Betws Anthracite Ltd v DSK Anthrazit Ibbenburen GmbH

JurisdictionEngland & Wales
JudgeMr Justice Morison
Judgment Date27 October 2003
Neutral Citation[2003] EWHC 2403 (Comm)
Docket NumberCase No: 2000 Folio No. 1420
CourtQueen's Bench Division (Commercial Court)
Date27 October 2003

[2003] EWHC 2403 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

THE HONOURABLE MR JUSTICE MORISON

Case No: 2000 Folio No. 1420

Between
Betws Anthracite Limited
Claimant
and
Dsk Anthrazit Ibbenburen Gmbh
Defendant

Mr M. Brealey QC & Miss S. Lee (instructed by Eversheds) for the Claimant

Mr T. Sharpe QC & Mr P. Mitchard, solicitor-advocate (instructed by Skadden, Arps, Slate, Meagher & Flom (UK) LLP) for the Defendant

Hearing dates: 24 th March-2 nd April 2003

Mr Justice Morison

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...

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