CJEC, July 10, 1980, No 30-78

THE COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES,

1. By application dated 6 March 1978 the distillers company limited (DCL) sought annulment of the Commission decision of 20 December 1977 relating to proceedings under Article 85 of the EEC treaty (IV/28.282 : the Distillers Company Limited, conditions of sale and price terms. Official Journal L 50 of 22 February 1978, p. 16).

2. The applicant produces spirits and is the world's largest distiller and seller of Scotch Whisky. It now has 38 subsidiaries producing spirits in the United Kingdom : 32 of them produce Scotch Whisky, 4 produce Gin, 1 produces Vodka and 1 Pimm's, a drink consisting of aromatized spirits.

3. The applicant has a large share of the markets in Scotch Whisky and Gin in the kingdom and in the other Member States. It has a large share of the market in Vodka in the United Kingdom and a very small share in the other Member States ; as for Pimm's, DCL alone sells it and the sales in the Member States other than the United Kingdom are very small in relation to the sales of other spirits.

4. Prior to the accession of the United Kingdom to the Community the subsidiaries of DCL entered into an agreement with the United Kingdom trade customers according to which the latter and subsequent purchasers from them were prohibited from exporting and reselling in bond. DCL notified those conditions of sale to the Commission on 30 June 1973 and asked for exemption under Article 85 (3).

5. Without informing the Commission, DCL, by circular letter dated 24 June 1975 sent to the customers of its subsidiaries in the United Kingdom, put into force new conditions of sale. Those conditions no longer contained any prohibition on exporting but provided for a different price system according as the products were intended for resale on the home market or were intended for export. The Commission was alerted by a report in the press and on 4 July 1975 wrote seeking clarification from the applicant who replied by letter dated 8 July 1975 and on 11 July 1975 sent to the Commission a copy of the aforementioned circular letter.

6. The first section of the circular letter headed "conditions of sale" "states following the referendum, we are now amending the conditions of sale to permit exports by home trade customers to other common market countries. Export outside the common market is still prohibited". Appendix I to the DCL circular letter contains the new version of the sellers ' conditions of sale.

The second section of the circular letter headed "price terms" states :

(A) "The various allowances, rebates and discounts are designed to meet the particular requirements of the home trade and customers are only entitled to them when the goods are in fact consumed within the UK.

(B) Accordingly, if you wish to buy for export to other common market countries you must indicate this on your order and purchase must be made at the gross price.

(C) If... a customer obtains or claims any home trade allowances, rebates or discounts in respect of goods which he has bought and any of those goods turn up in any country outside the UK, the right is reserved for all companies in the DCL group to sell thereafter to such customer only at the gross price".

Appendix II to the circular letter from DCL headed "certain contractual provisions (relating to price) additional to conditions of sale" states :

- "The following provisions will... form part of every contract between a purchaser (' purchaser ') and a subsidiary company of the distillers company limited (' DCL ') for the purchase from such a subsidiary company (' seller ') of any of the brands of spirits and are additional to seller's conditions of sale (the subject of appendix I)".

- "All allowances, discounts and rebates whatsoever... (... hereinafter collectively referred to as ' price allowances ') are designed to meet the particular market circumstances of the United Kingdom".

- Any subsidiary company of DCL is entitled to charge the gross price "without reduction of such price by any price allowances" :

- If there shall be a reasonable belief on the part of the seller that any quantity of such goods has been or will be consumed outside the United Kingdom ;

- Even when the exports are made by a subsequent purchaser ;

- Regardless of the quantity ordered, until and to the extent to which purchaser shall produce evidence satisfactory to seller that such quantities will be consumed in the United Kingdom.

7. In acknowledging receipt of the letter from DCL the Commission observed that new provisions of the conditions of sale relating to the grant of allowances, discounts and rebates appeared to be designed to impede parallel exports to EEC countries and to that extent to be in breach of Article 85 (1) of the treaty. The Commission asked for further information pursuant to Article 11 of Regulation No 17.

8. On 23 February 1977 the applicant made minor amendments to appendix II and forwarded a copy of it to the Commission on 25 February 1977.

9. A complaint was sent to the Commission on 18 may 1976 pursuant to Article 3 of Regulation No 17 by the interveners in the present proceedings. They asked that an end should be put to the infringements of the provisions of Articles 85 and 86 of the treaty resulting from the price terms of DCL contained in the circular letter of 24 June 1975.

10. By letter dated 22 April 1977 the Commission, in accordance with the provisions of Article 19 (1) of Regulation No 17, sent the applicant a Statement of Objections. The Commission said that it was not obliged to examine the possible application of Article 85 (3) of the treaty to the price terms, since they had not been notified in accordance with Article 4 (1) or Article 25 of Regulation No 17.

11. On 16 June 1977 the applicant sent two documents (with appendices) in reply to the objections contained in the Commission's letter of 22 April 1977. There followed six supplements to those documents.

12. The hearing by the Commission took place on 22 June 1977. The Commission decision was adopted on 20 December 1977.

13. That decision found that the prohibition to export from the United Kingdom to other EEC countries and the prohibition to resell in bond constituted an infringement of Article 85 (1) of the treaty from 1 January 1973 to or to about 24 June 1975 and refused the application under Article 85 (3) in respect of the provisions and the period referred to above. It further found that the price terms, which are set out in appendix ii to the circular letters dated 24 June 1975 and 23 February 1977, constituted an infringement of Article 85 (1) and that application of Article 85 (3) was not justified. The applicant was required to ensure that the infringement should be brought to an end without delay.

14. The applicant seeks annulment of the decision in question, and alternatively of Article 3 thereof inasmuch as it declares that an application of Article 85 (3) is not justified for the price terms which are part of the contracts for the sale of Scotch Whisky, Gin, Vodka and Pimm's entered into by subsidiary companies of DCL with their trade customers established in the United Kingdom.

15 it recognizes that the conditions of sale as drafted in 1973 infringed Article 85 of the treaty and could not be exempted under Article 85 (3), but maintains that the Commission decision must be annulled as a whole because of certain procedural irregularities which are such as to infringe the applicant's right of defence.

16. As regards the price terms drafted in 1975 and 1977, the applicant also recognizes that they fall under the prohibition of Article 85 (1) of the treaty. It maintains however that those terms are capable of enjoying the exemption under Article 85 (3) and that the Commission wrongly refused to grant such exemption.

17. As for Pimm's the applicant further maintains that the sales of that product in the member countries other than the United Kingdom are minimal in relation to the sales of other spirits. The price terms therefore do not fall within the prohibition of Article 85 (1) as regards that product.

18. The Commission joins issue with the applicant. It denies that there were any procedural irregularities and adds that even if there had been they would not have been such as to infringe the applicant's rights of defence. It further maintains, as it told the applicant in the Statement of Objections, that in the absence of notification in accordance with the provisions of Regulation No 17 the price terms could not be exempted under Article 85 (3) of the treaty.

Failure to notify the price terms

19. It is well to consider in the first place the legal effect of failure to notify the price terms in accordance with the provisions of Regulation No 17 of the Council and the implementing Regulation of the Commission.

20. Article 4 (1) of Regulation No 17 provides :

"Agreements, decisions and concerted practices of the kind described in Article 85 (1) of the treaty... and in respect of which the parties seek application of Article 85 (3) must be notified to the Commission. Until they have been notified, no decision in application of Article 85 (3) may be taken".

21. Article 6 (1) of the same Regulation states in this respect that :

"Whenever the Commission takes a decision pursuant to Article 85 (3) of the treaty, it shall specify therein the date from which the decision shall take effect. Such date shall not be earlier than the date of notification".

22. Article 24 of the same Regulation authorizes the Commission to adopt implementing provisions concerning inter alia the form, content and other details of notifications pursuant to Article 4. Under the powers conferred by that provision the Commission adopted Regulation (EEC) No 1133-68 of 26 July 1968 (Official Journal, English special edition 1968 (II), p. 400) which provides that notifications under Article 4 of Regulation No 17 shall be submitted on form A/B, as shown in the annex to Regulation (EEC) No 1133-68 which requires the parties to answer a number of specific questions, the answers to which are necessary to put the Commission in a position to take a decision.

23. It is agreed that the applicant never notified the price terms in accordance with the aforesaid provisions. Even when the Commission asserted in the Statement of Objections that the applicant had never notified the price terms in accordance with the provisions of Regulation No 17 and Regulation No 1133-68 with the result that they could not be exempted under Article 85 (3), the applicant did not proceed to give notification but confined itself to maintaining that refusal to grant exemption under Article 85 (3) for that sole reason would be too formal an application of the provisions in question. It adds that the Commission had not insisted on formal notification, for it had used, and had asked the applicant to use, the same reference number for the price terms and the conditions of sale notified in 1973 with a view to exemption, and that that could have led the applicant to believe that the price terms would be considered together with the conditions of sale for the purpose of any exemption.

24. As the Commission rightly maintains, in the absence of notification in accordance with the requirements of the Regulation the price terms may not have exemption under Article 85 (3). The simple fact that for administrative reasons the same reference number may have been used for the correspondence in relation to the conditions of sale which were duly notified and the correspondence relating to the price terms which were not is irrelevant.

Procedural irregularities alleged by the applicant

25. The procedural irregularities alleged by the applicant are in particular the following :

(1) the consultation with the Advisory Committee referred to in Article 10 of Regulation No 17 took place on 21 October 1977 whereas the minutes of the hearing before the Commission on 22. June 1977 were not drawn up even as an unrevised draft until 25 October 1977 so that the Committee was not in a position to appreciate the arguments put forward by the applicant at the hearing ;

(2) Several supplements to the applicant's answer to the Commission's Statement of Objections, supplements which the applicant considers were important in judging its case, were not forwarded to the Advisory Committee ;

(3) The Commission supplied the applicant with a copy of the intervener's complaint, a large part of which had been excised, and refused to supply the part excised (in so far as that part did not involve business secrets) maintainig that that part of the complaint was irrelevant ; on the other hand the whole complaint was forwarded to the Advisory Committee as being one of the most important documents.

26. In view of what is said above it is unnecessary to consider the procedural irregularities alleged by the applicant. The position would be different only if in the absence of those irregularities the administrative proceedings could have led to a different result. Subject to what the applicant says with regard to the product Pimm's the action is in effect confined to challenging the legality of the Commission's refusal to grant exemption to the price terms under Article 85 (3) from the prohibition in Article 85 (1). The applicant does not deny that the price terms infringe Article 85 (1). Since however it omitted to notify the said terms to the Commission the applicant has deprived itself by its own act of any possibility of obtaining in the proceedings to which the present application relates a decision granting exemption under Article 85 (3). Even in the absence of the procedural irregularities alleged by the applicant the Commission decision based on the absence of notification could therefore not have been different.

27. Regarding Pimm's, as stated above, the applicant maintains that the price terms do not fall within the prohibition of Article 85 (1) of the treaty solely because its sales in the member countries other than the United Kingdom are minimal in relation to the sales of other spirits.

28. The applicant's case cannot be accepted. Although an agreement may escape the prohibition in Article 85 (1) when it affects the market only to an insignificant extent, having regard to the weak position which those concerned have in the market in the products in question, the same considerations do not apply in the case of a product of a large undertaking responsible for the entire production. In those circumstances there is no reason for the purposes of the action to distinguish between Pimm's and the other drinks produced by the applicant.

29. After the rejoinder and the application by Bulloch to intervene the applicant sent the Court under Article 42 of the rules of procedure of the Court an addendum to the reply, putting forward certain fresh issues regarding the alleged irregularities in the administrative procedure. The Commission and the intervener lodged their answers within the time-limit laid down by the president of the Court in accordance with Article 42. The last Paragraph of Article 42 provides that the decision on the admissibility of the issue shall be reserved for the final judgment. In view of what has been said regarding the relevance of the irregularities alleged it is unnecessary to give a ruling on the admissibility of the fresh issues.

30. The action must therefore be dismissed.

31. Pursuant to Article 69 (2) of the rules of procedure the unsuccessful party shall be ordered to pay the costs and since the applicant has been unsuccessful it must be ordered to pay the costs.

THE COURT

Hereby :

1. Dismisses the action.

2. Orders the applicant to pay the costs including the costs of the interveners.