CFI, president, July 21, 1999, No T-191/98 R

THE PRESIDENT OF THE COURT OF FIRST INSTANCE OF THE EUROPEAN COMMUNITIES,

Background

1. The applicant was one of 15 shipping companies party to the Trans-Atlantic Agreement ('the TAA'), a conference agreement relating to liner shipping across the Atlantic, between northern Europe and the United States of America.

2. On 19 October 1994 the Commission adopted Decision 94-980-EC relating to a proceeding pursuant to Article 85 of the EC Treaty (IV/34.446 - Trans-Atlantic Agreement) (OJ 1994 L 376, p. 1), in which, first, it found that certain provisions of the TAA, in particular those relating to certain inland transport services in Community territory, infringed Article 85(1) of the EC Treaty (now Article 81(1) EC) and, second, it refused to apply to those provisions Article 85(3) of the Treaty and Article 5 of Regulation (EEC) No 1017-68 of the Council of 19 July 1968 applying rules of competition to transport by rail, road and inland waterway (OJ, English Special Edition 1968 (I), p. 302). Decision 94-980 prohibited the undertakings to which it was addressed from engaging, inter alia, in price-fixing practices which had the same or a similar object or effect as the provisions contained in the TAA.

3. Following numerous discussions with the Commission, the parties to the TAA notified to the Commission on 5 July 1994 a new agreement intended to replace the TAA, called the Trans-Atlantic Conference Agreement ('the TACA'), which entered into force on 24 October 1994. Because of a succession of amendments, five new versions of the TACA were notified to the Commission after 5 July 1994.

4. On 16 September 1998 the Commission adopted Decision 1999-243-EC relating to a proceeding pursuant to Articles 85 and 86 of the EC Treaty (Case No IV/35.134 - Trans-Atlantic Conference Agreement) (OJ 1999 L 95, p. 1; 'the Decision').

5. According to Articles 1, 2 and 3 of the Decision, the parties to the TACA infringed Article 85(1) of the Treaty, Article 53(1) of the Agreement establishing the European Economic Area (EEA) and Article 2 of Regulation No 1017-68 by entering into an agreement under which they engaged in various anti-competitive activities.

6. Articles 5 and 6 of the Decision state that the applicant and the other parties to the TACA have infringed Article 86 of the Treaty (now Article 82 EC) and Article 54 of the EEA Agreement by altering the competitive structure of the market so as to reinforce their collective dominant position and by placing restrictions on the availability and contents of service contracts.

7. Article 8 of the Decision imposes a fine of EUR 13 750 000 on the applicant in respect of the infringements found in Articles 5 and 6. Article 10 provides that the fines laid down in Article 8 are to be paid within three months of the date of notification of the Decision.

8. By letter of 25 September 1998 the Commission notified the applicant of the Decision. In that letter it stated that, if the applicant brought an action before the Court of First Instance, it would not take any steps to recover the fine while the case was pending before the Court, provided that interest accrued on the amount due from the date on which the period for payment expired and that a bank guarantee acceptable to the Commission and covering both the principal sum and interest was provided no later than that date.

9. By letter of 16 December 1998, the applicant asked for a dispensation from the obligation to provide a bank guarantee. The Commission rejected that request by letter of 10 February 1999, taking the view, in particular, that it had to be possible to raise the required guarantee from among 'the company's partners, bankers or shareholders'. In addition, the Commission indicated that it was prepared to accept:

'(a)a bank guarantee limited in time for a one-year period (automatically extended or subject to payment if revoked) while using the attached bank guarantee model;

(b)a payment scheme allowing the company to pay in instalments provided that late payment interest [was] calculated and that the outstanding balance of the debt [was] covered by a standard bank guarantee'.

10. By application lodged at the Registry of the Court of First Instance on 7 December 1998, the applicant brought an action under Article 173 of the EC Treaty (now, after amendment, Article 230 EC) for the annulment of the Decision (registered under Case No T-191-98).

11. By separate document lodged at the Registry on 1 March 1999, the applicant, in accordance with Article 185 of the EC Treaty (now Article 242 EC), made the present application for suspension of the operation of the Decision until delivery of the judgment in the main proceedings in so far as, in Articles 8 and 10, it requires the applicant to pay a fine of EUR 13 750 000, and without it being required to provide the bank guarantee demanded by the Commission in its letter of 25 September 1998 as a condition for avoiding the immediate recovery of that fine.

12. On 24 March 1994 the Commission lodged its observations on this application for interim relief.

13. By document lodged at the Registry on the same day, the Federal Republic of Germany applied for leave to intervene in the proceedings for interim relief in support of the form of order sought by the applicant. By order of 12 April 1999 the President of the Court of First Instance granted that application.

14. The Federal Republic of Germany lodged its written observations at the Registry on 12 April 1999.

15. By letter of 28 April 1999 the applicant provided, at the request of the judge hearing the application for interim relief, certain information relating to its financial position.

16. The parties presented oral argument on 6 May 1999.

17. Following the hearing, the judge dealing with the application for interim relief invited the parties to enter into negotiations with a view to reaching, before 30 June 1999, an amicable settlement which might comprise phased payment of the fine and the provision of segmented guarantees.

18. On 1 July 1999 the applicant informed the Registry of the failure of those negotiations.

Law

19. Under the combined provisions of Article 185 of the EC Treaty, Article 186 of the EC Treaty (now Article 243 EC) and Article 4 of Council Decision 88-591-ECSC, EEC, Euratom of 24 October 1988 establishing a Court of First Instance of the European Communities (OJ 1988 L 319, p. 1), as amended by Council Decision 93-350-Euratom, ECSC, EEC of 8 June 1993 (OJ 1993 L 144, p. 21), the Court may, if it considers that circumstances so require, order the operation of the contested act to be suspended or prescribe any necessary interim measures.

20. Article 104(2) of the Rules of Procedure of the Court of First Instance provides that applications for interim measures must state the circumstances giving rise to urgency and the pleas of fact and law establishing a prima facie case for the measures applied for.

21. Those requirements are cumulative, so that an application for suspension of operation must be dismissed if one of them is not met (order in Case C-268-96 P(R) SCK and FNK v Commission [1996] ECR I-4971, paragraph 30).

22. The judge hearing an application for interim relief also balances the interests at stake where necessary (order in Case C-107-99 R Italy v Commission [1999] ECR I-4011).

23. It must be considered whether, in the present case, the conditions for the grant of the relief sought are met.

Arguments of the parties

The existence of a prima facie case

24. In order to demonstrate that its case is prima facie well founded, the applicant puts forward three pleas in law alleging, respectively, that essential procedural requirements were infringed, that errors of fact and law were committed in the assessment of whether Article 86 had been infringed, and that the fine imposed is unlawful.

25. Under the first plea, relating to infringement of essential procedural requirements, the applicant develops three sets of arguments. It contends, first, that the Commission failed to respect its right to be heard during the administrative procedure. It then sets out two cases of refusal of access to the file. Last, it submits that the Commission failed to fulfil its obligations of good administration, objectivity and impartiality in the conduct of the administrative procedure, in the assessment of the facts, evidence and issues, and in the assessment of the fines.

26. In its second plea, regarding infringement of Article 86 of the Treaty, the applicant asserts that the Commission's conclusion that the undertakings party to the TACA were capable of occupying a collective dominant position is vitiated by errors of law and of fact.

27. In a third plea, the applicant challenges the legality of the fine.

28. The Commission does not dispute that there is a prima facie case. It submits, however, that two of the arguments put forward by the applicant under its first plea, alleging infringement of essential procedural requirements, must, at this stage of the proceedings, be rejected as manifestly unfounded.

29. The Commission contests the argument that any fact-finding by the Commission subsequent to the statement of objections has the effect of rendering that statement invalid. It points out that the function of a statement of objections is to inform the parties and give them the opportunity to submit their observations, and that it remains valid until it is withdrawn. Where the Commission, on the basis of findings subsequent to the statement of objections, makes new allegations, it informs the parties thereof.

30. The Commission also states that the applicant's argument relating to access to the file does not seek to challenge the merits of the objections raised but the reasons which may have prompted the Commission to raise them. The rights of the defence are intended to enable the parties concerned to dispute the merits of objections, not the grounds which led the Commission to raise them.

Urgency

31. The applicant notes that, in accordance with settled case-law, an application for dispensation from the obligation to provide a bank guarantee can be granted only in exceptional circumstances (orders in Case 107-82 R AEG v Commission [1982] ECR 1549, paragraph 6, and in Case 234-82 R Ferriere di Roè Volciano v Commission [1983] ECR 725). Such circumstances exist in the present case because the applicant is not in a position to provide the bank guarantee demanded.

32. The applicant states that all the banks which it contacted refused to provide it with a guarantee. It produces a letter dated 8 October 1998 from the Kreditanstalt für Wiederaufbau to the Commission's Directorate-General for Competition (DG IV), indicating that the applicant's liquidity precludes the payment of the fine or the provision of a guarantee and that enforcement of the Decision would result in its immediate bankruptcy. The Bremer Bank and the Commerzbank, Hamburg, respectively refused, by letters of 23 and 27 October 1998, to furnish the guarantee applied for.

33. The applicant also produced to the Court, at the request of the judge hearing the application for interim relief, two letters from the Bremer Bank and the Commerzbank, Hamburg, dated 17 March and 16 April 1999 respectively, by which they refused to grant it a guarantee in accordance with the terms of the Commission's offer of 10 February 1999.

34. The applicant attributes those refusals to its financial difficulties. When, at the end of the 1997 financial year, its balance sheet showed a deficit not covered by equity capital of approximately DEM 143 000 000, it could continue to meet current liabilities and avoid the initiation of proceedings for its compulsory winding up only because of a cash injection of DEM 95 000 000, guarantees amounting to DEM 25 000 000 given by the shareholders, a transfer of shares to the value of DEM 10 000 000 and the waiver by Hanjin Shipping Co. Ltd ('Hanjin') - a company incorporated under Korean law which is its main shareholder - of all preferential ranking in respect of debts amounting to DEM 42 000 000.

35. The applicant states that, in order to reduce its losses for the 1998 financial year, originally estimated at DEM 198 000 000, it renegotiated its debt to a group of 27 shipowners. Thanks to those measures, the deficit not covered by equity capital was brought down to DEM 40 000 000 and the loss for the year to DEM 68 200 000 (see Annex 9 to the application for interim relief).

36. At the general meeting of 30 November 1998, the shareholders adopted measures with a view to making good the deficit not covered by equity capital in respect of the 1998 financial year and increasing the undertaking's cash reserves by DEM 70 000 000. Those measures comprised, in particular, an increase in capital of DEM 60 000 000, consisting of a DEM 40 000 000 contribution from Hanjin and a transfer by the Bremer Investitionsgesellschaft of shares in a vessel amounting to DEM 20 000 000. Those measures enabled the applicant to avoid the institution of winding up proceedings on 31 December 1998 and to have sufficient cash reserves for its day-to-day operation.

37. In reply to the written questions put by the judge hearing the application for interim relief, the applicant stated that, according to its most recent estimates for the 1998 financial year, its loss amounts to DEM 88 800 000 and its deficit not covered by equity capital is DM 136 900 000. At the hearing, it explained that the differences between those figures and those given in the course of the written procedure are due to a series of off-balance sheet measures.

38. The applicant submits that enforcement of the fine will lead to its winding up, an outcome contrary to the Commission's financial interests.

39. It submits that the Commission cannot justify such a step by the fact that the applicant's shareholders have always covered its losses in the past. The question of a company's liability for the obligations of another company in the same group is governed by the applicable national law (order in Case T-156-94 R Aristrain v Commission [1994] ECR II-715, paragraphs 6, 17 and 32), in accordance with Article 192 of the EC Treaty (now Article 256 EC). Under German law, the liability of shareholders is limited to the amount of their contributions (Joined Cases T-129-95, T-2-96 and T-97-96 Neue Maxhütte Stahlwerke and Lech-Stahlwerke v Commission [1999] ECR II-17). Since the fine was imposed on the applicant in its individual capacity, its shareholders, like its bankers and other partners, incur no liability in that regard and cannot be required, legally or morally, to lend it any assistance.

40. At the general meeting of 30 November 1998, the applicant failed to obtain from its shareholders, themselves in difficult circumstances, a contribution of EUR 13 750 000 for payment of the fine or, at the very least, their assistance in obtaining a bank guarantee.

41. The applicant states that Hanjin, in particular, is in a delicate position, having already invested DEM 285 000 000 in the applicant and having recently committed itself to providing it with DEM 40 000 000. At the hearing, the applicant maintained, furthermore, that certain rules imposed by the International Monetary Fund restricted the possibilities for Korean undertakings to transfer funds abroad. In any event, since Hanjin refuses to provide it with any assistance, it is of little importance whether or not it is in a position to help, there being no legal mechanism under which it can be required to do so.

42. The Federal Republic of Germany submits that the conditions for granting suspension of operation are met. Enforcement of the obligation to provide a bank guarantee will necessarily have irreversible consequences for the applicant, which is not in a position to comply with it. The taking of steps to recover the fine will result in the institution of winding up proceedings against the applicant. A situation of that kind effectively means that the main action is decided in advance.

43. Furthermore, it doubts whether the Commission's assessment of the group's ability to supply a bank guarantee is well founded. It points out that, under German law, a limited liability company cannot require or compel its shareholders to give it their support. The fate of the company ultimately depends solely on the decision of those shareholders.

44. Enforcement of the demand for a guarantee, like the taking of steps to recover the fine, would threaten the applicant's existence. Its liquidation would have harmful effects on the employment situation in Germany and in other Community countries. In views of the close economic links between the applicant and numerous shipowners, liquidation would also have profound repercussions on the whole of the maritime transport sector and would be likely to lead to the liquidation of other businesses and, therefore, to increased concentration in the structure of that sector.

45. The Commission submits that the condition relating to urgency is not met. It states that, when considering an application for suspension of the obligation to provide a bank guarantee, regard must be had to the assistance which may be given by undertakings in the same group as the applicant (see orders in Case 86-82 R Hasselblad v Commission [1982] ECR 1555, paragraph 4, in Case T-301-94 R Laakmann v Commission [1994] ECR II-1279, paragraph 26, and in Case T-308-94 R Cascades v Commission [1995] ECR II-265, paragraph 46). The reference, in those decisions, to the members of the group does not involve possible liability on their part but is designed to establish whether the applicant, with their assistance, is in a position to provide the bank guarantee demanded. The unwillingness of the undertaking's shareholders does not prove that it is impossible for such assistance to be provided.

46. The applicant has not shown that its shareholders are unable to assist it, but has merely stated that it cannot force them to and that they in any event owe it no obligation. According to the Commission, however, the majority shareholder, Hanjin, appears to be in a good financial position.

47. Furthermore, means of assisting the applicant other than the making of a capital contribution equal to the amount of the fine are available to the shareholders. In particular, if their creditworthiness vis-à-vis third parties is superior to the applicant's, banks may be satisfied with security other than a cash deposit for the purpose of granting the required guarantee.

48. The Commission acknowledges that the applicant is experiencing certain difficulties but points out that payment of a fine may pose cash-flow problems for any company, whatever its financial health. In that regard, it notes that the applicant's cash-flow requirements in 1999 include the repayment of a loan of DEM 49 900 000 and the acquisition of computer equipment to a value of DEM 25 000 000. The Commission points out that the applicant never replied to its suggestion of 10 February 1999 that it should temporarily provide a guarantee limited in duration, in order to deal with its cash-flow requirements. In any event, the fine is not the cause of the applicant's insolvency.

49. If the applicant cannot meet its current liabilities, the Commission considers that it should logically be declared insolvent, whether or not the fine is enforced immediately. Since the fine is a debt, it should have been recorded in the applicant's accounts ever since it was imposed, whenever it may be payable. Therefore, the obligation to provide a bank guarantee does not significantly affect the applicant's accounts, since it represents only 4% of debt as at 31 December 1997.

50. So far as the Commission is concerned, the shareholders are counting on an improvement in the undertaking's results. If that really is the case, it is not for the Court to order the Commission to grant the applicant credit rather than require the shareholders to take the necessary measures themselves. If the applicant, as it states, merely needs time in order to improve its financial position, its shareholders would incur no risk at all by providing a guarantee.

51. The applicant's possible liquidation turns on a decision by the shareholders, not by the Commission. If the shareholders are persuaded that the undertaking is viable in the long term and that their action challenging the Decision is well founded, they should, in those circumstances, provide the applicant with assistance. If they consider that one or other of those elements is missing, they could then reasonably decide to withdraw their support to the applicant and allow it to become the subject of compulsory liquidation proceedings.

Balance of interests

52. The applicant maintains that the immediate enforcement of the fine would not enable the Commission to recover the amount due. In such circumstances, the applicant would be wound up. The Commission, which has no specific right to preferential payment, would have to notify its debt to the liquidator. In the absence of sufficient assets, it is unlikely that the debt could be paid.

53. By contrast, dispensation from the obligation to provide a bank guarantee would enable the applicant to pursue its restructuring. The restructuring has already led to an improvement in its results and, for the 1999 financial year, the applicant forecasts a profit of between USD 900 000 and USD 10 000 000. Compulsory liquidation proceedings would call those efforts into question, without enabling the Commission to obtain payment of the fine.

54. The applicant adds that the taking of steps to recover the fine would put 541 jobs directly at risk (405 in Europe, including 285 at the company's headquarters in Bremen, where the unemployment rate is particularly high) and put 231 jobs indirectly at risk across Europe.

55. In addition to the loss of those jobs, the applicant's liquidation would affect shipowners and their bankers. There is a risk that it would cause the collapse of the world-wide charter market for container vessels, because of the sudden entry into that market of 37 unemployed container vessels, and a strengthening in the position of a few very large shipowning companies.

56. The Commission points out that it is precisely because it is an unsecured and non-preferential creditor that it intends to safeguard the interests of the Community by obtaining a bank guarantee (orders in Cascades v Commission, cited above, paragraphs 55 and 56, and in Case T-104-95 R Tsimenta Chalkidos v Commission [1995] ECR II-2235, paragraph 23).

Findings of the Court

57. Before ruling on the present application for interim relief, it is necessary to define precisely the object of the proceedings. In its application, the applicant contends, first, that the operation of the Decision should be suspended in so far as the latter imposes a fine on it and, second, that it should be dispensed from the obligation to provide a bank guarantee.

58. It is not in dispute that the Commission, in its letter of notification of 25 September 1998, stated that, if the applicant brought an action before the Court of First Instance, no steps would be taken to recover the fine while the case was pending before the Court, provided that interest accrued on the amount due from the date on which the period for payment of the fine expired and that a bank guarantee acceptable to the Commission and covering both the principal sum and interest was provided no later than that date. Accordingly, the object of the application is in fact solely to obtain dispensation from the obligation to provide a bank guarantee as a condition for the fine, in the amount imposed by the Decision, not being recovered immediately.

59. It is settled case-law that such an application may be granted only in exceptional circumstances (orders in Tsimenta Chalkidos v Commission, cited above, paragraph 19, in Cascades v Commission, cited above, paragraph 43, in Case T-295-94 R Buchmann v Commission [1994] ECR II-1265, paragraph 22, and in Laakmann v Commission, cited above, paragraph 22).

60. It is appropriate to consider first of all whether the applicant has proved that it is impossible for it to provide the guarantee demanded without jeopardising its existence and that the condition relating to urgency is therefore met.

61. Despite the recent recapitalisation measures, the applicant remains, at first sight, in a fragile financial position, with a deficit not covered by equity capital and significant losses. According to the applicant's forecasts, that situation should, however, improve appreciably during the 1999 financial year.

62. By letters of 23 and 27 October 1998, the Bremer Bank and the Commerzbank, Hamburg, each refused the applicant a guarantee in an amount equivalent to the fine, on the ground that it did not have sufficient cash reserves to offer as security. Despite the recapitalisation of the company and the Commission's offer of 10 February 1999, those banks, by letters of 17 March and 16 April 1999, again refused to grant a guarantee without the applicant first placing a sum on deposit.

63. In view of those factors, it must be acknowledged that the applicant has established with sufficient certainty that it is unable, by itself, to obtain the bank guarantee required by the Commission.

64. However, when assessing the applicant's ability to provide a bank guarantee, account should also be taken, in accordance with settled case-law, of the group of undertakings to which it belongs directly or indirectly, particularly with regard to the possibility of providing the security which the banks might require (orders in Hasselblad v Commission, cited above, paragraph 4, in Aristrain v Commission, cited above, paragraph 33, in Laakmann v Commission, cited above, paragraph 26, in Buchmann v Commission, cited above, and in Cascades v Commission, cited above, paragraph 46). That requirement derives, on the one hand, from the public interest in seeing Commission decisions implemented and the Community's financial interests safeguarded and, on the other, from the potential advantages which might accrue for a company's shareholders from its anti-competitive conduct (order in Buchmann v Commission, cited above, paragraph 26). Contrary to the applicant's submissions, taking into account the situation of the group to which it belongs does not in any way mean that third parties are treated as liable for the fine or responsible for the infringement.

65. The applicant is a subsidiary of Hanjin, which has an 80% stake. The latter is also an addressee of the Decision, which classifies it among the 'medium to large carriers' (paragraph 596 of the Decision).

66. It is not in dispute that the applicant's shareholders, by resolution of 30 November 1998, refused to provide assistance for the purpose of obtaining a bank guarantee, a refusal which was reiterated, following the Commission's proposal of 10 February 1999, by resolution of 27 April 1999. Although the shareholders thus clearly stated that they did not intend to support the applicant, those resolutions none the less do not prove that they are prevented from so doing.

67. In the course of the written procedure, the Commission produced an article from Lloyd's List of 1 March 1999 according to which, after the adoption of restructuring measures, Hanjin's net profit for the 1998 financial year was USD 18 800 000. The article also states that Hanjin forecasts profits of USD 52 000 000 for the 1999 financial year, on revenue of USD 3 100 000 000. At the hearing, the Commission referred, in addition, to further public information drawn from Hanjin's annual report for 1998, which confirmed those good results.

68. The applicant has not seriously contested that evidence. It has merely produced an article from Lloyd's List of 20 April 1999 which, in addition to giving general information on the indebtedness of Korean conglomerates, refers to the restructuring measures adopted by Hanjin. It has not adduced any evidence relating to Hanjin's results for 1998 and 1999 or backed up its claims relating to possible restrictions on the transfer by Korean companies of funds to third countries.

69. In view of the foregoing, it must be concluded that the applicant has not adduced evidence capable of proving that its majority shareholder, Hanjin, is not in a position to assist it for the purpose of providing the guarantee required by the Commission. Hanjin is prima facie in a sufficiently healthy position for the conclusion to be drawn that it would be able to provide the applicant with decisive assistance. In those circumstances, the applicant has not demonstrated that it is impossible to provide the guarantee required by the Commission.

70. It follows that the condition relating to urgency is not met in the present case.

71. The application for interim relief must therefore be dismissed, without its being necessary to consider the other pleas and arguments put forward by the applicant to justify the grant of the suspension of operation sought by it.

On those grounds,

THE PRESIDENT OF THE COURT OF FIRST INSTANCE

hereby orders:

1.The application for interim relief is dismissed;

2.The costs are reserved.