CJEC, July 10, 1984, No 72-83

THE COURT

1 By order of 9 december 1982, which was received at the court on 28 april 1983, the high court of Ireland referred to the court for a preliminary ruling under article 177 of the eec treaty two questions on the interpretation of articles 30, 31 and 36 of the treaty in order to enable it to decide whether irish rules requiring importers of petroleum products to purchase a certain proportion of their requirements at prices fixed by the competent minister from a state-owned company which operates a refinery in Ireland are compatible with the treaty.

2 Those questions arose in proceedings instituted by six irish undertakings trading in petroleum products either exclusively or predominantly in Ireland, which supply approximately 14 % of the motor spirit market in Ireland and a somewhat higher percentage of other petroleum products, against Ireland and the irish national petroleum corporation ( hereinafter referred to as ' ' the inpc ' ' ). In the main action, the six plaintiff undertakings are seeking a declaration in the high court that the fuels ( control of supplies ) order 1982 ( hereinafter referred to as ' ' the 1982 order ' ' ) is incompatible with the eec treaty.

3 The 1982 order was made by the irish minister for industry and energy under powers conferred on him by the fuels ( control of supplies ) act 1971, as amended in 1982, for the maintenance and provision of supplies of fuels. The 1982 order requires any person who imports any of the various petroleum products to which it applies to purchase a certain proportion of their requirements of petroleum products from the inpc at a price to be determined by the minister taking into account the costs incurred by the inpc.

4 The inpc, whose share capital is owned by the irish state and whose function is to improve the security of supply of oil within Ireland, purchased, in 1982, the share capital of the irish refining company limited, owner of the only refinery in Ireland, which is situated at whitegate, county cork. The share capital of the irish refining company limited, which is capable of supplying from the whitegate refinery some 35% of the requirements of the irish market in refined petroleum products, had until then been owned by four major oil companies which supply the greater part of the irish market in refined petroleum products. The decision to acquire the whitegate refinery by means of the purchase of the capital of the irish refining company limited was taken after the four major international oil companies announced their intention to close the refinery.

5 The reason given by the irish government for acquiring the irish refining company limited was the need to guarantee, by keeping refining capacity in operation in Ireland, the provision of supplies of petroleum products in Ireland, in view of the fact that if the refinery had closed, all suppliers of refined petroleum products on the irish market would have been obliged to obtain their supplies from abroad. Approximately 80% of those supplies come from a single source, namely the united kingdom.

6 The obligation to purchase from the inpc, provided for by the 1982 order, is intended to ensure that the whitegate refinery can dispose of its products. For each person to whom the 1982 order applies the proportion of requirements covered by the purchasing obligation is equal, for each type of petroleum product, to the proportion which the whitegate refinery ' s output for a certain period represents of the total requirements for that type of petroleum product during the same period of all the persons to whom the 1982 order applies. However, each importer is only required to purchase up to a maximum of 35% of its total requirements of petroleum products and 40% of its requirements of each type of petroleum product.

7 The plaintiff undertakings contend, in support of their application in the main action, that the 1982 order is contrary to community law and in particular to the prohibition, as between member states, of quantitative restrictions on imports and all measures having equivalent effect, laid down in article 30 of the treaty. The irish government and the inpc dispute that the 1982 order is a measure which comes within the scope of that prohibition and contend that in any event it is justified, under article 36 of the eec treaty, on grounds of public policy and public security inasmuch as it is intended to guarantee the operation of Ireland ' s only refinery, which is necessary to maintain the country ' s supplies of petroleum products.

8 In the main action, the detailed circumstances and reasons which led the irish minister for industry and energy to make the 1982 order are disputed between the parties. The high court took the view that before proceeding to inquire into the disputed facts, it was necessary to ask the court of justice to rule on the scope of the rules in the eec treaty on the free movement of goods as applied to a scheme such as the one at issue in the case. It therefore referred the following questions to the court:

' ' 1. Are articles 30 and 31 of the eec treaty to be interpreted as applying to a system such as that established by the fuels ( control of supplies ) order 1982 in so far as that system requires importers of oil products into a member state of the european economic community ( in this case Ireland ) to purchase from a state-owned oil refinery up to 35% of their requirements of petroleum oils?

2. If the answer to the foregoing question is in the affirmative, are the concepts of ' ' public policy ' ' or ' ' public security ' ' in article 36 of the treaty aforesaid to be interpreted in relation to a system such as that established by the 1982 order so that:

( a ) Such system as above recited is exempt by article 36 of the treaty from the provisions of articles 30 to 34 thereof, or

( b) Such scheme is capable of being so exempt in any circumstances and, if so, in what circumstances?

' '

9 The irish government and the inpc consider that the referral to the court is premature since the facts of the main action have not yet been established before the national court. They submit that to rule on the questions raised, and in particular on the first part of the second question, would have the effect of definitively depriving the defendants in the main action of the opportunity of defending their case before the national court and of producing all the relevant evidence, concerning in particular the reasons justifying the 1982 order.

10 As the court has held in a number of cases ( see in particular the judgment of 10. 3. 1981, joined cases 36 and 71-80 irish creamery milk suppliers association ( 1981 ) ecr 735 ), it is for the national court, in the framework of close cooperation established by article 177 of the treaty between the national courts and the court of justice based on the assignment to each of different functions, to decide at what stage in the proceedings it is appropriate to refer a question to the court of justice for a preliminary ruling. It is also for the national court to appraise the facts of the case and the arguments of the parties, of which it alone has a direct knowledge, with a view to defining the legal context in which the interpretation requested should be placed. The decision as to when to make a reference under article 177 in this case was thus dictated by considerations of procedural organization and efficiency which are not to be weighed by the court of justice, but solely by the national court.

11 Since it is for the national court to give judgment in the main action on the basis of the interpretation of community law provided by the court of justice, the parties have the opportunity in the main proceedings to bring forward any evidence they wish, particularly with regard to the reasons for the 1982 order.

The first question on the interpretation of article 30 of the treaty

12 The high court ' s first question is whether article 30 of the treaty is to be interpreted as meaning that rules of the type laid down by the 1982 order constitute a measure equivalent to a quantitative restriction on imports.

13 In the view of the plaintiffs in the main action and also of the commission, it is undeniable that such measures, under which importers are obliged to purchase part of their supplies within the member state, have a restrictive effect on imports within the meaning of article 30.

14 The irish government, however, contends that such is not the case. First, the measure in question in no way restricts imports inasmuch as, in any event, all oil, whether crude or refined, used in Ireland, has to be imported. Secondly, it is possible to interpret article 30 as containing an unwritten derogation for products such as oil which are of vital national importance.

15 In this connection, it must first be borne in mind that, according to the settled case-law of the court, article 30 of the treaty, in prohibiting all measures having equivalent effect to quantitative restrictions on imports, covers any measure which is capable of hindering, directly or indirectly, actually or potentially, intra-community trade.

16 The obligation placed on all importers to purchase a certain proportion of their supplies of a given product from a national supplier limits to that extent the possibility of importing the same product. It thus has a protective effect by favouring national production and, by the same token, works to the detriment of producers in other member states, regardless of whether or not the raw materials used in the national production in question must themselves be imported.

17 As regards the irish government ' s argument regarding the importance of oil for the life of the country, it is sufficient to note that the treaty applies the principle of free movement to all goods, subject only to the exceptions expressly provided for in the treaty itself. Goods cannot therefore be considered exempt from the application of that fundamental principle merely because they are of particular importance for the life or the economy of a member state.

18 The greek government refers in this context to article 90 ( 2 ) of the treaty, contending that a refinery is an undertaking of general economic interest and that a state refinery could not, without special measures in its favour, compete with the major oil companies.

19 It should be noted in that regard that article 90 ( 1 ) provides that in the case of public undertakings and undertakings to which member states grant special or exclusive rights, member states are neither to enact nor to maintain in force any measure contrary to the rules contained in the treaty. Article 90 ( 2 ) is intended to define more precisely the limits within which, in particular, undertakings entrusted with the operation of services of general economic interest are to be subject to the rules contained in the treaty. Article 90 ( 2 ) does not, however, exempt a member state which has entrusted such an operation to an undertaking from the prohibition on adopting, in favour of that undertaking and with a view to protecting its activity, measures that restrict imports from other member states contrary to article 30 of the treaty.

20 The answer to the high court ' s first question is therefore that article 30 of the eec treaty must be interpreted as meaning that national rules which require all importers to purchase a certain proportion of their requirements of petroleum products from a refinery situated in the national territory constitute a measure having equivalent effect to a quantitative restriction on imports.

The second question on the interpretation of article 36 of the treaty

21 The second question asks whether article 36 of the treaty and, in particular, the concepts of ' ' public policy ' ' and of ' ' public security ' ' contained therein are to be interpreted as meaning that a system such as the one at issue in this case, established by a member state which is totally dependent on imports for its supplies of petroleum products, can be exempt from the prohibition laid down in article 30 of the treaty.

22 The irish government and the inpc point out that it is for the member states to determine, for the purposes of article 36, and in particular with regard to the concept of public security, their interests that are to be protected and the measures to be taken to that end. They contend that Ireland ' s heavy dependence for its oil supplies on imports from other countries and the importance of oil for the life of the country make it indispensable to maintain refining capacity on the national territory, thereby enabling the national authorities to enter into long-term delivery contracts with the countries producing crude oil. Since the system at issue is the only means of ensuring that the whitegate refinery ' s products can be marketed, they consider it to be justified by considerations of public security as a temporary measure until another solution can be found to safeguard the continued operation of the whitegate refinery.

23 In the united kingdom ' s view, the term ' ' public security ' ' in article 36 of the treaty covers the fundamental interests of the state such as the maintenance of essential public services or the safe and effective functioning of the life of the state. The exceptions provided for in that article cannot be relied upon if the measures in question are designed predominantly to attain economic objectives. Those measures must not go beyond what is necessary to attain the objective protected by article 36.

24 The plaintiffs in the main action point out that the problem is not whether or not refining capacity needs to be maintained in Ireland, but rather whether the system chosen to enable that refinery to function can be justified on the basis of article 36. The real purpose of the rules at issue is to ensure that the refinery does not operate at a loss. It is thus, in the plaintiffs ' view, an essentially economic measure which cannot be covered by the concepts of public security or public policy.

25 The commission considers that national rules of the type laid down by the 1982 order are not justified under article 36 because the community, in accordance with its responsibility in this area, has adopted the necessary rules to ensure supplies of petroleum products in the event of a crisis. Furthermore, the irish government, by means of the system at issue, has pursued an economic interest which cannot be taken into consideration within the framework of article 36. In any event, according to the commission, the 1982 order is inadequate and ineffective for the purpose of securing supplies to the irish market, and it is disproportionate inasmuch as it requires all importers to buy at prices determined by the competent minister.

26 Having regard to those arguments, it is appropriate to examine:

First, whether rules of the type laid down by the 1982 order are justified in the light of the community rules on the matter;

Secondly, whether, having regard to the scope of the exemptions on the grounds of public policy and public security, article 36 can cover rules of the type laid down by the 1982 order;

Thirdly, whether the system at issue is such as to enable the objective of ensuring supplies of petroleum products to be attained and whether it complies with the principle of proportionality.

The justification of the measures at issue in the light of community rules on the matter

27 Recourse to article 36 is no longer justified if community rules provide for the necessary measures to ensure protection of the interests set out in that article. National measures such as those provided for in the 1982 order cannot therefore be justified unless supplies of petroleum products to the member state concerned are not sufficiently guaranteed by the measures taken for that purpose by the community institutions.

28 Certain precautionary measures have indeed been taken at community level to deal with difficulties in supplies of crude oil and petroleum products. Council directives 68-414-eec of 20 december 1968 ( official journal, english special edition 1968 ( ii ), p. 586 ) and 73-238-eec of 24 july 1973 ( official journal 1973, l 228, p. 1 ) require member states to maintain minimum stocks and to coordinate to a certain extent the national measures adopted for the purpose of drawing on those stocks, of imposing specific restrictions on consumption and of regulating prices. Council decision 77-706-eec of 7 november 1977 ( official journal 1977, l 292, p. 9 ) provides for the setting of a community target for a reduction in consumption in the event of difficulties in supply and for the sharing out between the member states of the quantities saved. Finally, council decision 77-186-eec of 14 february 1977 ( official journal 1977, l 61, p. 23 ) establishes a system of export licences, granted automatically, to allow the monitoring of intra-community trade.

29 Measures have also been taken within the context of the international energy agency, set up within the framework of the organization for economic cooperation and development ( oecd ), of which most community states are members and in whose work the community, represented by the commission, takes part as an observer. Those measures are designed to establish solidarity between the participating countries in the event of an oil shortage transcending the communities.

30 Even though those precautions against a shortage of petroleum products reduce the risk of member states being left without essential supplies, there would none the less still be real danger in the event of a crisis. According to article 3 of council decision 77-186-eec, the commission may, as a precautionary measure, authorize a member state, subject to certain conditions, to suspend the issue of export licences. That authorization is to be granted subject only to the condition that traditional trade patterns are maintained ' ' as far as possible ' '. The council, by a qualified majority, may revoke that authorization and that power is not subject to any express reference to traditional trade patterns. According to article 4, in the event of a sudden crisis, a member state may, subject to certain conditions, suspend the issue of export licences for a period of 10 days. In that case, the council, by a qualified majority, may adopt the appropriate measures.

31 Consequently, the existing community rules give a member state whose supplies of petroleum products depend totally or almost totally on deliveries from other countries certain guarantees that deliveries from other member states will be maintained in the event of a serious shortfall in proportions which match those of supplies to the market of the supplying state. However, this does not mean that the member state concerned has an unconditional assurance that supplies will in any event be maintained at least at a level sufficient to meet its minimum needs. In those circumstances, the possibility for a member state to rely on article 36 to justify appropriate complementary measures at national level cannot be excluded, even where there exist community rules on the matter.

The scope of the public policy and public security exceptions

32 As the court has stated on several occasions ( see judgment of 12 july 1979, case 153-78 commission v Germany ( 1979 ) ecr 2555, and the other judgments referred to therein ), the purpose of article 36 of the treaty is not to reserve certain matters to the exclusive jurisdiction of the member states; it merely allows national legislation to derogate from the principle of the free movement of goods to the extent to which this is and remains justified in order to achieve the objectives set out in the article.

33 It is in the light of those statements that it must be decided whether the concept of public security, on which the irish government places particular reliance and which is the only one relevant in this case, since the concept of public policy is not pertinent, covers reasons such as those referred to in the question raised by the national court.

34 It should be stated in this connection that petroleum products, because of their exceptional importance as an energy source in the modern economy, are of fundamental importance for a country ' s existence since not only its economy but above all its institutions, its essential public services and even the survival of its inhabitants depend upon them. An interruption of supplies of petroleum products, with the resultant dangers for the country ' s existence, could therefore seriously affect the public security that article 36 allows states to protect.

35 It is true that, as the court has held on a number of occasions, most recently in its judgment of 9 june 1982 ( case 95-81 commission v Italy ( 1982 ) ecr 2187 ), article 36 refers to matters of a non-economic nature. A member state cannot be allowed to avoid the effects of measures provided for in the treaty by pleading the economic difficulties caused by the elimination of barriers to intra-community trade. However, in the light of the seriousness of the consequences that an interruption in supplies of petroleum products may have for a country ' s existence, the aim of ensuring a minimum supply of petroleum products at all times is to be regarded as transcending purely economic considerations and thus as capable of constituting an objective covered by the concept of public security.

36 It should be added that to come within the ambit of article 36, the rules in question must be justified by objective circumstances corresponding to the needs of public security. Once that justification has been established, the fact that the rules are of such a nature as to make it possible to achieve, in addition to the objectives covered by the concept of public security, other objectives of an economic nature which the member state may also seek to achieve, does not exclude the application of article 36.

The question whether the measures are capable of ensuring supplies and the principle of proportionality

37 As the court has previously stated ( see judgments of 12. 10. 1978, case 12-78 eggers ( 1978 ) ecr 1935, and of 22. 3. 1983, case 42-82 commission v france ( 1983 ) ecr 1013 ), article 36, as an exception to a fundamental principle of the treaty, must be interpreted in such a way that its scope is not extended any further than is necessary for the protection of the interests which it is intended to secure and the measures taken pursuant to that article must not create obstacles to imports which are disproportionate to those objectives. Measures adopted on the basis of article 36 can therefore be justified only if they are such as to serve the interest which that article protects and if they do not restrict intra-community trade more than is absolutely necessary.

38 In that connection, the plaintiffs in the main action and the commission cast doubt, in the first place, on whether the installation of a refinery can ensure supplies of petroleum products in the event of a crisis, since a crisis gives rise above all to a shortage of crude oil, so that the refinery would be unable to operate in such circumstances.

39 It is true that as the world oil market now stands, the immediate effect of a crisis would probably be an interruption or a severe reduction in deliveries of crude oil. It should, however, be pointed out that the fact of having refining capacity on its territory enables the state concerned to enter into long-term contracts with the oil-producing countries for the supply of crude oil to its refinery which offer a better guarantee of supplies in the event of a crisis. It is thus less at risk than a state which has no refining capacity of its own and which has no means of covering its needs other than by purchases on the free market.

40 Furthermore, the existence of a national refinery constitutes a guarantee against the additional risk of an interruption in deliveries of refined products to which a state with no refining capacity of its own is exposed. Such a state would be dependent on the major oil companies which control refineries in other countries and on those companies ' commercial policy.

41 It may, therefore, be concluded that the presence of a refinery on the national territory, by reducing both of those types of risks, can effectively contribute to improving the security of supply of petroleum products to a state which does not have crude oil resources of its own.

42 The plaintiffs in the main action and the commission consider, however, that even if the operation of a refinery is justified in the interest of public security, it is not necessary in order to achieve that objective, and, in any event, it is disproportionate in relation to that objective, to oblige importers to satisfy a certain proportion of their requirements by purchase from the national refinery at a price fixed by the competent minister.

43 The irish government contends, on the other hand, that the purchasing obligation is the only possible way of keeping the whitegate refinery in operation. That requires a certain degree of use of the plant ' s capacity since the major international oil companies, on which the irish market depended for 80 % of its supplies in 1981, have clearly stated that they are not prepared to buy any petroleum products at all from the whitegate refinery, because they prefer to market the products from their own refineries in the united kingdom. The fixing of the selling price by the minister on the basis of the refinery ' s costs is necessary in order to avoid financial losses.

44 It must be pointed out in this connection that a member state may have recourse to article 36 to justify a measure having equivalent effect to a quantitative restriction on imports only if no other measure, less restrictive from the point of view of the free movement of goods, is capable of achieving the same objective.

45 In the present case, therefore, it is necessary to consider whether the obligation placed on importers of petroleum products to purchase at prices determined on the basis of the costs incurred by the refinery in question is necessary, albeit only temporarily, for the purpose of ensuring that enough of the refinery ' s production can be marketed so as to guarantee, in the interest of public security, a minimum supply of petroleum products to the state concerned in the event of a supply crisis.

46 That obligation could be necessary if the distributors that hold the major share of the market concerned refuse, as the irish government contends, to purchase supplies from the refinery in question. It is on the assumption that the refinery charges prices which are competitive on the market concerned that it must be determined whether the refinery ' s products could be freely marketed. If it is not possible by means of industrial and commercial measures to avoid any financial losses resulting from such prices, those losses must be borne by the member state concerned, subject to the application of articles 92 and 93 of the treaty.

47 As regards, in the next place, the quantities of petroleum products which may, as the case may be, be covered by such a system of purchasing obligations, it should be stressed that they must in no case exceed the minimum supply requirements of the state concerned without which its public security, as defined above, and in particular the operation of its essential public services and the survival of its inhabitants, would be affected.

48 Furthermore, the quantities of petroleum products whose marketing can be ensured under such a system must not exceed the quantities which are necessary, so far as production is concerned, on the one hand, for technical reasons in order that the refinery may operate currently at a sufficient level of its production capacity to ensure that its plant will be available in the event of a crisis and, on the other hand, in order that it may continue to refine at all times the crude oil covered by the long-term contracts which the state concerned has entered into so that it may be assured of regular supplies.

49 The proportion of the total needs of importers of petroleum products that may be made subject to a purchasing obligation must not, therefore, exceed the proportion which the quantities set out above represent of the current total consumption of petroleum products in the member state concerned.

50 It is for the national court to decide whether the system etablished by the 1982 order complies with those limits.

51 The answer to the second question should therefore be that a member state which is totally or almost totally dependent on imports for its supplies of petroleum products may rely on grounds of public security within the meaning of article 36 of the treaty for the purpose of requiring importers to cover a certain proportion of their needs by purchases from a refinery situated in its territory at prices fixed by the competent minister on the basis of the costs incurred in the operation of that refinery, if the production of the refinery cannot be freely disposed of at competitive prices on the market concerned. The quantities of petroleum products covered by such a system must not exceed the minimum supply requirement without which the public security of the state concerned would be affected or the level of production necessary to keep the refinery ' s production capacity available in the event of a crisis and to enable it to continue to refine at all times the crude oil for the supply of which the state concerned has entered into long-term contracts.

Costs

52 The costs incurred by the greek government, the united kingdom and the commission of the european communities, which have submitted observations to the court, are not recoverable. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision as to costs is a matter for that court.

On those grounds,

The court,

In answer to the questions referred to it by the high court of Ireland, by order of 9 december 1982, hereby rules:

1. Article 30 of the eec treaty must be interpreted as meaning that national rules that require all importers to purchase a certain proportion of their requirements of petroleum products from a refinery situated in the national territory constitute a measure having equivalent effect to a quantitative restriction on imports.

2. A member state which is totally or almost totally dependent on imports for its supplies of petroleum products may rely on grounds of public security within the meaning of article 36 of the treaty for the purpose of requiring importers to cover a certain proportion of their needs by purchases from a refinery situated in its territory at prices fixed by the competent minister on the basis of the costs incurred in the operation of that refinery, if the production of the refinery cannot be freely disposed of at competitive prices on the market in question. The quantities of petroleum products covered by such a system must not exceed the minimum supply requirements without which the public security of the state concerned would be affected or the level of production necessary to keep the refinery ' s production capacity available in the event of a crisis and to enable it to continue to refine at all times the crude oil for the supply of which the state has entered into long-term contracts.