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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> BETWS Anthracite Ltd. v DSK Anthrazit Ibbenburen GmbH [2003] EWHC 2403 (Comm) (27 October 2003) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2003/2403.html Cite as: [2004] 1 All ER (Comm) 289, [2004] 1 CMLR 12, [2004] Eu LR 241, [2003] EWHC 2403 (Comm), [2004] 1 All ER 1237

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IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		27th October 2003

Mr Justice Morison :

Introduction

 

1. I start with the parties. The Claimants, whom I shall call Betws, own and run an anthracite colliery in South Wales. In 1994, there was a management buy-out of the colliery from British Coal who were minded to close it. The Defendants, whom I shall call Preussag, are a producer of anthracite in Germany and sold anthracite into the United Kingdom through exporters and wholesalers.
2. Anthracite, as a coal product, comes in a number of grades, the finest of which is sold to power stations and the larger sizes largely to households. Some of the smaller material is made into briquettes for use in home heating. Anthracite has the highest carbon content of all types of coal. "It is a high grade, almost smokeless fuel with a low proportion of volatile components. It has a low flammability, but gives off constant, intense heat. Because of these properties, it has always been highly suitable for use in industry and above all in the home" [Commission Decision 1999/184/ECSC].
3. Betws say that Preussag had unlawfully used state aid given to them by Germany. They rely upon a Decision of the Commission published on 29 July 1998, which determined that Preussag had misused, in 1996, DEM 9.8 millions and, in 1997, DEM 6.8 millions of aid "so as to operate a predatory and discriminatory pricing policy thus distorting competition between it and the British producers of anthracite, including the Claimant" [paragraph 6 of the Points of Claim referring to Articles 1 and 2 of the Commission Decision]. Betws say that as a result of the misuse of aid by Preussag they have suffered loss and damage which they calculate to be about £4.5 million.
4. Preussag deny that the Commission's Decision, when properly understood, refers to "any alleged predatory and discriminatory pricing policy capable of distorting competition between the Defendant and British producers of anthracite, including the Claimant". The operative part of the Decision makes no reference expressly or by implication to any relevant predation or discrimination. The only references to discrimination in the Decision concern differences in prices as between different Member States. Further, the Decision makes no reference to any predatory pricing policy.
5. Since there has been argument about the Commission Decision and its nature and extent, I annex to this judgment a full copy of it. The Decision itself contains 87 paragraphs, preceded by the word "whereas". There then follow 6 "Articles" preceded by the words "HAS ADOPTED THIS DECISION". This has relevance to one of Preussag's arguments, namely that the only operative part of the Decision is contained in the Articles appearing after the words in capital letters cited above.
6. What follows is simply a short summary of the Decision which was published by the Commission on 29 July 1998: "on aid granted by Germany to the companies Sophia Jacoba GmbH and Preussag Anthrazit GmbH for 1996 and 1997". It will be convenient to refer to the two German companies as Sophia Jacoba and Preussag.
7. The Commission record that an English company called Celtic Energy Limited [Celtic] had lodged two complaints with the Commission relating to the misuse by Sophia Jacoba and Preussag of State Aid. These complaints were investigated by the Commission and they were formally notified to Germany who responded in October 1997. Comments were sought from other Member States and 'interested parties'. Such comments were duly received from the United Kingdom and "several competitor companies" and the German coal producers, and duly forwarded to Germany. The Commission recorded that, on 12 June 1998, there was lodged with it a complaint from Betws "about the sale of German sized-anthracite in the Community Market and more particularly in the United Kingdom" but that this complaint was lodged too late so that it was not taken into account by the Commission in reaching its decision. Preussag in turn sent to the Commission a paper setting out its position in relation to the formal notification given to it by the Commission.
8. The Decision continues:

"The complaints in question relate to the sale in 1996 and 1997 by [Sophia Jacoba] and [Preussag] of sized-anthracite subsidised in the Community. The extremely favourable prices (compared with production costs) offered by these companies on the Community market and primarily in the United Kingdom are said to have been possible only through the use of State aid paid by Germany under Decision No 3632/93/ECSC [the Commission Decision which established Community rules for State aid to the coal industry]. This aid which, according to the complaint, covers a substantial part of the companies' production costs, is said to have been used for an unauthorised purpose.

According to the complainant [Celtic], such practices lead to distortions of competition in the Community anthracite market. In addition, the same product is sold in other Member States by the companies concerned at higher prices than in the United Kingdom."

 

9. The Commission indicated that they considered the complaints and replies and had various meetings "in order to analyse the problem in greater depth". They record the fact that the anthracite market in the Community mirrors "the difficulties facing the Community coal industry: decline in demand (especially in the household market), growing competition from foreign imports and high production costs in some sectors. In relation to Preussag, the Commission recorded that the cost of production per tonne was ECU 152; whereas Celtic's cost of production per tonne was ECU 43. This was due to geological conditions: Preussag's anthracite was being extracted from deep mines whereas the geological conditions for Celtic were more favourable. Anthracite is a high-grade almost smokeless fuel, which gives off constant intense heat. The raw mined anthracite undergoes several processing stages to separate "the fines" from the nuts or sized-anthracite. There is a market for 'fines' in the power industry at a price of DEM 60-70, representing about 60% of the pit production, as compared to the higher commercial value for the larger sizes of DEM 190 per tonne, which represents about 20%-30% of the pit production. The Commission noted that the marketing of anthracite traditionally concerned mainly 'sized anthracite'. And this market is geographically limited to the traditional coalmining regions of the Community including the United Kingdom. The market for German anthracite in the United Kingdom was served through Hull and the market lay between Hull and the South coast. Preussag started exporting to the UK in the middle 1970's.
10. The Commission record that Celtic, on privatisation of British Coal, took over several anthracite producing pits in Wales. It decided to expand its business in England and opened up a distribution centre in Hull, which is where most of Preussag's exports to the UK were coming in, and where their main market was. In order to capture the east coast market, Celtic priced their anthracite in Hull at the same price as their anthracite in Wales; in other words, they had assumed the cost of transport. In response, Preussag decided to lower their prices and "a process of mutual undercutting of prices" was triggered and continued until the end of 1997. The Commission say that their investigations show that "at least in the period 1996-7" Preussag's prices were consistently lower than the prices offered by successor companies to the British Coal. It noted that in January 1996 the price difference was £8 per tonne [Preussag £93 per tonne and Celtic £101 per tonne] and in October 1997 the price differential was £9.40 per tonne [£94 per tonne and £103.40 per tonne respectively]. It noted that the imports from China at these dates were being sold for £94 per tonne in January 1996 and £102.94 in October 1997. The Commission noted that Preussag were concerned about the competition in Hull and that in their annual report for 1996 Preussag recorded that it was able to increase its market share "by means of an elastic price policy". They note that Preussag's exports to the UK rose by 20% between 1995 and 1996 and sales increased in the same period by 49%. "The growth in exports is all the more remarkable as it took place in difficult market conditions." The Commission said:

"It can be concluded from the above that the prospects for the Community sized-anthracite market are less than promising and that the market is in steep structural decline."

 

11. The Commission formed the view that Preussag had pursued their policy in the UK market

"with the aid of subsidies which were used indirectly for purposes not provided for in Commission Decision No 3632/93/ECSC and 96/560/ECSC of 30 April 1996 on German Aid to the coal industry in 1995 and 1996."

They wrote to Preussag accordingly and received their responses. They did not accept Preussag's arguments. In essence, the Commission found that German Aid was permitted in relation to the fines sector of the market [that is, for power generation] but was being used to subsidise the production costs across the board. It noted that

"..the accounts do not make a clear distinction between the companies' earnings and State aid. In other words, [Preussag] treat aid as part of their turnover and do not distinguish between the consumption sectors, regardless of whether they are subsidised or – as Germany claims in the case of industrial and household sectors – non-subsidised."

12. The Commission concluded that the State aid, which had been authorised under the two decisions referred to above, enabled Preussag to sell sized anthracite at prices which did not cover the costs of production.

"By using the aid for the purposes described, the companies have infringed the specific conditions of [the two Decisions] with the result that the aid cannot be considered compatible with the common market. ….. The Commission therefore considers that … DEM 56.6 million to Preussag was used to support the production and sale of anthracite for the industrial and household sectors and that the prices charged did not cover the production costs. … It is clear from the Commission's investigations, the volumes of anthracite sold and the prices charged that part of this aid - … DEM 9.8 million for [Preussag] – led to distortion of competition incompatible with the common market in the Community market for sized-anthracite for industry and households, in contravention of [the 1993 Decision]. [Preussag] must therefore repay those amounts to Germany. … The Commission's investigations have shown that part of [the 1997] aid, namely DEM 6.8 millions for [Preussag] led to distortion of competition …As the aid in 1997 was paid in anticipation of a Commission decision, Germany must require the Company to repay the sum of DEM 6.8 millions …On the basis of the principle put forward by Germany that aid payments are to be limited to coal production destined for power generation and the Community steel industry, Germany undertakes to ensure that sales of sized anthracite in the industrial and household sectors will be made at prices which cover the costs of production."

13. Article 1 recited that DEM 9.8 million of aid to Preussag was used "improperly in breach of [the 1996 Decision]". Article 2 provides that DEM 6.8 millions paid to Preussag in anticipation of a Commission Decision was used improperly in breach of Decision No 3632/93/ECSC. Article 3 imposes a duty on Germany to recover those amounts from Preussag. Article 4 required Germany to inform the Commission of the measures it had taken to comply with the Decision. In future, Germany shall supply all the information required in order to verify compliance with the 93 Decision and "with the present Decision". Article 6 says that the Decision is addressed to the Federal Republic of Germany.
14. The Claimants, Betws, were represented by a distinguished practitioner who specialises in EC law, Mr Mark Brealey QC, assisted by Sarah Lee; the Defendants were represented also by a distinguished practitioner in the field, Thomas Sharpe QC, assisted by Paul Mitchard, solicitor-advocate. I am greatly indebted to both counsel for their interesting and well-presented arguments. This case raises two points of law of some complexity and which impact on the whole of the case. Mr Sharpe QC submitted that Betws has no cause of action, and this is the first issue. I was invited to take this as a preliminary issue but declined. The witnesses had come to court ready to give evidence and it seemed to me advisable that the whole case should be considered. But as a matter of structure, if nothing else, it seems to me desirable that I should start this judgment with a ruling on that question. The second question concerns the evidential effect of the Aid Decision to which I have just made extensive reference. In addition to these two points of law, there are a number of factual issues. Essentially, Preussag argue that they were involved in a price war and either had to leave the market place in the UK or protect their trading position by making price cuts; they would have acted no differently had they not received that proportion of the state aid identified by the Commission as improperly used [namely DEM 9.8 million + DEM 6.8 million = DEM 16.6 million]; that Betws have not proved any loss caused by any misuse of State aid.

Does Betws have a cause of action?

15. In order to understand the issue it is necessary, first, to identify and explain the Community's legislation under which coal aid may be given by States to their coal industry.

Article 87 of the Treaty establishing the European Community provides

"1. Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States be incompatible with the common market."

The Article continues in subparagraphs 2 and 3 by listing the types of aid which "shall be compatible with the common market" and aid which "may be considered to be compatible with the common market". These lists are not relevant in this case.

 

16. Article 88.1 of the Treaty provides that if the Commission considers that a State has failed to fulfil an obligation under the Treaty "it shall record this failure in a reasoned decision after giving the State concerned the opportunity to submit its comments. It shall set the State a time limit for the fulfilment of its obligation." In default, the Commission may bring the State before the ECJ which "shall have unlimited jurisdiction in such cases". Article 88.2 empowers the Commission to require a Member State to abolish or alter the aid when the Commission finds that aid granted by a State is not compatible with the Common Market "or such aid is being misused". If the State concerned does not comply with a Commission decision then either the Commission or another "interested" Member State may refer the matter to the Commission. Article 88.3 provides as follows:

"The Commission shall be informed, in sufficient time to enable it to submit its comments, of any plan to grant or alter aid. If it considers that any such plan is not compatible with the common market having regard to Article 87, it shall without delay initiate the procedure provided for in paragraph (2). The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision. [my emphasis].

17. It is common ground between the parties that the last sentence of Article 88.3 has direct effect and parties affected, such as competitors of the entity to whom the aid is being granted, may bring proceedings in the national courts against the State concerned seeking appropriate relief to stop the aid being granted or continued. The Commission has the exclusive right to decide whether aid is compatible with the Treaty, but the national courts have a duty to protect the rights of individuals in cases where there has been a breach of Article 88.3.
18. In October 1995 the Commission, by Notice, issued guidance in relation to State aid, and in particular "guidance on co-operation between national courts and the Commission in the State aid field". The Guidance has no legal effect as such, but it explains the Commission's thinking on aid issues. It emphasises that individuals have rights to challenge Commission decisions on State aid in the European Court. The Notice acknowledges that "concern is frequently expressed that the Commission's final decisions in State aid case are reached some time after the distortions of competition have damaged the interests of third parties." The Commission indicates that it will not always be possible to act promptly and that national courts "may be better placed to ensure that breaches of the last sentence of Article 88.3 are dealt with and remedied."

"The national court's role is to safeguard rights which individuals enjoy as a result of the direct effect of the prohibition laid down in the last sentence of Article 88.3 The court should use all appropriate devices and remedies and apply all relevant provisions of national law to implement the direct effect of this obligation place by the Treaty on Member States. A national court must, in a case within its jurisdiction, apply Community law in its entirety and protect rights which that law confers on individuals; it must therefore set aside any provisions of national law which may conflict with it, whether prior or subsequent to the Community rule. The judge may, as appropriate and in accordance with applicable rules of national law and the developing case law of the Court of Justice, grant interim relief, for example by ordering the freezing or return of monies illegally paid, and award damages to parties whose interests are harmed.

The Court of Justice has held that the full effectiveness of Community rules would be impaired and the protection of the rights which they grant would be weakened if individuals were unable to obtain redress when their rights are infringed by a breach of Community law for which a Member State can be held responsible, the principle whereby a State must be liable for loss and damage caused to individuals as a result of breaches of Community law for which the State can he held responsible is inherent in the system of the Treaty, a national court which considers, in a case concerning Community law, that the sole obstacle precluding it from granting interim relief is a rule of national law, must set aside that rule."

And at paragraph 22 of the Guidance Notice the Commission said:

"The Court of Justice has held that a national court is bound by a Commission decision addressed to a Member State under Article 88.2 where the beneficiary of the aid in question seeks to question the validity of the decision of which it had been informed in writing by the Members State concerned and where it had failed to bring an action for annulment of the decision within the time limits prescribed by Article 230 of the EC Treaty."

19. There was, at the relevant time, a Coal and Steel Treaty [the Treaty of Paris] which was in force. It established the European Coal and Steel Community. Article 4 recognised as incompatible with the common market for coal and steel, various practices which "shall accordingly be abolished and prohibited within the Community, namely [(b)]

"measures or practices which discriminate between producers, between purchasers or between consumers, especially in prices and delivery terms or transport rates and conditions, and measures or practices which interfere with the purchaser's free choice of supplier."

This part of the article has been held by the ECJ to have direct effect: Banks 2: HJ Banks & Co Ltd v The Coal Authority and Secretary of State for Trade and Industry [20 September 2001] Case C-390/98.

Articles 14 and 15 require the Commission to carry out the tasks assigned to it by the Treaty to "take decisions, make recommendations or deliver opinions". "Decisions shall be binding in their entirety." Article 15 requires that "decisions … of the Commission shall state the reasons on which they are based and shall refer to any opinions which were required to be obtained." "Where decisions … are individual in character they shall become binding upon being notified to the party concerned."

Article 33 gives the right to organisations in Preussag's position to institute proceedings in the European Court of Justice against any decision of the Commission "which they consider to involve a misuse of powers affecting them." Article 60 prohibits pricing policies which are contrary to Article 4. Article 63 provides:

"if the Commission finds that discrimination is being systematically practised by purchasers, in particular under provisions governing contracts entered into by bodies dependent on a public authority, it shall make appropriate recommendations to the governments concerned.

Articles 65 and 66(7) of the ECSC Treaty are essentially the equivalent of Articles 81 and 82 of the EC Treaty [formerly, Articles 85 and 86]. Article 65.1 provided:

"All agreements between undertakings, decisions by associations of undertakings and concerted practices tending directly or indirectly to prevent, restrict or distort normal competition within the common market shall be prohibited, and in particular those tending:

a. to fix or determine prices;

b. to restrict or control production, technical development or investment;

c. to share markets, products, customers or sources of supply."

 

Article 65.4 provided that any agreement which was in breach of paragraph 1 "shall be automatically void". It further provided that the Commission was to have sole jurisdiction to rule whether any such agreement is compatible with "this Article", "subject to the right to bring actions before the Court." The ECJ has decided that neither Article 65 nor Article 66(7) has direct effect. Article 88 gives the Commission power to record a State's failure to fulfil any obligation under the Treaty in "a reasoned decision after giving the State concerned the opportunity to submit its comments .." The State has a two-month time limit to institute proceedings before the ECJ challenging the decision.

The pleadings

20. The pleaded claim refers to the Decision of 29 July 1998. The pleading recites, at paragraph 5, the essence of the Decision and, in the next paragraph, asserts that the Commission ruled that Preussag had in 1996 misused DEM 9.8 million and had in 1997 misused DEM 6.8 million

"so as to operate a predatory and discriminatory pricing policy thus distorting competition between it and the British producers of anthracite including the Claimant".

At paragraph 7 of the Claim, the pleading reads:

"By virtue of Preussag's unlawful misuse of State Aid contrary to Article 4(b) ECSC Decision 96/560 ECSC and Decision 3632/93 ECSC, the Claimant has suffered loss and damage."

21. The defence states that the only reference to discrimination in the Decision relates to differences of prices of anthracite sold by Preussag to different Member States. The discrimination was not against Betws and there was no reference in the Decision to predatory pricing. Paragraph 4 of the Defence continues:

"Unless it is meant by paragraph 7 that Article 4(b) ECSC and/or Decision 96/560 and/or Decision 3632/93/ECSC is/are of direct effect, which is denied, the pleading is embarrassing as there is no proper reference to any duty owed to the Claimant by the Defendant and no allegation of breach of such duty. Accordingly there is no cause of action, alternatively, there is no reasonable prospect of success."

22. The Reply to this part of the Defence states that the cause of action

"arises by virtue of the following:

(a) Preussag was under a duty, which it owed to the Claimant, not to distort competition between it and Claimant by misusing the State aid granted to it. This duty was imposed by Article 4(b) ECSC by Decision 96/560 and Decision 3632/93.

(b) This breach of duty is actionable at the suit of the Claimant by virtue of Decision 1999/184. Article 1 of [that Decision] provides that Preussag improperly used the aid paid to it for 1996 in breach of Decision 96/560. Article 2 of Decision 1999/184 provides that Preussag improperly used the aid paid to it for 1997 in breach of Decision 3632/93. Decision 1999/184 is of direct effect and may be relied on by the Claimant in these proceedings to establish the breach of duty owed by Preussag. The Defendant is bound as regards issues of fact and law by Decision 1999/184. [Note: the references to Decision 1999/184 are to the Commission Decision to which extensive reference has already been made].

(c) Further or alternatively, this breach of duty is actionable at the suit of the Claimant by virtue of Article 4(b) ECSC and/or Decision 96/560 and/or Decision 3632/93. These provisions may be relied on directly in these proceedings by the Claimant to allege misuse of state aid irrespective of Decision 1999/184."

The Coal Aid Code and the authorisation decision

23. I turn next to the two Decisions referred to in the text of the 1998 decision to which extensive reference has been made. The first decision is that numbered 3632/93ECSC of 28 December 1993 "establishing Community rules for State aid to the coal industry." This is commonly referred to as the Coal Aid Code and expired, as did the ECSC, on 23 July 2002. In 1993 it was clear that, unless subsidised, the coal industry throughout Europe would not be able to compete with coal imported from outside the Common Market for power generation. Accordingly, the new set of rules was designed to permit subsidy but only in very controlled circumstances.

The structure of the 'Code' is set out in Herr Schneider's helpful expert report. He is one of the three deputy Directors of the Energy Section of the German Federal Ministry of Economics and Labour. He summarises the background to the introduction of the Coal Aid Code and draws attention to the key elements of the Code relevant to this Case. He points out that paragraph 4(c) of the ECSC contains a general prohibition on State aid and that the Coal Aid Code provides an express exemption to that prohibition, as permitted by Article 95 of the Treaty. Member States are permitted to grant aid to their coal industry only where it is designed to achieve one of three specified objectives. There are restrictions on the grant of "operating aid" including a condition that "aid must entail no distortion of competition between coal users." Member States are required to submit to the Commission a detailed modernisation plan showing how the economic viability of the undertakings concerned will be improved by reducing production costs. By 30 September each year, the Member State, which intends to grant aid to their coal industry, must inform the Commission of the nature of the support and how it will achieve the objectives. At the end of September each year the State must report to the Commission as to the aid granted for the preceding coal production year and supply to the Commission all information necessary to verify compliance with the relevant criteria. If an application for aid is made and a payment has been made in advance in anticipation of authorisation but there is a refusal, then the aid must be repaid in full together with interest.

The principle behind the German coal aid regime was to subsidise the sale of steam coal to power stations to enable the German coal industry to reduce its production gradually and in an orderly manner, and to safeguard the long-term viability of the remaining coal reserves "thus ensuring so far as possible the social and economic stability of the German coal mining communities". These objectives are within the objectives provided for by the Coal Code. Prior to 1996, the way the aid worked was for the German State to make a levy on consumers of electricity and to distribute the money collected in this way to the German Power Stations which bought German produced coal. After 1996, the State paid subsidies direct to the coal producers to enable them to reduce the price for their coal to the power stations "so as to match the prices of the third world producers". The German State achieved its objective for the period after 1995 by legislation and Guidelines. The legislation was targeted at ensuring that an appropriate share of 'hard coal' was "guaranteed to be used in the production of electrical energy ..". The mining companies were entitled to use the subsidy

"only for the exclusive purpose of offsetting the difference between the average annual production costs of each mining company and the average annual price for third country coal based on the quantities of hard coal sold. If, within the framework of the supply agreements entered into with power station operators, the average proceeds achieved by a mining company exceed the average annual price for third country coal, the annual difference between the company's average production costs and its average proceeds shall be offset."

As a result of Celtic's complaint, the German subsidy regime for 1997 was jeopardised. The Commission threatened not to permit any aid to Preussag until the Celtic complaint had been identified. But after political negotiations, the Commission agreed to approve the bulk of the proposed aid for 1997 and the Commission limited their Aid Decision to a small proportion of the State Aid for 1996 and 1997. It appears that the Commission's real complaint is that Preussag took the average cost of production of the whole of the mine's output. If costs are calculated purely on a volume basis then a disproportionate weight is given to the book costs of low value fines [power station coal] because account is not taken of the commercial value of the products based on their physical properties. Instead, the Commission suggests that a system should be used whereby the cost allocation is based on "the respective contribution of [power station and domestic coal] to turnover calculated in terms of market prices" which would thus "take account of the unit value of the products and not only of volume" and would "create a more logical relationship between the unit costs, the commercial value of the products and the necessary subsidies." It is Herr Schneider's opinion that this criticism of the way the costs of production are calculated is misplaced because the system which was used had worked without complaint in the past, was in compliance with generally accepted accounting practices and "continues to be operated widely to-day." "Subsequently, the Commission decided for political reasons that the State aid had nevertheless been used improperly. However, the general view in the German Government was that this [Aid] Decision was wrong, and that remains the general view to this day." Herr Schneider is of the view that the German legislation was compliant with the Coal Aid Code; that Preussag received the aid on the basis of the German legislation and itself did nothing wrong. As a matter of fact, there is no evidence to suggest that the misuse of State aid by Preussag was anything more than using its financial muscle, energised by the subsidy, to compete in the domestic fuel market in the UK. Had Preussag been required to sell anthracite in the domestic market at the unsubsidised cost of production, it could not have competed.

24. The second Decision is dated 30 April 1996 and is called "Commission Decision on German aid to the coal industry for 1995 and 1996". After a number of recitals the Commission recorded their decision authorising Germany to assist its coal industry by providing aid totalling DM 2 708.5 million for 1995 and DM2 539.2 million for 1996 "for the supply of coal and coke to the Community steel industry …" and "aid totalling DM 7 500 millions for payments to the German coal industry …" and "aid totalling DM 97 million for 1996 to enable mining undertakings to maintain their underground labour force …" and "aid totalling DM 200 million for 1996 for the undertakings of ….. Sophia Jacoba and Preussag to cover exceptional commitments."

The parties' arguments

25. Mr Brealey QC referred me, first, to the decision of the ECJ in what is popularly called Banks 1: HJ Banks & co Ltd v British Coal Corporation [1994] ECR I - 1209. Banks was an open-cast coal mining company which operated in the UK. It objected to the agreement made between British Coal and the main electricity generators which guaranteed British Coal the right to supply coal to them at fixed prices. Banks, through the organisation to which it belonged, made complaints to the Commission that the arrangements constituted breaches of Articles 4(d), 60, 65 and 66(7) of the ECSC and Articles 85 and 86 of the EC Treaty. The Commission rejected their complaint. The organisation then brought proceedings in the ECJ challenging the lawfulness of the Commission' decision. At the same time Banks started proceedings in the UK courts for damages against British Coal, alleging breaches of the various articles. The UK court referred various questions to the ECJ and the Banks' judgment is the ECJ's decision on the reference. The Court held that

(1) The Commission has exclusive jurisdiction under the coal aid code to decide whether an agreement is compatible with Article 65 and "as long as incompatibility has not been established by the Commission itself, individuals may not plead in proceedings before the national courts that an agreement is incompatible with Article 65" – paragraph 17.

(2) Similarly, it is the sole province of the Commission to decide whether undertakings hold a dominant position in the market such as to infringe Community principles of free trade – paragraph 18.

(3) Article 4(d) is not applicable by itself and cannot have direct effect – paragraph 16.

(4) Since the Commission has sole jurisdiction to find that the provisions of Articles 65 and 66(7) have been infringed, the national courts may not entertain an action for damages in the absence of a Commission decision adopted in the exercise of that jurisdiction." – paragraph 21.

(5) Decisions of the Commission are binding in their entirety [Article 14] on the national courts. However the national courts may still ask the ECJ to rule on the validity or interpretation of those Decisions – paragraph 23.

26. The reason why Banks failed in their action was simply because the Commission had not made the necessary Decision, which is a pre-requisite to a cause of action. Here, the Commission have reached a Decision [the Aid Decision] and there is no similar bar to Betws succeeding. It is a fundamental principle of the coal and steel regime under the ECSC that State aid should not distort competition and where it does those who are adversely affected must be given a full range of remedies in the national courts. Individual companies who are affected by Commission Decisions which are individual in character, such as the Aid Decision, may challenge them in the ECJ. They are as bound by them as the party, namely the German State, to whom the Decision is addressed.
27. Mr Brealey then took me to the case of Banks II Case C-390/1998 [2001] ECR I - 6117. Banks was still complaining about the subsidy to British Coal and its successors and the fact that royalties had to be paid to British Coal [and their successors] for every tonne of coal won from the ground, whereas RJB Mining which acquired the large part of British Coal's English mining business [and assets]. Banks contended that the royalties demanded of it constituted a form of discrimination within the meaning of Article 4(b) of the ESCS, since its main competitor [RJB] were not obliged to make such payments. The Court held that Article 4(c) did not have direct effect whilst Article 4(b) did:

"Article 4(b) of the ECSC Treaty, in so far as it concerns discrimination between producers directly confers rights on individuals which the national courts must protect."

For the purposes of a claim for discrimination there was no requirement for a prior Decision by the Commission. The court concluded that Banks' claim that they should be retrospectively exonerated from the royalty payments could not be accepted but that that conclusion was without prejudice

"to any actions which British Coal's former competitors might bring, if the conditions were met, for compensation for any damage caused to them by the competitive advantage enjoyed by British Coal and the State companies which succeeded it."

So, Mr Brealey argues, this shows that a competitor who has been damaged as a result of the use or misuse of unlawful State aid can sue for compensation for the damage caused to them by the (unlawful) competitive advantage. Preussag is responsible for the unlawfulness. It has an obligation to use the aid conferred on them properly and that obligation is owed to competitors such as Betws. A remedy against the State is not enough: the State may not be at fault; it cannot supervise everything. This case "does not give any clear guidance" as to whether Betws can sue Preussag.

28. I was then referred to the decision of the ECJ in the case of TWD Textilwerke Deggendorf GmbH v Germany 9 March 1994 [1995] 2 CLMR 145. In this case the Advocate General was Mr Francis Jacobs. He succinctly encapsulated the question at issue in the first paragraph of his Opinion:

"This case raises an important question of principle concerning the system of remedies established by the EEC Treaty: namely, whether a recipient of State aid which the Commission has declared unlawful may, when called upon by the national authorities to repay the aid in accordance with the Commission's decision, challenge the validity of the decision before the national courts, and before the Court of Justice on a reference from the national court under Article 177 of the Treaty, even though it failed to challenge the Commission's decision in the Court of Justice directly under Article 173 of the Treaty."

The ECJ held that although the State was the addressee of the Commission's Decision, the undertaking in receipt of the aid also had a right to challenge the lawfulness of the decision before the ECJ and that if it failed to exercise that right of challenge within the stipulated time limit then the Decision became definitive against him. Therefore, as Mr Brealey submitted, Preussag were equally definitively bound by the Decision of the Commission in this case.

29. Apart from SFEI , Mr Brealey referred me to Case C-453/99 Courage v Crehan [2001] ECR 1-6297. Mr Crehan was a tied tenant of Courage, the brewers. He paid more for his beer than was charged by Courage to non-tied outlets. Courage said that the difference was more than made up by the advantages accorded to him as a tied tenant. In due course the tenancy came to an end and Mr Crehan refused to pay an amount of royalties which Courage said was owing and sought to set-off, against the claim, damages which he claimed he had sustained as a result of a breach of Article 85. The ECJ were concerned to ensure that there was an effective remedy for a breach of Article 85. Effective protection requires that the complainant should be compensated for his damage and the State is under a duty to lay down procedural rules to guarantee such protection. Thus, the Court ruled that a party to a contract which was in breach of Article 85 of the EC Treaty "can rely on a breach of that article to obtain relief from the other contracting party" and Article 85 "precludes a rule of national law under which a party to a contract liable to distort competition within the meaning of that provision is barred from claiming damages for loss caused by performance of that contract on the sole ground that the claimant is not a party to that contract."

Mr Brealey submitted that the 'full effectiveness' provisions of the Treaty would be infringed if Betws were not to be accorded a right to damages against Preussag and that there was an analogy to be drawn between the position in the Crehan case and Betws' case. Crehan suggested that had been a breach of Community law, Betws should be in a position to protect its rights by an appropriate claim for damages against Preussag who had "misused" the aid provided to it by Germany. Preussag may not have been the person against whom the Commission made a complaint but it was a participant in the Commission's decision. It was invited to produce evidence in relation to the complaint and to make its comments. It was circulated with a copy of the decision.

As to the SFEI case [for which see below], that was a case which was concerned with a failure by the State to notify the Commission of the grant of State Aid. It is a decision to be confined to its own facts. Here, Preussag were also at fault in the sense that they 'misused' the State aid. What the Court was dealing with was whether a recipient should be liable in damages for the failure by the State to meet its obligations when the recipient had done no wrong. In the SFEI case, the Advocate General's remarks were posited on the basis that he was concerned with the question of the legitimate expectation of the recipient that the procedures had been complied with. Even if Preussag had such a legitimate expectation, they themselves were at fault in misusing the State Aid. There is an obligation on the recipient to use the aid in accordance with its terms.

"To allow the recipient of State aid just to get away with it and wipe out competitors and then just repay the aid at a later date does not ensure the full effectiveness of the State Aid Rules."

30. Thus, in summary, this is a case where Preussag were a party to the Decision in the sense that they are bound by it and although not an addressee of the Decision they had sufficient locus standi to take issue with it and seek the assistance of the European Court. They received the State Aid and, according to the commission, in a finding which is binding on this court, misused the aid. Betws would have a claim against Germany but it should also have a claim against Preussag. This is not a case where the recipient of the aid has committed no wrong independently of the State. Both the aid itself, and the way it was used in practice were wrong.
31. Mr Sharpe submits that the Claimants are seeking to invent a new cause of action, a new community law tort. The essence of the Commission's Decision was a ruling on a complaint made against Germany, the State, and not against Preussag, the undertaking. Although Preussag was a person interested who therefore had rights to challenge the Decision, that does not alter the nature of the Decision itself. There is a fundamental distinction between Commission Decisions which are directed against undertakings, as under Articles 81 and 82 of the EC Treaty, and decisions which are directed against the State. The Commission had power to deploy its powers under Articles 2, 3, 4 and 60 of the ECSC against the undertaking, but did not do so. Unlike the position under the EC Treaty, under the equivalent provisions in the ECSC, (the analogue of Articles 81 and 82 namely Article 65 and 66.7), these Articles are not of direct effect and a Commission Decision is a pre-requisite to there being a viable cause of action. Thus, with aid under the coal regime, no complaints could be made between undertakings unless and until there had first been a ruling by the Commission. Only then could the Decision against an undertaking be imported into the national courts as proof of the infringement of the aid regime. Thus, had the decision been directed against Preussag rather than against the German State, Betws would have had private rights of action. But no such action could have been brought without, first, a Commission Decision directed against an undertaking. Effectively, the Commission concluded that Germany had failed to discharge the burden of proof upon it to show that it had administered its aid scheme in conformity with the authorisation decision [96/560] and the Coal Aid Code. The Coal Aid Code is addressed only to the State and Article 4C is not addressed to Preussag but only to Germany. Germany was ordered to reclaim a small proportion of the total aid which it had made, with the Commission's authority: a total of 3% of the authorised aid. That was the only part of the aid which had not been properly authorised. The money was reclaimed by Germany, with interest, from Preussag. Had Germany sought to introduce its coal aid programme without Commission authorisation then Betws could have come to the UK court and sought injunctive relief against Germany relying on Article 9.4 of the Coal Aid Code, which is of direct effect. The Commission has exclusive jurisdiction to determine the legality of an aid, but the courts of a Member State have the right to enjoin a Member State from granting an aid which has not been properly notified and approved. That is the division of responsibility between the Commission and the national courts.
32. He submitted that the decision of the ECJ in the SFEI case and the opinion, in that case, of the Advocate General, determines the case against Betws, namely Case C-39/94 Syndicat Francais de L'Express International (SFEI) & Others v La Poste & others [1996] ECR 3547. In relation to postal services in France, a service provider in competition with the State Postal Service made a complaint to the Commission, firstly against France and secondly a complaint of a possible infringement of Article 86 by the Post Office as an undertaking. In addition, SFEI brought proceedings against the Post Office in the Tribunal de Commerce, Paris asking the Court to declare that the arrangements referred to constituted State aid within the meaning of Article 92; a further declaration that the aid was unlawful because it had not been notified to the Commission; a declaration that the Post Office had been guilty of unfair competition; that the Post Office had abused their dominant position in the market place and had infringed the principle of equality in competition; an injunction to restrain the Post Office from granting any further assistance to an entity within its organisation; and an order that that entity should repay the unlawful State aid which it had received and an order that the defendants pay to the claimants damages. The Court referred a number of questions to the European Court of Justice including the question whether, if there had been unlawful State aid

"must the damage suffered by the undertakings competing with the undertaking that receives the aid as a result of the latter's lack of due diligence also be compensated for in accordance with the rules of national law in order to remedy the breach of the provisions of Community Law at issue?"

The Advocate General, at paragraph 77 noted that repayment of the unlawful aid might not be a wholly adequate response to a breach of prohibition of the last sentence of Article 93(3) "in particular where the aid has resulted in a loss of profits and market share for competitors". He went on to say that the State itself might also – in addition to recovering the aid from the payee – be subject to claims for damages brought in the national courts on the basis of Community Law by competitors who incur loss or damage as a result of measures unlawfully implementing aid. He continued:

"Contrary to SFEI's view, the Court's existing case law does not impose on recipients of aid the obligations to make good loss or damage incurred by competitors as the result of unlawful implementation. As already noted, it merely states that recovery of aid cannot be resisted on grounds of the recipient's legitimate expectations.

……

Moreover, I do not think that the Court should extend its case law so as to confer on competitors a remedy in damages against recipients of aid. As the French Government points out, Article 93 lays down a procedure to be followed by the Commission and the Member States. It is upon the latter that the obligation to notify aid to the Commission rests. I do not, moreover, share SFEI's view that such a remedy is necessary in order to ensure the effectiveness of the prohibition in Article 93(3). The various remedies outlined above, including where appropriate, an order for recovery and possibly an award of damages against the Member State are capable of providing an effective response to a breach of that prohibition."

Accordingly Francis Jacobs answered the question at issue

"While Community Law may make a Member State or public body which unlawfully grants aid liable in damages, it does not oblige the recipient of such aid to make good loss or damage sustained by a competitor as a result of the unlawful grant of aid, unless the receipt of such an unlawful payment in corresponding circumstances gives rise under national law to liability in damages to third parties."

In its judgment, the Court noted that the machinery for reviewing and examining State aids established by Article 93 of the Treaty "does not impose any specific obligations on the recipient of aid". First, the notification requirement and the prior prohibition on implementing planned aid laid down in Article 93(3) are directed to the Member State. Second, the Member State is also the addressee of the Decision by which the Commission finds that aid is incompatible with the common market and requests the Member State to abolish the aid within the period determined by the Commission. That being so, Community Law does not provide a sufficient basis for the recipient to incur liability where he has failed to verify that the aid received was duly notified to the Commission. That does not, however, prejudice the possible application of national law concerning non-contractual liability. If, according to national law, the acceptance by an economic operator of unlawful assistance of a nature such as to occasion damage to other economic operators may in certain circumstances cause him to incur liability, the principle of non-discrimination may lead the national court to find the recipient of aid paid in breach of Article 93(3) of the Treaty liable." Therefore, the court concluded that the recipient of aid which was unlawful because of non-notification and who did not verify notification cannot incur liability solely on the basis of Community Law.

33. As to discrimination, that is defined in Article 4(b) of the ECSC. That provision "in so far as it concerns discrimination between producers, directly confers rights on individuals, which the national courts must protect." –Banks II ECJ [2001] 20 September. However, this article has no bearing on the issues in this case, as Mr Brealey properly accepts that Betws have not been discriminated against within the meaning of that Article. He did not formally abandon his position in his closing arguments, but it seems to me that no question of discrimination of which Betws could make complaint has occurred. The discrimination noted by the Commission [paragraphs 25 and 56] is discrimination between the prices for Preussag's anthracite in different Member States [discrimination on grounds of nationality]. As a competitive producer in and selling to the UK market, I do not see how Betws could be harmed by any discrimination in Preussag's pricing throughout Europe.
34. The Claimants, Mr Sharpe submitted, misconstrue the passage in Banks 1 to the effect that in the absence of a Commission Decision individuals cannot challenge the compatibility of an aid measure before the courts. Mr Brealey QC takes that sentence to mean that once the Commission has made a Decision individuals can rely on it. That is correct up to a point. Individuals can rely upon it against the State; without the decision they cannot. The Decision does carry with it an effect which is binding on the courts but only within the scope of its application. Here the Decision is directed to Germany. The duty to comply with the state aid rules and the Authorisation Decision lie upon the State. The only possible target for Betws would be the German State under the Francovich principle.

The Decision on the cause of action issue

35. Do Betws have any rights under Community law in relation to the Commission's Decision on the misuse of State aid? Betws had drafted a complaint against Preussag; Celtic had drafted its complaint against Germany and Preussag, but the Commission proceeded against Germany only. The Commission found that Germany were in breach of Article 4(c). Commission Decisions on State Aid are always directed to the State. The national courts will assist the Commission in preventing the State from skewing the market through improper aid, but such action may be brought by a competitor of the entity which received the aid, against the State, although procedurally, the recipient of the aid may intervene. The prohibition in Article 4(c) of the EC Treaty does not have direct effect.
36. Mr Brealey does not contend that as a matter of English Law the recipient of an unlawful aid, who thereby damages a competitor's business, is liable to the competitor for the damage caused. On the facts, this is not a case which could give rise to one of the economic ['aiming at'] torts which form part of our law. His case is firmly put on the basis of a Community Law tort. The possibility that national law might provide a remedy, as contemplated by the ECJ in their decision in SFEI, does not arise. Accordingly, the SFEI decision cannot be distinguished. It is true that that case was concerned with aid which had not been notified; whereas here the aid was not lawfully or used. But that does not alter the principle. Particularly where the misuse amounts to no more than using the aid in the way the State contemplated but contrary to the Aid regime under the Coal Aid Code.
37. In my view there is no cause of action in Community Law for the claim advanced by Betws. Specifically, there is no cause of action by Betws against Preussag on the ground that Preussag has used unlawful State aid to the detriment of their competitors including Betws. The Aid Decision was directed not to Preussag but to the German State. At best, Betws would have a claim against Germany. The Commission's Decision is something of a hybrid in the sense that Preussag were mentioned in it; they were given an opportunity to make submission to the Commission and were presented with a copy of the Decision; and they had a right to challenge it before the ECJ. To that extent, it could be said that they were in an analogous position to a 'party' to the Decision. But it seems to me that the formal position is and remains that the Decision was made under a power granted to the Commission to make decisions against the State. The Articles of the Decision are entirely confined to action which the State must take; no order or relief was granted against Preussag. The decision has direct effect only within the scope of its application, namely a claim by Betws against Germany to compel it to recover the State Aid from Preussag. It gave no private right of action otherwise. Had the Commission wished to pursue an undertaking such as Preussag they had power to do so, but have not exercised that power. Had, for example, the Commission been of the view that Preussag had been guilty of predatory or unfair pricing then it would have exercised its powers under Articles 2, 3 or 4 and 60(1) of the ECSC. But this is not a Decision aimed at unfair pricing; rather it is a Decision directed to State Aid. I can see no difference between this case and the SFEI decision of the ECJ. In that case an entity used State aid which was unlawful because it had not been notified to the Commission. In this case, Preussag used/misused State aid which was unlawful because the aid was given for one purpose but was used for another, as was inevitable under the accountancy conventions which applied and the way the coal producers costed their production. In other words the aid which Germany gave did not, in the Commission's view, properly distinguish between production costs of anthracite for use with power stations and that used in the domestic market. The production costs of anthracite produced for the home market was subsidised to the extent identified by the Commission, namely 3% of the total subsidy. Had Preussag not been subsidised in this way and had Preussag been required to sell anthracite into the UK domestic market at prices which included the full cost of production then it could not have maintained its share of the market. The allegation of "misuse" adds nothing to the structure of the Decision.
38. Therefore, if there is no Community Law tort there is no claim. I am reinforced in my view that this is the correct interpretation of Community Law by Mr Brealey's book, written with Mark Hoskins entitled "Remedies in EC Law", second edition published in 1998. In Chapter 7, "Damages", the learned authors wrote:

" … not all breaches of Community Law can give rise to an action for damages against private parties, since not all provisions of Community Law impose duties or obligations on individuals. For example, a directive does not have horizontal direct effect and cannot, by itself, impose obligations on individuals. A breach of a directive is not, therefore, a wrong actionable at the suit of another. Similarly, the system for reviewing State aids established by Article 93 of the EC Treaty [new Article 88] imposes no specific obligations on the recipient of aid. Consequently, the recipient is not liable to pay damages to a competitor for failing to verify that the aid was duly notified to the Commission." [my emphasis]. The footnote reference to the highlighted passage is the SFEI case.

Mr Brealey suggested that the next edition of his book will reflect the advancement of the law as he has submitted it to be. But I think he is trying to extend the boundaries of European Law too far. There is no indication, as I read the decisions of the ECJ, that that court would favour a claim brought by a competitor against the recipient of unlawful aid. The reference in Banks II to the possibility of a claim by Banks continuing in the national court must be seen in its context. Banks had a viable claim under Article 4(b) which is of direct effect. He was suing an emanation of the State. Betws has no cause of action against Preussag on either ground. Mr Brealey's argument that the national courts of a State are under a duty to protect competitors, and competitors have rights to complain of unlawful aid against the State under article 88.3, says nothing about the right of a competitor to bring proceedings against the recipient of the aid. His argument that it is the duty of the courts to provide the injured party with an effective remedy against the State, which includes a right to obtain damages (the doctrine of effective legal protection), also does not get him home. If there were a cause of action against Preussag, I would agree with Mr Brealey that the courts would be required to provide Betws with an adequate remedy in damages, if appropriate, so as to ensure an effective remedy for a wrong. The problem for Betws is that there is no wrong in law, in my judgment. The position seems to me to be acte clair in the light of the SFEI case. And I can understand the policy reason behind that decision. The structure of the Coal Aid Code is to ensure that the Commission must determine whether there has been an infringement with regard to the granting of the aid. Such a decision is a prerequisite to a viable action. [The position would be different if there was a claim under Article 4(b) which has direct effect]. If the Commission makes a Decision directed to the State, then I can see reasons why an action against the State by an injured competitor should not be viable. But to create a Community law tort which enabled a competitor to sue the recipient of unlawful aid would be to open a potential floodgate. It is not suggested in argument that a tort, if it existed under Community Law would be restricted. How far would an entity which was indirectly affected be able to sue; for example retailers of coal. Whilst I accept, as Mr Brealey put it, that "breach is a matter for community law and then the national courts apply their own laws to determine the extent of liability" questions will arise as to the foresee ability requirement and the extent to which the wrongdoer's knowledge of the people likely to be affected is a pre-requisite. On the evidence here, Betws would not have been a 'target' of Preussag's price war; although they would be bound to be affected to some extent; and there might be a number of other producers also affected, of whom Preussag might have been wholly unaware. These issues would need to be considered by the ECJ before it created a new Community tort of the kind suggested.

39. The second issue is the extent to which the Decision of the Commission is binding on this court: is the decision merely that which is contained in the Articles or does it include the preamble which sets out the Commission's findings and reasoning leading to the conclusions. On this issue I am sure that Mr Brealey is correct. Article 14 provides that "decisions shall be binding in their entirety." This Article distinguishes between "decisions" "recommendations" and "opinions". Article 15 requires that "Decisions shall state the reasons on which they are based." In the absence of authority I would have thought it abundantly clear that a Decision includes the reasons which are required to be stated in it. The fact that the reasons, which are an integral part of the Decision are contained in a Preamble makes no difference. Merely to regard the Decision as comprising the six Articles would emasculate the Decision. A Decision without reasons is not a lawful Decision. In my view this position is confirmed by the ECJ in the Banks I decision where the Commercial Court sought a ruling on whether the Commission's Decision was binding both on the facts and the law, and the answer was yes. Further, I take the view that the following propositions are established in the English cases:

(a) The Commission has unrivalled experience in the application of the Treaty's provisions and it has a specialised jurisdiction. "The need to avoid conflicting decisions of the Commission and the national courts is obvious; and, of course, the need for finality, particularly where third party rights may be affected". "…if the substance of the allegation has been made and decided by the Commission, the national court will not allow it to be re-litigated." Coal Authority v HJ Banks & co Ltd [1997] EuLR 610. That decision is consistent only with the Commission's Decision being taken as a whole: facts and conclusions.

(b) It would be contrary to public policy to allow persons who have been involved in competition proceedings in Europe to deny in the English Courts the correctness of the conclusions reached by the Commission.: Iberian UK Limited v BPB Industries Plc & British Gypsum Ltd [1997] EuLR 1, per Laddie J.

(c) National courts "cannot take a decision running counter to that of the Commission even if the latter's decision conflicts with a decision given by a national court of first instance." – ECJ in Case C-344/98 Masterfoods [2000] ECR 1-11369.

(d) The Dutch Banks case relied upon by Mr Sharpe was confined to the proposition that a successful party has lost his right of appeal or objection to the Decision in question if he does not challenge it timeously, and as Mr Sharpe recognised, I think, does not carry him home on this point.

These principles apply both to Germany and Preussag, who had rights to challenge the Decision in the ECJ but failed to do so.

The merits of Betws' Claim

40. Had I been required to consider the merits of the claim made by Betws, it would first have been necessary to identify those parts of the facts found by the Commission which would be binding upon me.
41. In my view the following findings from the Commission's decision are binding upon me and I cannot go behind them:

(1) Preussag's average production costs are DEM 300 per tonne which is accounted for by reason of the depths from which the product is mined: paragraph 13.

(2) Most of the anthracite production is suitable only for power generation; some 20%-30% of the output has a high commercial value (DEM 190/t) and is sold to industry and domestic households.- paragraph 15.

(3) The market for sized anthracite is geographically limited to the traditional coal mining regions of the Community in Belgium, Germany, Spain, France and the United Kingdom. German anthracite has a good reputation in the Community market and the market in the United Kingdom for deliveries from Germany "comprised the east of the country from the Humber to the south coast …" – paragraph 19.

(4) Preussag and Sophia Jacoba were "able to open up a market in the United Kingdom as the State-owned National Coal Board … had done little prospecting for storage sites in these areas and "they offered very favourable prices." – paragraph 20.

(5) After British Coal was privatised in 1994, Celtic took over several of the Welsh pits, most of which produce anthracite. Following Celtic's acquisition of open-cast mines, it embarked on a completely new policy as it decided to expand its business in England and opened a distribution centre for its products in Hull, the main British port of entry for German Anthracite - paragraph 21.

(6) In 1995 Celtic decided to sell its products in England at the same prices as in Wales, in order to capture part of the English market, which it was able to do by meeting the costs of transport – paragraph 23.

(7) Preussag's prices for anthracite were, at least during the period 1996-7 systematically lower than the prices of the companies which succeeded the National Coal Board. In January 1996 the grade 'beans' was on sale on the east coast of Britain at a price of GBP 93 per tonne from Preussag and GBP 101 per tonne from Celtic. The prices in October 1997 for the same grade were GBP 94 and GBP 103.40 respectively. "By way of comparison, anthracite from … China was being sold at GBP 94 in January 1996 and at GBP 102.7 in October 1997. In 1995 sized anthracite from both Preussag and Celtic was selling for GBP 105 while the same product from China was selling for GBP 94." Paragraph 24.

(8) Preussag offers major reductions on its list prices in the various Member States. Prices charged for sales in the United Kingdom in summer 1996 ranged from DEM 153 per tonne compared with pithead list prices of DEM 400 for sized anthracite … by way of comparison the pithead prices for one of the comparable grades was DEM 204 for deliveries to France, DEM 265 for deliveries to Belgium and DEM 95 for deliveries to Spain. Paragraph 25

(9) Preussag were concerned about the competition from the Welsh producers as reflected in the 1995 company report and in the 1996 company report it was stated that Preussag were able to increase their market share on the home market and some foreign markets "by means of an elastic price policy". Paragraphs 27 and 28.

(10) "This policy proved effective in practice as the information available shows that the company's exports rose from 279,000 tonnes to 358,000 tonnes between 1995 and 1996, an increase of 20%. Sales in the United Kingdom apparently increased by 49% from 66,000 tonnes to 98,000 tonnes between 1995 and 1996. The corresponding increase in France and Belgium was 13% and 8% respectively. In 1997 the volumes dropped to 68,000 tonnes to zero at the beginning of 1998." – paragraph 29.

(11) "This growth in exports is all the more remarkable as it took place in difficult market conditions. Firstly, there is growing competition from third countries such as Vietnam, … China or Russia, the quality of whose product is wholly acceptable for the Community market." Second, the main market for sized anthracite, that is households, "is very demanding. Although consumers are loyal to their suppliers, they are attracted to cheaper, more user friendly energy sources such as natural gas or fuel oil." Paragraphs 31 and 32..

(12) Preussag's anthracite sales at prices below the cost of production was only possible because the State "keeps the company viable with State Aid." And in the relevant two years sales of anthracite showed a surplus on the profit and loss account. Paragraphs 46 & 48.

(13) Preussag could not in the long-term have maintained their price policy at prices at prices below those of the British producers of sized anthracite without the State aid. Paragraph 58. They undercut their competitors' prices: paragraph 77.

(14) It is clear from the Commission's investigations the volumes of anthracite sold and the prices charged that part of the aid [DEM 9.8 million for Preussag] led to distortion of competition incompatible with the common market in the Community Market for sized anthracite for industry and households in contravention of [the Coal Aid Code]. The [company] must therefore repay [that] sum to Germany" Paragraph 83.

(15) In relation to the aid for 1997 which was temporarily set at DEM 65 for Preussag, DEM 6.8 million "led to distortion of competition incompatible with the common market for sized anthracite for industry and households" and Germany must require Preussag to repay that sum. Paragraph 85

(16) On the basis of the principle put forward by Germany that aid payments should be limited to coal production destined for power generation and the Community steel industry, Germany undertakes to ensure that sales of sized anthracite in the industrial and household sectors will be made at prices which cover the costs of production. Paragraph 87.

42. Because I regard myself as bound by these findings, I am unable to accept the evidence of Herr Schneider when he rejects the Commission's criticisms of the subsidy arrangements between Germany and the two main producers.
43. The same applies to that part of Herr Kalenscher's evidence in paragraph 73 and 98 of his witness statement which contradicts findings of the Commission.

"Preussag did not receive any state aid funds or subsidies in relation to the British anthracite market (nor in relation to any part of the home heating market). The fact that it received the DEM 16.6 in state aid which the European Commission later decided had been misused in 1996 and 1997 had no bearing on its commercial decision to reduce its prices." [Paragraph 98]

That paragraph conflicts with sub-paragraphs (12) and (13) above.

44. However, the Commission's findings do not involve any assessment of the effect which Preussag's pricing policy had on the British market or on Betws in particular. I must make further findings of fact based on the evidence which I heard.
45. I start with the evidence of Herr Kalenscher who was the head of sales and marketing at Preussag from 1 January 1996. The facts, rather than his comments on them are reasonably clear from the contemporary documents referred to in his evidence and may be summarised thus:

(1) Preussag had been importing anthracite into the British market since the mid 1970s. He says, and I accept, that the German product from Preussag's Ibbenburen mine was of particularly good quality and was especially hard [with a low ash content and medium volatility] and regarded as a reliable source of good quality fuel.

(2) The market was diminishing as users preferred the more user-friendly sources of heat [gas or oil]. Whereas quality was the governing factor in the 1990s price alone became the dominant consideration.

(3) Preussag sold its anthracite into England through German exporters [Stinnes] who in turn dealt with one particular wholesaler in England, namely British Fuels Limited, which was fully owned by British Coal from the late 1980s until British Coal was privatised in 1994.

(4) Preussag quoted base prices in sterling: £s per tonne ex Nordenham, and the price included the cost of transport by rail or canal from Ibbenburen to Nordenham. Stinnes required a commission and the importers and wholesalers had to pay for the cost of sea transport, including trimming and unloading costs. The wholesalers would take their cut and the price the householder paid would also include a profit element for the retailer.

(5) In January 1996 the £/DEM rate was 2.236 and rose to 2.950 by the middle of 1997 when Preussag removed itself from the British market.

(6) During the early 1990s the supply of anthracite from outside Europe was increasing: China, Vietnam and South Africa, in particular. It was only after British Coal was denationalised in 1994 that prices in the anthracite market started to fall. It was noted in March 1995 at a meeting attended by representatives of Stinnes, Preussag and BFL that the market was "extremely competitive" and that unless market prices were not followed, Preussag would lose market share.

(7) During 1995 the market was further under pressure from the intervention of three Welsh collieries and one, Tower, was claiming some success in displacing imported product from European markets [namely the German producers].

(8) Traditionally all coal products cost more in the winter season but there had been a mild winter in 1994/5 and Preussag made no shipments in November and December 1995 because their distributors were over stocked.

(9) In September 1995 Celtic set up a forward land sale in Hull and, as the witness says, this was a significant development. Stinnes considered this to be "stiff competition" and a direct challenge to Preussag's export trade to the east coast. Accordingly, at a meeting in November 1995 it was clear that Preussag would need to adjust its prices downwards by at least £10 per tonne if it was going to remain in the market. Celtic were reportedly doing well and the market for Ibbenburen anthracite was collapsing. Supply had increased by 25% and demand had continued to fall, and the 1995/6 winter was also mild. It was BFL's view that it was the intent of the Welsh producers to drive out imports and, thus, Preussag, from the market and when this was achieved raise prices after a complete market dominance had been achieved. Preussag gave BFL a target of 80,000 tonnes in the British market.

(10) Preussag agreed a substantial ["huge"] price cut of £18 per tonne as from the beginning of 1996 to below the cost of production. Preussag's marketing strategy was to undercut Celtic's prices.

"If we had refused to decrease our prices and BFL had stopped taking our product we would have had no chance of persuading another wholesaler in England to take our product at those higher prices."

The effect of this reduction was to "cause havoc" in the UK trade and Preussag had to compensate organisations which already held stocks of their anthracite which had been purchased at the higher prices.

(11) Preussag suspected that BFL were not passing the full increase on, but were increasing the amount of the commission which they kept for themselves. Following meetings with BFL, the witness says that he persuaded BFL to accept a "de facto price increase of £9.00 per tonne in April 1996". This was not a real increase; Preussag simply refused to reduce the price yet further by the usual summer price discount. By the end of 1996 the prices were higher but still lower than they had been in 1995. And the exchange rate was moving in favour of Preussag and "the effect of this was to make the low prices far more affordable". The target of 80,000 tonnes was exceeded, as the Commission indicates: Preussag sold 98,000 tonnes into the British market in 1996 which is nearly 50% of the high quality anthracite segment of the market, namely 200,000 tonnes.

(12) Preussag withdrew from the British market in the summer of 1997 because of the complaints which were beginning to be made about the presence of German producers and their prices and at the time Preussag was proposing to enter into an important merger in Germany and the continuing complaints were unhelpful both to that project and to the new settlement which Germany was seeking for the aid programme for their coal industry in 1997.

(13) Celtic's complaints to the Commission were settled commercially by agreement in March 1998 but despite this settlement, and Celtic and Preussag's joint representations, the Commission continued to pursue the complaint and made their Decision.

46. The perception of the market during the relevant period from Betws' point of view is, not surprisingly, not quite the same as the view from Germany. The evidence comes from Mr Cook who is not only the owner but the mine manager of Betws colliery. I take the following facts from his evidence:

(1) Betws colliery was worked successfully from 1978 until the mid 1990's whilst in the ownership of British Coal. A rich seam called the Red Vein was being exploited with the use of automated long wall mining techniques. When this seam was exhausted, attempts were made to exploit the four foot seam in the same way, but as British Coal was on the verge of being privatised, there was no real incentive to undertake this work, which was considered to be more difficult. Accordingly, British Coal decided to close the mine in 1992.

(2) The Government's professional advisers having surveyed the mine concluded that although the mine was effectively exhausted in terms of long wall mining techniques there was still a residue of coal which could be successfully mined using more traditional methods and Mr Cook and a number of other enterprising ex employees pooled their redundancy money and took over the operation of the colliery and set up the Claimant company in July 1993, with substantial finance [£2 million] provided by Barclays Bank.

(3) In order to acquire the mine, British Coal had to be satisfied that there was a viable plan for the future mining. Mining could only be carried out in Britain with a licence from British Coal . Accordingly full proposals were worked up setting out details of the proposed financing, methods of working, and proper sales and marketing plans. It was anticipated that there was 20 years of life left working both the red vein seam and the four foot seam. British Coal's view was that the four foot seam was unviable and the proposals were adjusted to reflect this fact. Thus the plan was for a life of ten years based upon an annual output of 100,000 tonnes per year. A major part of the strategy was to "diversify markets". At the time of acquisition, 65% of Betws' production was untreated small coal for use in blending for power stations. Only 35% of the output was for the premium domestic market. The company proposed that a new "washery" should be introduced so that small washed coal could be produced for sale to manufacturers of smokeless fuel.

(4) Betws entered into a five year marketing agreement with an entity called Enerco, a coal trading company. Enerco in turn entered into a back to back agreement with Anglo, the main competitor of BFL. Under the arrangements, Anglo were obliged to purchase all graded coal sold by Betws to Enerco. Enerco were also involved in coal preparation and Betws bought from them, through a credit sale agreement, a new washery for just over half £1 million. The final payment under the agreement was made on June 2001.

(5) Production commenced on 26 April 1994 and by October that year production was running at the rate of 100,000 tonnes per annum. Also in October 1994 the new washery came on stream.

(6) In 1995, sales of graded anthracite became difficult and stocks began to increase. Betws' reaction was to reduce prices. Preussag had made its first price reduction in February 1995. About 40% of Betws total production was graded anthracite [39,407 tonnes from a total of 105,053 tonnes]. Anglo was finding it hard to compete with what Mr Cook describes as Preussag's aggressive pricing policy. And through the summer of that year Betws were unable to remove the summer discount and stocks were high. Anglo were acquired by CPL who became Betws' main customer. By the end of the year the company managed to break even. But their financial backers were becoming concerned and arrangements had to be made to extend their credit for the payment of royalties under the licence and VAT. He said that "the need to do so was a direct consequence of lower prices resulting from the price war." If selling prices had been higher then the overdraft and interest charges would have been lower.

"in the absence of subsidised Ibbenburen coal there would have been the opportunity to sell much more. The increase in sales of anthracite between 1995 and 1996 (32,000 tonnes) noted by the European Commission was more than 80% of our total production of graded anthracite." [see paragraph 32 of Mr Cook's witness statement].

If prices had not fallen, Mr Cook says that his mine could have increased production to 127,000 tonnes per annum.

(7) The output from Betws for the 1996/7 year was 116,026 of which 37,007 were graded, and prices fell again in 1996. The Directors noted that there was "surplus productive capacity together with cheap imports being 'dumped' [which had] led to a fall in prices as producers sought to retain volumes". Although graded anthracite represented at this time about 35% of the total production it represented about 63% of turnover.

(8) In 1997/8 out of a total production of 112,073 tonnes 38,443 was graded and this slightly higher proportion reflected the fact that stocks had reduced (having returned to normal operational levels by the summer of 1997).

(9) The Bank made a further advance to Betws to enable it to refurbish the entrance to the four foot seam to enable production to commence there. That phase was complete by September 1998 and full production commenced in May 1999. Mr Cook says that all this took longer than necessary and stemmed from their inability to generate sufficient cash due to the price war for graded anthracite.

(10) Betws lodged a formal complaint to the Commission on 12 June 1998 and the Commission subsequently confirmed that their decision also applied to them as it

"concerns in fact [Preussag's] behaviour as regards the whole market. That includes [Betws], therefore the reasoning of the Decision of 29 July 1998 in this matter addresses your concerns."

47. I am afraid that I do not feel able to place any reliance on what Mr Dunn told me in evidence. He was a former employee of British Coal and on privatisation joined Enerco of which he holds 33% of the shares, the balance being held by a German company. The reason why I take this view is that Mr Dunn has managed to get himself into a position of conflict. Initially he was invited by Preussag's advisers to be an expert witness. But he was not independent enough to fulfil that role. During the relevant events he had been acting for Betws and soliciting the custom of Preussag. He was directly involved in the matters in issue. Furthermore, he had given a witness statement to Betws' solicitors about this case. In this confused state of play it is difficult to be confident as to the hat he is wearing at any one moment. In a memo addressed to Betws solicitors he wrote that he felt that Betws had a strong argument "if we follow the leads set by [Celtic] and endeavour to demonstrate the cost, loss of profit accrued to Betws as a direct result of unfair competition in a fast-declining market segment. All my papers suggest that the lead role was played by Celtic and that the German producers merely reacted in the only way possible to retain market share." When asked about this, he said that he had changed his mind about whether the competition had been unfair. I am afraid I think Mr Dunn had so compromised himself by taking up different and conflicting roles that nothing he said could be regarded as reliable.

Submissions on Causation and Quantum

48. I turn next to the parties' submissions on the issue of causation and quantum. The thrust of Mr Sharpe's attack was directed to causation rather than to the quantum figures as such, which had been prepared by Dr Rix, whom I found to be a reliable witness. The parties were agreed that the test for causation is simply this:

Have Betws shown on a balance of probabilities that the unlawful activities of Preussag were an effective cause of financial loss to them?

Betws does not have to show that the activities were the main, principal or only cause of the loss claimed. Nor is it sufficient that the Court should apply a 'but for' test of causation. Effective cause means what it says and requires no further elaboration.

49. Mr Sharpe in a forceful submission challenged the concept that Betws had suffered any loss from Preussag's unlawful conduct [if any]. He submitted as follows:

(1) The only aid which the Commission say that Preussag had misused was the equivalent of £6.5 million. he points out that Betws' pleaded case is that Preussag's pricing policy was "only possible" because the company had misused the unauthorised State aid for the years 1996 and 1997. Further, for the purpose of calculating damages, Dr Rix had worked on the assumption that Preussag would have had to have withdrawn from the market at the beginning of 1996. Effectively, the Commission authorised the balance of the aid and the only unlawfulness must be linked only to the £6.5 million.

(2) As a matter of fact I should accept the evidence of Mr Kalenscher that Preussag were determined to stay in the market to protect their investment in goodwill. The stocks had been written down and a book profit was realisable. It was an incontrovertible proposition that the reductions in price could not have been sustained in the long run; but that was not what Preussag were looking for. Accordingly, there is no evidence that the existence of the £6.5 million played any part at all in Preussag's decisions and marketing strategy.

(3) It was Celtic who destabilised the market. Preussag were responding to Celtic's attack on them and Betws were simply caught in the middle of a price war. Celtic were aiming to drive from the market not just Preussag but also their wholesale agent BFL. Removal of Preussag from the market would not have stabilised prices, as BFL would have filled the gap with Chinese coal. BFL merely sought to respond to Celtic's threat. Mr Kalenscher wished to maintain Preussag's position in the market and took no commercial decision to disadvantage Betws. Preussag were under pressure from BFL to reduce their prices; that was not their choice. Had Preussag been unwilling to reduce prices BFL would have turned to Chinese coal.

(4) Preussag played no part in the decision to ship a relatively small quantity of anthracite into South Wales. That was a decision taken by BFL on a tit-for-tat basis and when Mr Kalenscher heard of it he made his views known and no further shipment was made.

(5) By the end of 1995, Betws had reduced prices for reasons wholly unconnected with the 'misuse' of £6.5 million [which related to 1996 and 1997] yet for the purposes of the claim it is asserted that the 1994 prices would have continued had Preussag left the market at the end of 1995. Betws was not following Preussag's prices. Its concern was with Celtic's prices and Betws prices followed Celtic's prices down.

(6) There were other forces affecting the market, such as the mild weather, the growth in good quality product from China and the Tower colliery's ability to produce a higher quality product than before of which about 100,000 tonnes was available.

(7) In summary, Betws did not reduce its prices to those of Preussag. Betws was always priced so as to undercut Celtic and as Celtic reduced their prices [through CGC] so Anglo reduced theirs to Anglo.

50. On behalf of the Claimants, Mr Brealey argued:

(1) The new policy adopted by Celtic was perceived to be a threat to Preussag's established market and was regarded as stiff competition. At the meeting on 15 December 1995, Preussag were concerned that their sales had collapsed or were collapsing: there had been no imports in November or December. The decision was taken to reduce prices substantially [by as much as £18 per tonne for the top grade] with immediate effect until March of that year. The suggestion that Preussag was 'forced' by BFL into this decision is not established on the evidence.

(2) The purpose of the price cut was to undercut the Welsh competitors [principally Celtic] and meant reducing prices below the cost of production.

(3) The low prices "severely disrupted the market" and necessitated the payment by Preussag of compensation to those stockholders who had bought Preussag product at the higher prices. The Commission concluded that Preussag's prices during 1996/7 were "systematically lower" than Celtic's prices and that Preussag were offering major reductions on their list prices. Their pricing policy was a matter of concern to HMG and it made a formal complaint to the Commission about Preussag at the beginning of November 1996. At the same time, Preussag were increasing their exports to the UK so that they rose to 95,000 tonnes in 1996 "all the more remarkable as it took place in difficult market conditions." [Commission Decision [paragraphs 29-32]. By their reduction in price below the cost of production, Preussag were able to take 50% of the high quality anthracite market.

(4) Dr Rix expressed the view that Betws' products competed directly with those from Preussag's mine and Betws had to reduce prices accordingly. Betws was in the premium end of the market; its product was of higher quality that Celtic's and the coal from the red Vein seam was regarded as probably the best in the world.

(5) The anthracite market in Britain is national rather than regional because the only sustainable price difference is in transport costs. A price cut by one supplier would have an impact nationally. That is confirmed by the fact that the wholesalers were not confined to a region or to the west or east coast of Britain.

(6) There is no evidence to support Herr Kalenscher's suspicion that the price cut did not reach the consumer and was absorbed by BFL for their own benefit.

(7) The tables produced by Mr Sharpe during the hearing were not reliable and in any event show that the prices seem remarkably similar which shows that Betws prices were being powered to meet Preussag's prices.

(8) Effectively, at the end of 1995, Preussag were faced with three choices: to increase prices to comply with the Commission's findings, which would not have been commercially feasible; withdraw from the market; seek additional State Aid which would only have been granted on condition that there could be no undercutting of the prices of Welsh producers. Preussag cannot be heard to say, contrary to the Commission's findings, that they could have sold coal in the UK without the use of State Aid.

(9) Chinese coal would not have filled the void if Preussag had left the market and would not have under priced the Welsh producers.

51. I can draw the following conclusions from the evidence and from the findings by the Commission:

(1) Preussag used its State aid to enable it to sell anthracite into the British market as from January 1996 at prices substantially below the costs of production.

(2) The decision taken to make the huge or substantial price cut as from January 1996 was an attempt by Preussag to undercut the Welsh producers who were seeking to enter Preussag's east coast market, and to ensure additional Preussag quantities in the market. The purpose was to 'see off' [my words] the potentially burgeoning Welsh entry into the market. If Preussag wished to maintain or increase its market share it had to make this reduction or else it would have to leave the market. The existence of the State Aid and the fact that production costs for the imported coal had not been separated from the other costs of production enabled Preussag to pursue a marketing strategy which would otherwise have not been available to it. It could not compete with Welsh coal, which was cheap to mine by comparison. I reject the submission that BFL pressured Preussag to reduce prices. Herr Kalenscher is, I suspect, a tough business man. I am sure that in principle, like most businesses, Preussag did not relish the idea of reducing prices. But he had a clear decision to make: reduce prices and undercut the Welsh producers or lose the market. He was quite free to choose the latter course, but decided against and exploited Preussag's financial position to stay in the market. I also reject the thesis advanced by Mr Sharpe that Preussag was the victim, so to speak, of Celtic's disruption of the market and was only protecting itself from damage. It is true that Celtic were a threat to Preussag's exports to the UK because, having cheaper production costs they could afford to undercut the Ibbenburen product. Celtic were entitled to face competition from Preussag but only fair competition in the sense that State Aid was not available to assist production intended for the domestic market. Whether the amount of aid misused was as the Commission determined or not, it was the fact that Preussag were able to market their coal at below the cost of production which was harmful to the British market. This was unfair competition. But as I have already said, because the Commission decision was directed to the State and not Preussag as an undertaking, the Commission have not had a chance to consider the extent to which Preussag's pricing policy was predatory or improper. I am proceeding on the assumption that Preussag have acted unlawfully and that their unlawful act lies in them using subsidies intended for one market in another.

(3) The effect of this price cut was dramatic and effective. Preussag increased its exports at the expense of the Welsh producers, and existing stockholders of Preussag coal had to be compensated because they had bought at a price which was no longer viable. I accept Dr Rix's opinion that the price cut "caused havoc in the UK trade." Preussag's prices were systematically lower than those of the Welsh producers despite the real difference in production costs.

(3) The British market is relatively small and is, effectively, national although there are different regions. The only real difference in prices should reflect the difference in transport costs. Betws were affected by the price war being conducted by Preussag. The point was well made by Mr Port, the former Chief Officer of BFL. At paragraph 34 of his witness statement he said this:

"As a matter of practical reality, German Coal produced by Preussag tended to be sold in the east of the country, while coal from Wales (including that of Betws) tended to be sold in the West. Nevertheless, the same price reduction pressures applied in both sides of the country. All coal producers, including Preussag and Betws came under pressure to follow Celtic's lead by reducing their wholesale prices. It therefore follows that wholesale prices had to fall across the board, and the producers had little choice but to comply with our requests of they wanted to continue in the UK market."

(4) Herr Kalenscher's suspicion that BFL were not passing on the price reduction but were feathering their own nest, is unsupported on the evidence. It is contradicted by Dr Rix who said that it was misleading to suggest that BFL did not reduce the price in the market, and was not supported by Mr Port either. The price reduction was notorious within the market and everyone in the market knew about it when it was made. The room for BFL not to pass on the reduction was minimal.

(5) It can be seen from Dr Rix's reports that the price reductions made by Betws follow the market prices down, as would be inevitable if it wished to remain in business.

(6) The price tables produced by Preussag during the course of the hearing are not reliable. List prices are not a reliable indicator of actual prices because there may be discounts and the prices themselves may include or exclude transport costs. In other words one would need to know whether the prices were ex ship or ex store or on a delivered basis. The attempt to increase Preussag's prices by adding to them a notional cost of transport calculated at £4 per tonne per 100 miles is unconvincing. BFL were not asked about this during the evidence of Mr Port. These figures were produced during the cross-examination of Dr Rix in an attempt to show that the Preussag price increase did not have any or any significant impact on the market. Frankly, from an evidential point of view, I regard the tables as interesting but not valuable.

(7) Had Preussag been required to charge a price which truly covered the unsubsidised cost of production, then they would have had to leave the market as from the beginning of 1996.

(8) I am not convinced by the theory that Celtic would have gone on reducing prices simply to drive BFL out of business. The notion that the Chinese could immediately fill the gap left by Preussag involves an assumption that there would have been investment available; that the Chinese were satisfied that the market was there in a continuing stream and was a viable proposition. Fear of a continuing price war would have been a deterrent to the Chinese trade. I cannot discount the possibility that some Chinese imports would have filled the gap and I am not prepared to assume that Betws would have been able to increase their prices to the extent they claim [see under quantum].

(9) It seems to me on a balance of probabilities that Preussag's continued presence in the market selling a product below the cost of production and misusing State aid to do so has caused some loss and damage to their competitors. If there is a Community Law tort as suggested and postulated in this part of the case, it would seem to me that the only pre-requisite, as a matter of domestic law, is that the Claimant is a 'neighbour,' in the legal sense, of the wrongdoer. I assume that an intent to injure is not required for this tort, but that a person who was reasonably foreseeably likely to be affected by the wrongful actions of the wrongdoer would satisfy the neighbour test. Betws were a Welsh producer who were known to Preussag's distribution agents. Their product was known to Herr Kalenscher. Whilst I accept that the decision taken by Preussag was not 'aimed at' Betws, that is not a legal requirement, I assume, of the Community tort upon which Mr Brealey relies. If the hypothetical reasonable person in Herr Kalenscher's shoes had asked whether the consequence of the dramatic price reduction would be likely to harm Betws, the answer would be yes.

Damages

52. The claim is put under four heads:

(1) The revenue which Betws lost as a result of Preussag's price cutting

(2) The increased overdraft payments stemming from the loss of revenue

(3) The loss of profit which Betws would have made on increased production

(4) The costs flowing from the delay in development work on the four-foot seam.

Head 1

53. Dr Rix put forward two calculations: the first was based on the assumption that but for Preussag's involvement, Betws would have charged more for its output than it was able to do. The assumption that is made under this head is that Betws would have continued to price its products at the 1994 level. I regard that contention as fanciful. This was a contracting market subject to the vagaries of the weather and to the risk of imports from non-European sources and there was stiff competition within the domestic market. In any event, the unlawfulness on which the action is founded occurred in 1996 and 1997 and not before. It seems to me that the starting point cannot be earlier than 1995, that is the price ruling immediately before the wrongful acts occurred. Therefore the basis of the calculation is that set out at page 32 of the closing submissions of Betws which gives a total figure of lost revenue of £1,022,000. This is the additional price which Betws could have charged had Preussag not been in the market. But this figure seems to me to require some sort of discount to reflect the possibility that these would not have been the ruling prices due to other competitive forces such as Celtic's desire to dominate the market and the threat of cheap imports. As a figure, there is nothing wrong with it as such. But it needs adjustment for contingencies.

Head 2

54. If prices had been higher than Betws overdraft would have been lower and also so would the interest payments. The evidence shows that Betws cash position dropped during the summer of 1996 when Betws went into overdraft reaching deficits of £400,000 and remained in overdraft throughout 1996 and 1997. The increase in overdraft meant an additional £52,000 in interest and because the repayment of the loan was deferred there were additional interest payments of £71,000, making a total of £123,000.

Head 3

55. I am asked to conclude that had Preussag left the market, Betws would have increased its output and sell a further 5,000 tonnes of anthracite. It is said that the revenue which it lost on this potential extra production was £1,400,000 using the same figures for price as were used under Head 1.

Head 4

56. Betws commenced a feasibility study on the Four Feet seam in 1998. It is Mr Cook's case that had Preussag been out of the market as from the beginning of 1996 then the feasibility study would have been completed earlier and there would have been a smooth transition from working the Red Vein to the four foot, because development work could have been undertaken alongside the production of the Red Vein. The loss under this head is put at £1,830,000.

Conclusion

57. As I have already indicated, for understandable reasons, Mr Sharpe concentrated his attack largely on the legal issues and on causation and much of Dr Rix's work on the detail of the quantum calculations remained unchallenged. I can express my conclusions shortly. In relation to Head 1 there must, as I have said, be a discount for contingencies. Preussag might have taken a little time to leave the market place; there may have been stiff competition from Celtic and possibly from non-European imports. Prices would undoubtedly have been higher had Preussag not made their dramatic and unlawful price cut in January 1996. To take account of what one might call the imponderables, I would scale down the first head of claim to a round figure of £750,000. Under Head 2, the figures would need to be re-worked as the revenue lost would have been smaller than calculated. I have adjusted the figure by 25% and arrive at a rounded figure of £90,000. I regard the claim under Head 3 as speculative. An increase in production of that magnitude strikes me as improbable and for that reason I would not have allowed anything under that Head. In relation to the fourth head, I regard the claim as too remote in law and too speculative in fact and would have awarded nothing under that head also. Therefore, had the claim succeeded, I would have awarded a total of £840,000. As it is, Betws do not have a viable claim against Preussag and the claim must, therefore, be dismissed.