least, examination by the Commission. It is thus clear to the Commission that it has the right to be informed of all links which may reasonably be considered capable of affecting the competitive position of the members of the Association within the Common Market.The applicant's argument that the different sectors of the economy are to be considered as compartmentalized, each having no influence or effect on the others, is, in the Commission's opinion, totally unreal.In their reply the applicants express their agreement with some of the points of view advanced by the Commission. Thus the mere fact that side-effects may occur in other markets does not suffice to prevent the Commission from pursuing its legitimate duties under Article 8 of Regulation No 17/62. Similarly, when it imposes obligations, the Commission has the right to consider effects on the relevant market emanating from other markets if those effects may substantially affect the fulfilment of the requirements under Article 85 (3).The applicants consider however that the terms used in Article 3 (1) (d) of the Decision of exemption are too general.If the Commission had merely asked for information on links with outside undertakings operating on the marine paints market of the EEC, the applicants would not have alleged any infringement of rules of substance. But the Commission goes further and claims that it has a legitimate interest in knowing of any other links with other groups, within or outside the Common Market. The Commission's assertion that “links with non-member paint undertakings not active in the marine paint market, or only marginally so, either within or outside the Common Market, which affect or may affect the relative financial strength of the members of the Association, may jeopardize their competitive position in the marine paints market within the Community” is basically unsound.By itself this assertion cannot justify the obligation imposed, for it would also apply to ties with undertakings which do not manufacture paints. Furthermore, the criterion of financial strength is too wide. The criterion should not be whether the added financial strength might compromise the competitive position within the marine paints market, but whether there is reason to fear that the increased strength of the member concerned will be such as to enable the Association to eliminate competition in respect of a substantial part of the product in question. The applicants cite as an example the financial ties of their Thailand member with a group in the paints sector, whatever may be its size, not operating within the Common Market in the marine paints sector or in that of other paints: there is no reason to fear that these ties create the possibility of eliminating competition within the EEC marine paints market, or even that they affect, in any way, competition in this market. They are covered nevertheless by the terms of the obligation set out in Article 3 (1) (d) of the contested Decision.A narrower yet practicable formula should have been proposed, and in fact was proposed by the Board of Directors of the Association in its letter of 21 January 1974. The suggestion was to limit the obligation to inform to ties with other marine paint undertakings when either the Association or these other undertakings carry on business within the Common Market. The Commission replied that it was not disposed to vary in any way the wording of the Decision.The applicants also point out that their objection in respect of the competence of the Commission is not based, as the Commission asserts, on the legal theory of extra-territorial application of antitrust laws but on the restrictions inherent in the EEC Treaty.

4.In its rejoinder the Commission asserts that the obligation imposed is not open to appraisal by the Court. The Court has, in fact, stated, in its judgment of 14 March 1973 (Case 57/72, Westzucker v Einfuhr- und Vorratsstelle für Zucker [1973] E.C.R. 340), that “when examining the lawfulness of the exercise [of a significant freedom of evaluation], the courts cannot substitute their own evaluation of the matter for that of the competent authority but must restrict themselves to examining whether the evaluation of the competent authority contains a patent error or constitutes a misuse of power”.In this case there has been neither a misuse of power nor a patent error. In any case, the Commission is quite willing to answer the argument of the applicants. The latter consider that there is no reason to fear that financial and personal ties between members of the Association not operating within the EEC and other undertakings, also outside the Community, can have any effect whatsoever on competition within the Common Market.The Commission opposes this contention with three arguments:1. There is no reason why the obligation to inform attached to the grant of the exemption should be limited merely to those members which are active within the Common Market, when the exemption itself was requested for the benefit of all members.2. The fact that links are formed exclusively between undertakings situated outside the Community, one of which is a member of the Association, does not exclude the possibility that these relations may have an effect on competition within the Common Market. This may be the case if the undertaking with which these links are formed has itself links with undertakings inside the Common Market. The importance of these links for the competitive situation can only be correctly evaluated by the Commission if it possesses all the relevant information. In this case, the extent to which the marine paints sector and the general paints sector are interchangeable justifies the extent of the obligation imposed.3. The applicants do not deny that the Commission is entrusted with the task of constant evaluation of whether the conditions exist which, under Article 85 (3), justify the grant of an exemption. At the time the exemption is granted, the Commission is clearly not in a position to foresee the possible effects of the participation by a member of the Association in an undertaking situated outside the Common Market. It must however be able to obtain information which will enable it, if such an event occurs, to evaluate its importance. The applicants claim that the words of Article 3 (1) (d) of the Decision of exemption even cover ties with undertakings which are not in the paints sector. The Commission thinks that that is a hypothesis which could in theory occur. However, the Commission has not at any time suggested that this was its aim, and has limited its requests for information to links in the paints sector.For the reasons set out above the Commission is also unable to accept the practicability of the solution proposed by the applicants.The Commission concludes by observing that it emerges from the declarations of the applicants as to the extra-territorial application of Community law that this point is not at issue.

IV —Oral procedure

At the conclusion of the written procedure the Court invited the parties to reply to the following questions:1. Is the annulment of part of the Decision possible or is that part of the Decision which may be vitiated by illegality so linked to the Decision as a whole that the illegality of that part would entail the nullity of the whole of the contested Decision?2. What must the attitude of the Court be in such a case?At the hearing on 10 July 1974 the parties expanded the arguments submitted during the course of the written procedure and replied in the following manner to the questions of the Court.According to the applicants, the annulment of part of a decision is possible. They cite, in this connextion, the judgment of the Court of 13 July 1966 (Joined Cases 56 and 58/64, Établissement Consten SARL and Grundig-Verkaufs-GmbH v Commission of the EEC, Rec. 1966, p. 430) in which the Court annulled part of a decision adopted on the basis of Article 85.Moreover, in this case, the nullity of part of the Decision in question should not entail the annulment of the entire Decision. A partial annulment should be refused only if it seems certain that the administration would not have adopted the disputed decision in its truncated form and that in declining to do so it was acting in a regular manner.In the applicant's opinion, the Commission is bound to grant the exemption, in the event of proper notification, where it establishes that the four conditions laid down in Article 85 (3) are satisfied. There is, therefore, no basis for claiming that the part of the Decision the annulment of which the applicants are seeking cannot be served from the Decision as a whole.As to the attitude which the Court must adopt, the applicants suggest that if the Court upholds only the objections of a procedural nature it should refer the case back to the Commission and direct it to reformulate the obligation in accordance with the notice of objections and with the true meaning of the expression ‘deelnemingsverhoudingen van de leden’. If the Court upholds only the objections relating to the substance of the case, it could give the Commission the opportunity to reformulate the obligation in accordance with the aim of Article 8 of Regulation No 17 and having regard to the limitations inherent in the Treaty.Should the Court uphold both the objections relating to procedure and those relating to substance, the separate solutions proposed above could be combined.The applicants indicate however that their conclusions are only directed at the annulment of part of the Decision.The Commission points out that as regards the expression ‘deelnemingsverhoudingen van de leden’ (participatory position of the associates) used in the notice of objections of 27 July 1973, the French translation which it had put forward in the written procedure, ‘composition de l'association’, is incorrect and should be replaced by ‘situation des liens et participations des membres’.As regards the questions put by the Court, in the Commission's opinion, it should, in principle, be possible to annul part of a decision while upholding the rest. But that is only admissible where the part to be annulled is not inseparable from the decision as a whole. The Commission is of the opinion that the obligation to supply information is of such importance that, without it, the Commission would no longer be able properly to fulfil its duty to supervise the operation of the exemption, the reason for this being the structure of the paints market in general.In reply to the second question, the Commission declares that if the Court were to consider the obligation laid down in Article 3 (1) (d) to be illegal and were to recognize the impossibility of severing it from the Decision as a whole, the only course open to the Court would be to certify the nullity of this obligation and, in consequence, that of the entire Decision. This solution would have to prevail despite the complex problems which it raises and of which an example, cited by the Commission, is respect for the principle ‘ne ultra petita’.The Advocate-General delivered his opinion on 19 September 1974.

Law

1By Decision of 21 December 1973 the Commission, pursuant to Article 85 (3) of the EEC Treaty, renewed, subject to new conditions, the exemption from the prohibition contained in Article 85 (1), which had been granted, by Decision of 27 June 1967, to an agreement restricting competition on the market in marine paints, concluded between the undertakings constituting the Transocean Marine Paint Association (hereinafter referred to as the Association).

2Inter alia, Article 3 (1) (d) of the Decision requires members of the Association to inform the Commission without delay of ‘any links by way of common directors or managers between a member of the Association and any other company or firm in the paints sector or any finanical participation by a member of the Association in such outside companies or vice-versa including all changes in such links or participations already in existence’.

3This action has been brought for the purpose of annulling that single provision.

4The applicants firstly state that the obligation in issue was mentioned neither in the ‘notice of objections’ of 27 July 1973, nor at the time of the hearing on 27 September 1973, and that furthermore it was not mentioned in any letter or memorandum from the Commission, prior to the Decision, so that they were never given the opportunity to make their views known on this subject. Accordingly, as regards the clause in issue, the Commission is said to have infringed rules of procedure laid down by Regulation No 99/63 of the Commission of 25 July 1963 (OJ 127 of 20. 8. 1963), on the hearings provided for in Article 19 of Regulation No 17 of the Council of 6 February 1962 (OJ 13 of 21. 2. 1962) and in particular Articles 2 and 4 of the said Regulation No 99/63.

5Secondly, the applicants allege an infringement of Article 85 of the Treaty and of Article 8 (1) of Regulation No 17, in that the obligation imposed upon the undertakings is wider in scope than anything which may be imposed upon them under Article 85.

6In a communication of 27 July 1973 entitled ‘notice of objections’, drawn up in Dutch, the Commission stated that a simple renewal of the exemption could not be envisaged, since the position of the members of the Association on the marine paints market had changed as a result of the increase in the number of undertakings composing the Association, the increased size of certain of them and the links which two of the members, Astral and Urruzola, had forged with large industrial chemical concerns.

7The Commission added that it was nevertheless willing to renew the exemption for a period of five years, but at the same time making it subject to fresh conditions and obligations, one of which was formulated so as to involve, for the members of the Association, apart from the obligations contained in Article 4 of the Decision of 27 June 1967, the further obligation to notify to the Commission without delay ‘iedere wijziging in de deelnemingsverhoudingen van de leden’ (literally: any change in the participatory relationships of the members).

8The applicants claim that at no time could they infer from this statement that the Commission intended to impose on them a condition such as that contained in the provision in issue, and one to which they would not be able, by reasons of its breadth, to adhere and which, without good reason, would harm their interests. If they had been in a position to realize the Commission's intentions they would not have failed to make known their objections on this matter so as to draw the Commission's attention to the inconvenience which would result from the obligation in issue and to the illegality by which it is vitiated. Since they were not given this opportunity, they allege that the Decision, insofar as the obligation in issue is concerned, must be annulled since it is vitiated by a procedural defect.

9The defendant replies, firstly, that the requirement laid down in Article 2 of Regulation No 99/63, according to which ‘the Commission shall inform undertakings and associations of undertakings in writing of the objections raised against them’, in the same way as the obligation imposed upon it by Article 4 of the same Regulation, to deal only with ‘those objections raised against undertakings and associations of undertakings in respect of which they have been afforded the opportunity of making known their views’, do not relate to the conditions which the Commission intends to attach to a decision granting exemption.

10The Commission adds that the concern which is given expression in the clause in issue was known to the applicants, in particular because of the importance attached to the case of the companies Astral and Urruzola, and this both in the communication of 27 July 1973 and during the course of the hearing.

11According to Article 19 of Regulation No 17 of the Council, the Commission, before taking decisions as provided for in Articles 2, 3, 6, 7, 8, 15 and 16 of that Regulation, shall give the undertakings or associations of undertakings concerned the opportunity of being heard on the matters to which the Commission has taken objection. In referring to Article 6, this provision relates to decisions taken pursuant to a request for the application of Article 85 (3).

12According to Article 24 of the same Regulation the Commission shall have power to adopt implementing provisions in this context, which it did in Regulation No 99/63.

13It is clear both from the tide and from the first recital of this Regulation that it is concerned with all the hearings provided for in Article 19 of Regulation No 17 of the Council and, accordingly, also applies to procedures with regard to Article 85 (3). However, the obligation imposed upon the Commission by Articles 2 and 4 of Regulation No 99/63 to inform an undertaking, in writing or by giving notice in the Official Journal, of the objections raised against it and to deal, in its decisions, only with these objections, is essentially concerned with the statement of the reasons which would lead it to apply paragraph (1) of Article 85, either by ordering that an infringement be terminated or imposing a fine upon the undertakings, or by refusing to give the latter negative clearance or the benefit of paragraph (3) of the same provision.

14On the other hand, the Commission cannot be expected to anticipate the conditions and obligations to which it is entitled to subject the exemption laid down in Article 85 (3). In fact, the investigation of a request for exemption may bring to light various ways in which the operation of an agreement or the control of that operation may be undertaken, this prompting the Commission to withdraw the objections which it had raised against the request and justifying the grant, possibly subject to certain conditions, of the benefit of Article 85 (3).

15It is clear, however, both from the nature and objective of the procedure for hearings, and from Articles 5, 6 and 7 of Regulation No 99/63, that this Regulation, notwithstanding the cases specifically dealt with in Articles 2 and 4, applies the general rule that a person whose interests are perceptibly affected by a decision taken by a public authority must be given the opportunity to make his point of view known. This rule requires that an undertaking be clearly informed, in good time, of the essence of conditions to which the Commission intends to subject an exemption and it must have the opportunity to submit its observations to the Commission. This is especially so in the case of conditions which, as in this case, impose considerable obligations having far-reaching effects.

16Since Article 85 (3) constitutes, for the benefit of undertakings, an exception to the general prohibition contained in Article 85 (1) the Commission must be in a position at any moment to check whether the conditions justifying the exemption are still present. Accordingly, in relation to the detailed rules to which it may subject the exemption, the Commission enjoys a large measure of discretion, while at the same time having to act within the limits imposed upon its competence by Article 85. On the other hand, the exercise of this discretionary power is linked to a preliminary canvassing of objections which may be raised by the undertakings.

17It is clear from the file that this requirement was not fulfilled in respect of the obligation in issue.

18The statement contained in the communication of 27 July 1973 could be interpreted in widely differing ways, inter alia, as requiring merely that the information which had already to be supplied under Article 4 of the Decision of 27 June 1967 be supplemented by the notification of any links which might exist betwen the undertakings which are members of the Association. The ambiguity of this statement is highlighted by the fact that during the proceedings before the Court the Commission suggested different versions of it both in English, which is the language chosen by the applicants as the language of the case, and in French, in the translation in the statement of defence and in the correction proposed during the oral procedure.

19Although it is clear from the minutes of the hearing that the links between two members of the Association, the companies Astral and Urruzola, and two important industrial chemical concerns were examined in depth — which moreover prompted the Commission to dispense with its requirement that these two members should leave the Association — the said minutes show that at no time was the general condition later contained in the Decision the subject of an exchange of points of view. This fact confirms the applicants' assertion that they were convinced that the obligation as stated in the ‘notice of objections’ concerned only the mutual relations between members of the Association and not such links as might exist with outside undertakings, including those operating outside the Common Market and concerned with the manufacture of paints other than marine paints.

20Accordingly, the condition stated in Article 3 (1) (d) of the Decision was imposed in breach of procedural requirements and the Commission must be given the opportunity to reach a fresh decision on this point after hearing the observations or suggestions of the members of the Association.

21Notwithstanding the importance of the subject matter of this part of the decision, it is nevertheless capable of being severed, for the time being, from the other provisions, and a partial annulment is therefore possible and is justified by the fact that, taken as a whole, the Decision is favourable to the interests of the undertakings concerned.

22The provision in issue should therefore be annulled and the case remitted to the Commission.

Costs

23Under Article 69 (2) of the Rules of Procedure, the unsuccessful party shall be ordered to pay the costs, if a submission has been made to that effect.

24The defendant party has failed in its pleas.

25The defendant party should therefore be ordered to pay the costs.

Operative part

THE COURThereby:

1.Annuls Article 3 (1) (d) of the Decision of 21 December 1973;

2.Refers the case back to the Commission.

3.Orders the Commission to pay the costs.

Delivered in open court in Luxembourg on 23 October 1974.