Klöckner-Werke AG v Commission of the European Communities (263/82)

I —Facts and written procedure

Considering that the steel market was in a situation of manifest crisis within the meaning of Article 58 of the ECSC Treaty, the Commission adopted Decision No 2794/80 of 31 October 1980 (Official Journal 1980, L 291, p. 1) establishing a system of steel production quotas for undertakings in the iron and steel industry.Pursuant to that general decision, the Commission, by a letter dated 6 April 1981, which amounted to an individual decision, informed the steel manufacturer Klöckner-Werke, of Duisburg, of the reference-production figures and production quotas allocated to it for the second quarter of 1981.On 15 May 1981 that undertaking made an application (Case 119/81) to the Court of Justice for a declaration that that individual decision was void in so far as it fixed the reference production and production quotas for rolled products of Group I. The application was based on a number of factors allegedly vitiating both the contested individual decision and the general decision on which it was based. By judgment of 7 July 1982 (Case 119/81, Klöckner-Werke AG v Commission, [1982] ECR 2627) the Court dismissed the application as unfounded.In the meantime Klöckner had exceeded by 122781 tonnes the production quota allocated to it for the said quarter in respect of rolled products in Group I. Accordingly, a complaint was addressed to the undertaking by letter No 000989 of 1 February 1982, inviting it, under Article 36 of the Treaty, to submit its observations. Klöckner submitted its observations by letters dated 11 February and 18 March 1982, supplemented by its representatives at a hearing on 15 April 1982. Not accepting the undertaking's excuses, the Commission, by an individual decision of 13 August 1982 taken under Article 9 of Decision No 2794/80, imposed on it a fine of 10129432 ECU, equivalent to DM 23909916, payable within a period of two months from notification of the decision, with interest at 1% for each month of delay in payment from the expiiy of that period.By an application received at the Court Registry on 24 September 1982, Klöckner claimed that the decision imposing a fine on it should be declared void. It also requested, in an application for the adoption of interim measures, that the operation of the contested decision should be suspended. By order of 11 November 1982 the President of the Court ordered that the operation of the decision should be suspended on condition that the applicant lodged within 15 days a bank guarantee as security for the payment of the fine; by order of 7 December 1982 the President dismissed the application for variation of the first order to the effect that operation of the Commission decision should be suspended unconditionally until judgment on the main application.Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry. By order of 4 May 1983 the Court assigned the case to the Fourth Chamber.

II —Conclusions of the parties

The applicant claims that the Court should:1. Declare the defendant's decision of 13 August 1982 void; and2. Order the defendant to pay the costs.The Commission contends that the Court should:1. Dismiss the application; and2. Order the applicant to pay the costs.

III —Submissions and arguments of the parties

In its sole submission in the application the applicant does not deny having exceeded the production quota allocated to it for Group I products but maintains that it was justified in so doing and that therefore no fine ought to be imposed on it. At the material time the applicant was confronted with a state of necessity, inasmuch as observance of the quotas would have entailed such high losses that it would not have been able to survive. That was so because, amongst other factors, the quotas allocated were appreciably below the average level of utilization of the production capacity for hot-rolled wide strip in the Community.The applicant emphasizes that it was the quota system as a whole, in the form established by the Commission, which led to its being allocated inadequate quotas which jeopardize its solvency; it is only for technical reasons that the applicant is able each time to submit only one particular quarter to the Court for consideration. If the applicant had observed the quotas fixed for the quarter in question it would have suffered a loss of several million marks. Further, according to two auditors' reports annexed to the application, observance of the quotas during the period of validity of Decision No 1831/81, namely from 1 July 1981 to 30 June 1982, would ultimately have entailed an enormous deficit, to which would be added a similar loss for the period of validity of Decision No 1696/82, which is in force at present. In view of the fact that in spite of exceeding the quotas the applicant suffered, by reason of the steel crisis, extremely heavy losses in the steel sector, it would not have been able to bear the additional deficit resulting from observance of the quotas and would have been forced into liquidation.The applicant observes that the legal principle according to which necessity exempts from punishment anyone who has infringed a legal interest in order to protect a superior interest exists in the legal systems of all the Member States, so that it must also be recognized in Community law. In the present case the applicant could not have avoided ruin except by increasing its turnover in order to reduce its losses, and it could increase its turnover only by producing and selling more than the quotas allocated to it provided for. Its conduct can therefore be described only as necessary and justified. Moreover, since the applicant had challenged in time the individual decision fixing its production quotas for the relevant quarter it had expected that its claim would be allowed; further, the operation of the wide-strip mill requires technical preparations lasting several weeks, so that if the mill had not been prepared in due time for production in excess of the quotas allocated, any success in the proceedings concerning the level of the quotas would have been futile. The applicant had in no way been responsible for that state of legal uncertainty which had contributed to inducing it to increase its production. In any event, the undertaking was not claiming exemption from the quota system but simply a reasonable increase in the inadequate quotas allocated to it, so that it produced a quantity corresponding, on the basis of a production capacity of 459000 tonnes per month for its Bremen wide-strip mill II, to the average rate of utilization of mills of that kind in Community steel works.The applicant maintains, further, that the interest which it sought to defend by exceeding the quotas, namely the existence of a well organized undertaking employing 35000 people, with the most modern plant and the most advanced technology in Europe, was clearly more important than a purely formal interest such as the orderly functioning of the quota system. Moreover, the sacrifice which is being asked of it is unjust, since it is appreciably heavier than that imposed on owners of other wide-strip mills in the Community. If the quotas were observed the rate of utilization of the production capacity of the applicant's mill would be very much lower than the Community average. Although the Court held in the aforesaid judgment of 7 July 1982 that it is not possible to infer from Article 58 of the ECSC Treaty a general right for undertakings to maintain a minimum level of employment, it did not, in Klöckner's view, settle the question whether there is such a right at the individual level, related to the specific situation of the undertaking. The existence of such a right must be recognized and constitutes an application of the concept of necessity.The applicant maintains that, in any event, the infringement which it committed scarcely affected the general application of the quota system, since all the other undertakings were able to sell the whole of their production at the prescribed prices. Since the market was not disturbed, the other manufacturers had not been damaged by Klöckner's excess production, a factor which ought also to be taken into account in comparing the conflicting interests. Nor is there any risk of setting a dangerous precedent, since the other Community undertakings are not in a state of necessity comparable to that of Klöckner.Finally, the applicant emphasizes that the ruin which threatened it and justified it in exceeding the quotas would have been irreversible.In its defence the Commission raises a preliminary objection to the admissibility of the sole submission in the application. According to the applicant, the necessity lay in the fact that if it had observed the quotas allocated to it it would have had to incur such high losses that it would not have been able to continue in business.If that were correct it would have to be concluded that to fix a quota which did not allow the survival of the undertaking concerned would be unlawful. It follows, in accordance with the first paragraph of Article 42 (2) of the Rules of Procedure, that that argument ought to have been raised in Case 119/81 concerning the lawfulness of the individual decision fixing the production quotas allocated to Klöckner for the second quarter of 1981 and not in the present case, where it is out of time; furthermore, since the judgment of the Court of 7 July 1982 found that the decision fixing the quota in question was lawful the applicant cannot now rely on the defence of necessity with arguments necessarily reopening the question of the lawfulness of that decision because the matter is res judicata as a result of that judgment.As regards the substance of the case, the Commission recalls what the Court said with reference to a similar matter, namely legitimate self-protection, in its judgment of 12 July 1962 (Case 16/61, Acciaierie Ferriere e Fonderie di Modena v High Authority, [1962] ECR 289) and maintains that the conditions necessary for a finding of necessity in Community law are as follows:— The existence of such serious danger that the very existence of the person concerned is in jeopardy, provided however that he has not contributed by his conduct to the creation of the danger;— The impossibility of that person's escaping the said danger other than by conduct objectively unlawful.In the present case those conditions are not satisfied. Moreover, the applicant's argument cannot be accepted for reasons of a general nature.The Commission considers that recognition of a defence of necessity on the ground that observance of the quota system would threaten an undertaking's existence is incompatible with the aim of Article 58 of the ECSC Treaty, as defined by the Court in the judgment of 7 July 1982, namely to allow the Community to deal with a crisis in demand by adopting a quota system designed to distribute equitably over the whole of the Community steel industry the consequences of the reduced market for steel. The quota system, which seeks to improve market conditions, enables the profitability of undertakings to be maintained or restored in the long term; on the other hand, it cannot maintain or restore that profitability in the short term by allocating to undertakings higher quotas, since Article 58 of the Treaty does not require the Commission to guarantee each undertaking a minimum level of production determined in accordance with the undertaking's own criteria of profitability. Therefore, since the Commission is not required to adjust the quota system so as to allocate to undertakings quotas which allow them immediately to maintain or restore their profitability, it would be contradictory to permit undertakings, on grounds of necessity, to exceed of their own initiative the quota allocated to them and produce the quantity necessary to ensure their profitability.Recognition of a defence of necessity, as pleaded by the applicant to justify exceeding its quotas, would moreover deprive the quota system of any effectiveness. Such recognition would mean in practice allocating higher production quotas to any undertaking which pleaded necessity. To compensate for that increase it would be necessary to reduce the quotas of the other undertakings, but that would mean that more undertakings would no longer reach the threshold of profitability and would therefore in their turn be able to plead necessity and obtain higher quotas so that their production might become profitable again. This process would develop into a chain reaction and would necessarily lead to the collapse of the quota system.The Commission contends that, in any event, necessity should be regarded as justification for unlawfully exceeding production quotas only if the unlawful conduct was necessary to safeguard a legally protected interest of greater value than the -interest adversely affected. However, the interest which is affected by exceeding the quotas is not, as the applicant daims, merely “the orderly functioning of the quota system” but the possibility of survival for all steel undertakings in the Community. The quota system constitutes a measure intended to combat a crisis threatening the economic sector concerned as a whole and involving all the undertakings in common action. The two conflicting interests are therefore, on the one hand, the existence of an individual undertaking and on the other the existence of numerous, if not all, steel undertakings of the Community. Since it cannot be doubted that the survival of all those undertakings, or a large number of them, is more important than the survival of a single undertaking, an infringement of the rules cannot be justified by the necessity in which a individual undertaking finds itself. That conclusion is not affected by the fact that the Court, in its judgment of 18 March 1980 (Case 154/78, Valsabbia v Commission, [1980] ECR 907), did not a priori rule out a defence of necessity, since that case related to measures fixing minimum prices, which cannot be weighed against the existence of an undertaking.The Commission denies, moreover, that in the present case the existence of the undertaking was in immediate danger. The applicant itself stated that it had suffered a very serious loss in the steel sector from the 1974/75 marketing year to 30 September 1981 but had nevertheless succeeded in almost entirely making good that loss; so it cannot claim that its existence had been in peril since the beginning of April 1981. The applicant claims that if it had observed the quotas fixed for the quarter in question it would have suffered an additional loss of several million German marks but there is no evidence to support that claim, which is based on an extrapolation of unverifiable data and estimates. In any event, even if the correctness of the figures cited is accepted, that docs not prove that the existence of the undertaking was threatened in the second quarter of 1981, which is the period concerned by the quota in question. In that respect, the two expert reports produced by Klöckner are irrelevant: as regards the first, the experts admitted that they had not been able to ascertain whether the estimated losses had been offset by profits from other activities of the undertaking; as regards the second, it relates to a period subsequent to the quarter in issue, so it cannot be taken into account in the present case.In any event, even if it is accepted that the existence of the undertaking was in fact in jeopardy during the quarter in issue, the Commission contends that the applicant brought about such a situation itself through its previous conduct. The applicant admitted that before the quota system was adopted it had suffered very heavy losses in the steel sector. Those losses are due to wrong decisions on matters of commercial policy, namely the installation of a wide-strip mill of exceptional and excessive size involving a capital cost far exceeding that of other modern plant in the Community and the lack of adequate plant to enable the products of the mill to be further processed, so that production at the mill was much less profitable than at other similar undertakings.The lack of foundation in Klöckner's argument is confirmed by the figures relating to its monthly production from 1974 to the second quarter of 1981, which show that it maintained an almost constant level of production during that period.Furthermore, the Commission contends that, even if it is accepted that the existence of the undertaking was in jeopardy and that the danger had not been caused by the undertaking itself, to exceed the quotas was not the only means of escaping the danger. Klöckner could have endeavoured to obtain additional orders from abroad and then request the Commission to raise its quota under Article 14 of Decision No 2794/80; further, it could have made an application to the Court for interim measures, but it pursued neither course of action. Since lawful remedies could have been found, the undertaking was not justified in taking the law into its own hands; that course could be taken as a last resort.In its reply the applicant contends that the objection of inadmissibility raised by the Commission disregards the legal effects of the judgment given by the Court on 7 July 1982 in Case 119/81: the binding nature of that judgment prevents the applicant from raising again the question of the validity of the individual decision fixing its quotas for the quarter in issue and therefore prevents it from challenging the amount of those quotas, it being common ground that those quotas were exceeded. On the other hand, the aforesaid judgment in no way deals with the question whether the Commission may impose a fine on the applicant or whether it was justified in exceeding the quotas. The contention that the applicant's submission is out of time is also without foundation, since Article 42 of the Rules of Procedure does not apply in the present case. That provision concerns submissions which can no longer be advanced in a particular case because they are out of time, rather than submissions which cannot be. advanced because they have already been argued in previous proceedings; the latter question is governed by the provisions in relation to res judicata, namely Article 65 of the Rules of Procedure.On the substance of the case, the applicant challenges the Commission's argument regarding the purpose of Article 58 of the ECSC Treaty and stresses that that purpose is the “equitable” distribution among undertakings of the consequences of the crisis in the steel industry, so that it cannot be invoked when the distribution is made, as in the present case, on the basis of “inequitable” quotas.The applicant also challenges the Commission's argument to the effect that it has no duty to protect the profitability of undertakings except in the long term and that if necessity were recognized as justifying the exceeding of quotas it would deprive the system of any effectiveness. That argument confuses a threat to the existence of an undertaking with the simple impairment of its profitability. It also denies any importance to the serious threat in Klöckner's case, whilst accepting, on the other hand, the importance of the slight threat facing the other undertakings; that is contrary to the prohibition on discriminatory treatment.In paragraph 11 of the preamble to Decision No 2794/80 the Commission rightly stated that: “Implementation of this decision could cause exceptional difficulties for a number of undertakings as a result of applying general rules which take no account of specific situations. There must therefore be a procedure for correcting this.”Since such exceptional difficulties could only be financial difficulties, namely the reduction or total elimination of the profitability of an undertaking, that paragraph recognizes necessity as justifying an increase in quotas for the undertaking concerned. Such recognition accords with the general and established attitude of the Commission, as may be seen from the fact that it is possible to find similar expressions in all the other general decisions since adopted in this area (cf. Decision No 1831/81, Official Journal 1981, L 180, p. 3, seventh recital; Decision No 533/82, Official Journal 1982, L 65, p. 6, fourth and fifth recitals; Decision No 1696/82, Official Journal 1982, L 191, p. 2, sixth recital; Decision No 1698/82, Official Journal 1982, L 191, p. 43, third recital; Decision No 2751/82, Official Journal 1982, L 291, p. 8, first and second recitals). It is contradictory to give the undertakings referred to in those general decisions the benefit of rules adapted to individual cases and at the same time to invoke against the applicant the inescapable need to maintain rules of a general nature; what is good for small Italian or Greek undertakings should also be good for a large German undertaking since all discrimination is unlawful according to Article 4 (b) of the ECSC Treaty.In refutation of the Commission's argument to the effect that, in the weighing of conflicting interests which appraisal of the plea of necessity requires, the survival of the applicant alone is to be balanced against that of many, if not all, undertakings and thus against an interest of grater value, Klöckner contends that the Commission has, in individual decisions dealing with specific cases and even in general decisions concerned with categories of undertakings, increased the quotas in numerous cases without fear of condemning the other undertakings of the Community to extinction. It follows that the fact that the applicant exceeded its quotas does not have such catastrophic consequences as is claimed, which is, moreover, confirmed by the fact that the infringement in issue has not brought about the collapse of the system.As regards the conditions to be satisfied for a plea of necessity to succeed, the applicant observes in the first place that, although it is true that it suffered very heavy losses even before the quota system was established but succeeded in overcoming them, that was because it had used hidden reserves for that purpose. Since those reserves are now exhausted it is no longer able to bear additional losses, especially as it is necessary to take into account for that purpose not only the losses of the single quarter in issue but those incurred from the introduction of the quota system until 30 June 1983, as assessed in the auditors' reports annexed to the application. The immediate danger of the survival of the applicant undertaking is thus demonstrated.Should the Court consider those claims not to be sufficiently supported by evidence, Klöckner offers to call witnesses to give further evidence.In the second place, the applicant challenges the assertion that the threat to its existence was apparent even before the establishment of the quota system and is not an effect thereof; on the contrary, it maintains that if it had kept to the quotas allocated to it, it would already have ceased to exist, since the reduction of its receipts would have been untenable, as is apparent from the auditors' reports annexed to the application.Klöckner also denies that the threat to its existence was caused by its own erroneous conduct in the period prior to the establishment of the quota system. In its opinion, the crisis is due to a multitude of causes but that does not mean that there is no causal link between the adoption of the quota system and the state of necessity in which the undertaking finds itself. The real issue is whether the fact that certain causes of the necessity are due to its own conduct prevents the applicant from pleading necessity; that issue can be resolved only after consideration of all the causes of the crisis on the basis of Community law.The necessity relied on by Klöckner arises from the fact that, as distinct from many other Community undertakings, it has acted in accordance with the provisions of the ECSC Treaty and the suggestions of the Commission. It organized and modernized its plant by means of a reduction in the number of factories and the replacement of several obsolete factories of small proportions by a lesser number of large, very modern factories; it consequently reduced its staff, which involved heavy social burdens, developed business in areas other than steel in order to have a larger basis for its activities and to ensure alternative jobs and adopted new technology which saved energy and reduced costs.That was perfectly in accordance with the steel policy of the Community; so the Commission in recognition that Klöckner had acted in accordance with the Commission's proposals granted the undertaking large loans in order to encourage the aforesaid operations. It would therefore be absurd and contradictory to accuse the undertaking of making mistakes in commercial policy after having encouraged and induced it to do so.In any event, the alleged errors do not exist. It is not true that the wide-strip mill is of exceptional and disproportionate size in relation to the size of the undertaking, in view of the fact that all the most recent Japanese plant and even some German plant is of the same size. The mill in question is also quite normal from the point of view of the cost of its construction, for the figures cited in that respect by the Commission are unreal and based on false commercial premises. All that is true is that any reorganization and modernization of a steel undertaking involves costs and Klöckner has had to exhaust its reserves to achieve that end.The Commission's contention that the applicant is at a disadvantage because of a lack of sufficient capacity for processing the products from the wide-strip mill is also without foundation. Since 1980 Klöckner has increased its proportion of further processing and has now attained the Community average of 70%. Moreover, it is not true that an undertaking which does not engage in processing is always at a disadvantage; processing certain products, such as cold-rolled sheet, may even entail losses.The Commission seeks to justify the fact that the quotas granted to the applicant are lower than the Community average by maintaining that Klöckner succeeded in maintaining its production at the previous level until the second quarter of 1981, but that contention is irrelevant; the quotas are essentially calculated on the basis of the reference production for 1974, which in the present case means the production during a period in which the wide-strip mill was still at the teething stage so that it was far from achieving its real production capacity.Finally, the applicant denies that there were really any means other than exceeding the quotas to extricate itself from its state of necessity. An application under Article 14 of Decision No 2794/80 for an increase in the quotas for the quarter in issue would not have had the least likelihood of success, since, in spite of its efforts, it had not succeeded in obtaining any additional orders from nonmember countries, a fact which, if necessary, may be proved by witnesses. As regards applications for interim measures which might have been made to the Court, the applicant emphasizes that the Commission's attitude is contradictory since it has always opposed any application of that kind made by Klöckner and has always maintained that Klöckner ought to fail in the main application.With regard to the admissibility of the claim based on necessity, the Commission observes in its rejoinder that, according to general principles of procedural law, the effect of the binding force of res judicata is that facts whose existence was known at the decisive moment of a case and which were not put forward in those proceedings cannot be taken into account to reopen the same matter in fresh proceedings. The effect of res judicata thus extends not only to submissions and arguments which were in fact put forward during previous proceedings but also to those which should and could have been put forward. Moreover, the difference in the claims made in Case 119/81 and in the present case is illusory, since to annul the decision imposing a fine for exceeding the quota and thus to allow the infringement to pass by unpunished amounts quite simply to increasing the quota. It follows that the applicant is in practice seeking in the present case to reopen the fixing of its quotas for the quarter in issue and is pursuing the same aim as in Case 119/81 in spite of the fact that a final judgment has been given in that case.As regards the substance of the case, the defendant maintains that to recognize necessity, in a threat to the existence of the undertaking, as justification for exceeding production quotas would, on the one hand, be incompatible with the aims of Article 58 of the ECSC Treaty and, on the other, would irremediably compromise the effectiveness of the quota system. Klöckner's argument to the effect that the quota in issue is unjust inasmuch as the rate of utilization of its production capacity was reduced to a level much below the Community average does not accord with the facts, since the applicant was able to enjoy a much larger increase in its quotas under Article 4 (3) of Decision No 2794/80 than other undertakings and obtained thereby an increase of 32.31% in its reference production. In fact the rate of utilization of Klöckner's capacity is now only 5.6% below the average.The Commission observes, moreover, that Klöckner's contention that it is not seeking a guarantee of its profitability but raising the question of its survival is not pertinent since, as soon as an undertaking ceases to be profitable in the long term, the question of its survival or disappearance always arises.As regards the profitability of undertakings, the Commission denies that it has ever recognized in principle the threat of impairment to profitability as a ground for raising quotas, either in its administrative practice or in its general decisions. Neither Article 14 of Decision No 2794/80 nor the corresponding provisions in other general decisions give rise to an increase in quotas for reasons of profitability; the decisive criterion in those provisions resides in extraordinary or exceptional difficulties, other than those of a strictly economic or financial nature, caused by the application of the quota system. The criterion of profitability plays a part in strictly limited cases, as in Decisions Nos 533/82 and 1698/82, but that is due to a quite special situation in which a limited group of undertakings found themselves following the imposition of the quotas.The aforesaid decisions apply only to undertakings of small and medium size which do not produce flat products and whose production is made up for the main part of reinforcing bars. Such undertakings, which are called “monostructural” because they have no blast furnaces and manufacture their products from molten scrap in electric furnaces, are able to produce only reinforcing bars, wire rod and merchant bars, but not flat products of high quality; on the other hand, their production costs are lower than those of large integrated undertakings which are also able to produce flat rolled products of high quality. In order to protect the position of integrated undertakings in the reinforcing bars' sector the quota system had been applied even to that particular product; that had seriously damaged the monostructural undertakings, which were forced to reduce their production even though, because of their lower costs, they had not yet been affected by the crisis. There followed a serious fall in demand, even for reinforcing bars, whereas the market in flat products, following the adoption of the quota system, experienced an appreciable improvement. The result was that the position of large integrated undertakings improved but the position of monostructural undertakings became critical, since they were not able to compensate for their losses in the reinforcing bars' sector by profits in other sectors. Accordingly, Decisions Nos 533/82 and 1698/82, by granting monostructural undertakings increased quotas, attempted to remedy the distortion and to compensate them for sacrifices previously made in the name of Community solidarity. Those decisions are justified because they concern a special situation and it is necessary to reestablish a just distribution of sacrifices. In any event, they are provisional measures relating to a limited market and to undertakings of small size, so their effects on the quota system remain transparent and foreseeable; the measures therefore fall within the scope and logic of the system. On the other hand, those special circumstances cannot be invoked in the case of Klöckner, since its conduct is outside, if not contrary to, the logic of the system. That is why the increase in quotas for the benefit of numerous undertakings under the aforesaid special provisions did not lead to the collapse of the system, whereas that would in no way be guaranteed in the event of recognition of the exceptional situation put forward by the applicant.The Commission contests the validity of Klöckner's opinion that no catastrophe could ensue if Klöckner's argument were accepted because, in confining itself to producing an amount equivalent to an equitable quota such as ought to have been granted to it, it would in substance scrupulously observe all the provisions adopted by the Commission. The context in which Klöckner places itself is based on a quite fictitious production capacity for the wide-strip rolling mill No II in Bremen which scarcely accords with the facts as verified by the Commission; it is therefore absurd to speak of scrupulous compliance with the provisions in force. If Klöckner's argument were accepted, any undertaking could for the same or similar reasons itself calculate the quotas which it considered just and appropriate, so that the fixing of the quotas by the authorities would be futile. Breach of the quota system cannot therefore be justified by the state of necessity of a single undertaking.In the alternative, the Commission contends that in any event the conditions for a defence of necessity are not satisfied in the present case in relation to the second quarter of 1981. The applicant seeks in vain to prove necessity by taking into account the losses which it would allegedly have incurred from the introduction of the system until 30 June 1983 if it had observed the quotas. Instead it must prove that the conditions for necessity were satisfied when it acted unlawfully; thus only the situation during the second quarter of 1981 is relevant in the present case. For the same reason the auditors' reports produced by Klöckner are irrelevant.As regards the causal link between the fixing of the quotas and the state of necessity, it is not a question of taking into account each of the multitude of causes but solely of determining whether there is a direct legal link between the allocation of the quotas and the state of necessity in the sense that the fixing of the quotas is a condition sine qua non of the threat to the undertaking's existence. That is not so in the present case because the dangerous situation — in so far as it really existed — was caused by the applicant itself, and was not a direct consequence of the application of the system. The applicant itself admitted having suffered enormous losses, before the quota system was adopted; the system cannot in any event be the cause of those losses.As for the errors of commercial policy and management, which it believes caused those losses, the Commission denies that it is possible to draw a comparison between the wide-strip mill No II in Bremen and similar Japanese plant; the question whether that mill is too large can be determined only with regard to the state of the German and European steel market. The question whether the capital cost of that plant was excessive can be answered only in relation to the whole steel works at Bremen and the result of such an inquiry shows that its capital cost exceeds that of other modern plant in the Community by DM 40 to 80 per tonne. As regards the capacity for processing the rolled products of the mill in question, the fact that it has now acheived 70% is quite irrelevant since until the second quarter of 1981 it did not exceed 51%. That is why, during the quarter in issue, the turnover generated by that mill was appreciably lower than in the case of comparable European plant.Finally, Klöckner is wrong to claim that the fact that it succeeded in more or less maintaining its production at the 1974 level until the quarter in issue gives a false impression of the capacity of its plant inasmuch as the capacity was appreciably increased after the teething stage. In fact, Article 4 (3) of Decision No 2794/80 provided for an increase in the reference production in such cases and that rule was applied to the applicant, which thereby obtained an increase of 32.31%. That is considerably higher than the increase granted to other undertakings in the Community, which averaged less than 10%.

IV —Oral procedure

At the sitting on 6 July 1983 oral argument was presented by the following: for Klöckner-Werke AG, Professor Bodo Borner of the University of Cologne; and for the Commission, Norbert Koch, a member of its Legal Department, acting as Agent, assisted by-Professor Eberhard Grabitz of the Free University of Berlin.The Advocate General delivered his opinion at the sitting on 5 October 1983.

Admissibility of the single submission based on necessity

The validity of the single submission of necessity

Costs