Société à responsabilité limitée Unifrex v Commission and Council of the European Communities (281/82)

The liability of the Community

(a) Unifrex observes that an established body of case-law, in particular the aforementioned Schöppenstedt case, shows that the Community is liable for the consequences of a legislative act of its institutions where a sufficiently serious breach of a superior rule of law for the protection of the individual has occurred. In this case, the Community is liable both because of the illegality of Regulation No 801/81 and because of a breach of the principles of the protection of legitimate expectation and nondiscrimination.In the first place, Unifrex claims that Regulation No 801/81 is illegal because the Commission should have immediately adapted the monetary compensatory amounts to the monetary situation resulting from the devaluation on 23 March 1981 of the central rate for the Italian lira. By intervening only on 27 March 1981 and by fixing the compensatory amounts applicable for the week of 30 March to 5 April 1981 at the level applicable on 23 March 1981, the Commission has infringed the basic Regulation No 974/71.The applicant admits in this context that Community rules do not lay down at what moment the compensatory amounts, which the Commission must introduce or adapt by virtue of Article 3 of Regulation No 974/71, must come into force. It considers however that the Commission must introduce or alter the amounts immediately when the monetary difference envisaged by that provision results not from the floating of a currency but from its devaluation.In the second place, it would appear, in the light of the aforementioned CNTA case, that the principle of the protection of legitimate expectation is breached.Though, in that decision, the Court denied that the monetary compensatory amounts might be regarded as a guarantee against the risk of changes in the exchange rates, it did however recognize that the application of such amounts excludes in practice the risk of such a change, so that a trader may legitimately expect that, for transactions already concluded, no change will occur which will cause him unforeseeable loss.As a result, the risk normally carried by traders is that of the spread of fluctuation of currencies within the European Monetary System. On the other hand, legitimate expectation would be frustrated and traders ought to be compensated, if the risk goes beyond that spread without any compensatory measure being adopted.In the third place, there is a breach of the principle of non-discrimination laid down in the second subparagraph of Article 40 (3) of the Treaty in so far as the applicant can avail itself of neither the “equity clause”, nor the advance fixing of the compensatory amounts.The “equity clause” was instituted by Commission Regulation No 926/80 of 15 April 1980 on exemption from the application of monetary compensatory amounts in certain cases (Official Journal, L 99, p. 15). Under the terms of that regulation, a Member State the value of whose currency has been altered is allowed, on the application of an interested party, not to collect the monetary compensatory amounts or that part of them corresponding to the increase, on imports or exports covered by contracts firmly concluded before the adoption of the monetary measure. The discrimination is that Community rules contain no comparable clause for cases in which the amounts are abolished or reduced because of a devaluation of the central rate for the currency of payment.The same reasoning holds good for the advance fixing of compensatory amounts which, contrary to the principle of Community preference, is allowed only in the case trade with non-member countries, pursuant to Regulation No 243/78 of 1 February 1978 (Official Journal, L 37, p. 5), but is not allowed in trade between the Member States.(b) The Commission replies in the first place that Regulation No 801/80 is valid, since Community rules do not lay down when the compensatoiy amounts which the Commission must introduce or alter pursuant to Article 3 of Regulation No 974/71 must come into force. In practice, the Commission most frequently fixes the amounts with effect from the Monday of the week following the one in which the difference has been observed, whatever the reason for the alteration. This deferment is justified because it allows the Commission, with the help of the Management Committee, to have the most reliable information at its disposal.However, where there is a danger of speculative movements, in particular following changes in the central rates, the Commission may decide to bring the amounts into force without waiting for the following Monday. That was not the case however when the Italian lira was devalued on 23 March 1981. Thus, even if the Commission had not frozen the compensatory amounts they would have been increased only from 30 March 1981.What is more, the Court has accepted, within certain limits, the “freezing” of the amounts by the Commission in its judgment of 13 June 1978 (Case 146/77 British Beef Company [1978] ECR 1347) and of 14 December 1978 (Case 35/78 Schouten [1978] ECR 2543). In the latter case, it upheld a regulation under which the Commission had frozen the compensatory amounts in spite of a drop in the rate of the British and Irish pounds, recognizing that Article 3 of Regulation No 974/71 “may be interpreted as meaning that the exchange rates taken into account in order to establish the difference referred to is to be assessed on the basis of economically justified criteria, and that consequently it was open to the Commission to leave out of account rates which it considered to be unrepresentative” (paragraph 36).The Court has thus accepted a fairly wide interpretation of the provisions relating to the fixing of the compensatory amounts where the reason for the contested measure was to respect as far as possible the real objectives of the rules and to avoid applying amounts which were economically unjustified.In the light of that case-law, the disputed measure effecting the freezing should be considered justified and necessary having regard to the purpose of Regulation No 974/71. The preamble to that regulation makes clear that the compensatory amounts to be created should be limited to the amounts strictly necessary to compensate for the incidence of the Community measures on prices and that they should be applied only in cases where such incidence would lead to difficulties. In the present case, however, it is doubtful whether a temporary monetary difference, corrected several days later, causes difficulties of such a nature as to justify an increase in the amounts for only a few days. That increase, far from maintaining the flow of trade, would on the contrary have been likely to stimulate disturbances artificially.The Commission indicates that the level of Italian compensatory amounts on imports went from -1.7, the level applicable on 23 March, to -7.2 as from 30 March, which represents an increase of 324%. On 6 April, following the partial alignment of the Italian green rate on the central rate, the amounts would have been fixed at -1, which represents a drop of 86%.In those conditions, the “mechanical” effect of Article 3 of Regulation No 974/71 would have caused, within a period of two weeks, two successive adjustments in opposite directions. This would have created, on the one hand, a risk of speculative practices and deflections of trade and, on the other hand, an insecurity in commercial relations more damaging to traders and to the smooth functioning of the common organizations than would have been the maintenance of the compensatory amounts at their previous rate.It should also be noted that the freeze took place in the context of the policy of progressive dismantling or at very least, of strict limitation of the monetary compensatory amounts. That policy is closely linked to the creation of the European Monetary System, to the alignment of the green rates on the central rates and to the widening of the franchises so as to diminish the monetary differences.In the second place, the Commission points out that the applicant has established neither the existence of a “sufficiently serious breach” of the principles of the protection of legitimate expectation and non-discrimination, nor a “manifest and grave” disregard of the limits on the exercise of the powers of the Community (judgment of 25. 5. 1978 in Joined Cases 83 and 94/76, 4, 15 and 40/77, Bayerische HNL [1978] ECR 1209; judgment of 5. 12. 1979, Amylum, cited above).As regards the protection of legitimate expectation, the Commission claims that the applicant had no right to an immediate adaptation of the compensatory amounts and that, what is more, the disputed measure was not unforeseeable, in view of the established practice of the Commission where there is to be imminent alteration of the representative rates. The Court has recognized, in the CNTA case, cited above, that the system of compensatory amounts does not give traders a guarantee of the continuous operation of the system, nor does it constitute an exchange shortfall guarantee. Furthermore, compelling reasons of public interest, namely the smooth functioning of the machinery of the common organizations of the market, would in this case have opposed the taking into consideration of possible legitimate rights or expectations.There is also no breach of the principle of non-discrimination. The so-called “equity” regulation, No 926/80, affects only traders for whom the monetary event means an increased import or export charge, and thus is not aimed at the case of a simple loss of profit resulting from the frustration of the hope that a compensatory amount would be increased. On the other hand, the system of advance fixing of the compensatory amounts applicable in trade with non-member countries (Regulation No 243/78) cannot be extended to intra-Community trade, since if it were, traders might abuse the system of advance fixing for purely monetary reasons.(c) The Council points out that the incomplete nature of the application does not allow it to make submissions as to the substance. It limits itself therefore to a few additional remarks on that subject.As regards the complaint in the application that the Council did not adopt any equitable compensatory measure, it is for the Commission to adopt ad hoc transitional measures for the application of Regulation No 974/71. Furthermore, the applicant does not say on what basis the Council had a duty towards it to adopt a general measure. Finally, no consideration either of law or of logic requires the Council to make an instant alteration in the representative rates applicable in the field of agriculture there and then, as soon as a modification of the central rates takes place in the context of the European Monetary System.Even supposing that the Council's action was contrary to Community law, that circumstance would not of itself be sufficient to give a right to damages. On the contrary, the effect of the Bayerische HNL judgment, cited above, is that, even in the case of a legislative measure declared invalid, the individual may be required to accept certain harmful effects, in so far as the institution concerned has not manifestly and gravely disregarded the limits on the exercise of its powers.