1.

To confine the restrictive provisions of the Agreement to fruit grown outside the Community;

2.

To open the Rotterdam auctions, subject to certain conditions, to importers established anywhere in the Community;

3.

To liberalize the requirements subject to which Dutch wholesalers were admitted to the auctions;

4.

To open the auctions to fruit arriving at Rotterdam otherwise than by sea or rail;

and

5.

To liberalize the provisions of the Agreement as to the cataloguing of fruit to be sold at the auctions.

1.

that the chairman emphasized that the Commission had not yet made up its mind as to the proposed new Article 9: its decision would depend upon what was said at the hearing;

2.

that the chairman and the representative of one of the Member States (Ireland) questioned the representatives of the Applicants about the purpose of the requirement in the proposed new Article 9 that fruit should have been unloaded in another Member State before being bought by a Dutch wholesaler without going through the Rotterdam auctions; and

3.

that Mr Ellis was given a free rein to develop the applicants' case on every point, including the applicability of Article 2 (1) of Regulation No 26; on this, however, he said that he was content to rest on the arguments previously presented to the Commission on behalf of the applicants.

A —

The applicants contend that the Commission should have determined the question of the applicability or otherwise of Article 2 (1) of Regulation No 26 first, by a Decision separate from that concerning the applicability of Articles 85 (1) and (3) of the Treaty; and they contend that the procedure adopted by the Commission resulted in their not being properly heard on the question relating to Regulation No 26.

In my opinion, provided that the Commission observed the procedural requirements of Article 2 of Regulation No 26, for instance as to consultation with the Member States — a matter as to which there is no question in the present case — there was no reason why it should not publish its decision under that Article in the same document as its decision on the points directly concerning Article 85. It might have been better, perhaps, if it had expressly recorded the former decision in the operative part of the document as well as in the recitals, but the fact that it did not do so is of no consequence. The declaration that the restriction in the Agreement constitutes an infringement of Article 85 (1) necessarily imports that it is not exempted by Article 2 (1) of Regulation No 26.

Of the contention that the plaintiffs were denied a proper hearing on the question relating to Regulation No 26, I need only say, I think, that it appears to me plainly inconsistent with the facts, which I have rehearsed.

B —

The applicants contend that the Commission failed ever to send them a proper notice of objections. Of the notice dated 12 November 1969 they say that it was addressed to their members and not to themselves, and of that dated 19 November 1973, they say that it related to clause 9 of the Agreement as it stood before its amendment on 12 February 1974.

My Lords, I need not enter into the controversy about who were the addressees of the notice dated 12 November 1969, though it is only fair to the Commission to say that that notice was in fact received by the applicants and that its contents were known to them. The notice relied upon by the Commission is that dated 19 November 1973. The suggestion of the applicants that, because, after the receipt of that notice, they amended Article 9 of the Agreement in an endeavour to meet the Commission's objections, the Commission should have sent them a further notice dealing with the Agreement as so amended is manifestly misconceived.

C —

The applicants say that the Commission has known about the Rotterdam auctions ever since the EEC Treaty came into force and that it has, since 1961, used the prices obtained at those auctions as statistical material in its management of the common agricultural policy. That being so, the applicants contend, it was wrongful of the Commission to start objecting to the system in 1968 simply because one wholesaler complained about it, and even worse of it to continue using those prices as statistical material after doing so.

My Lords, it seems to me that there is no relevant nexus between, on the one hand, the use by the Commission of the prices obtained at the auctions as factual material to be taken into consideration in administering the common agricultural policy and, on the other hand, the fact that, following Messrs Govers & Zonen's complaint, the Commission initiated an enquiry into the compatibility of the provisions of the Agreememt governing those auctions with Article 85 of the Treaty. The Commission has never said that the auctions were, in themselves, illegal. Its Decision goes no further than to hold that a particular restriction on the freedom of wholesalers who attend the auctions to buy also elsewhere is illegal.

D —

The Applicants contend that the Commission was not entitled to depart from the ‘promise’ contained in Mr. Jaume's letter of 21 December 1971. They rely, in support of this contention, on the principle as to the ‘protection of confidence’ established by the Court's decision in Case 81/72, Commission v Council [1973] ECR 575.

But, my Lords, that case was concerned with a decision taken by the Council itself and as to which the Court found that both its antecedents and its terms made it clear that the Council intended thereby to bind itself. Here, in contrast, we have a letter written by an official who did not have the power to make any decision himself and in which he merely stated his own opinion. It would have been wiser of him, I think, expressly to have pointed out that that opinion could not bind his Director-General, let alone the Commission, but the fact that he did not do so cannot have the effect of entitling the applicants to treat that expression of opinion as if it were a decision of the Commission. Nor could it, as was suggested by Counsel for the applicants at the hearing, commit the Commission to an ‘agreement’ with the applicants. The letter in my view conferred on the applicants no rights whatever on which they are entitled to rely in this Court.

E —

The applicants contend that, in any event, the cumulative effect of the matters complained of by them under their grounds (A) to (D) is such that the Court should conclude that the proceedings before the Commission were irregular.

My Lords, four horses falling at a fence cannot add up to a horse that clears it. For the reasons I have stated, I do not think that any of the applicants' grounds (A) to (D) bears examination. Undoubtedly, the Commission was guilty, particularly in the earlier stages of the proceedings, of serious and largely unexplained delays. I think too, as I have already said, that Mr. Jaume might have expressed his letter of 21 December 1971 more cautiously. But none of this amounts to an ‘infringement of an essential procedural requirement’ within Article 173 of the Treaty. Nor of course does it amount to any of the other grounds upon which the Court may, under that Article, set aside a decision of the Commission.

The other seven grounds upon which the applicants challenge the Commission's Decision go to its substance. They are these.

F —

The applicants contend that, in so far as the Commission held that the restriction in Article 9 of the Agreement was not exempted by Article 2 of Regulation No 26, its Decision is vitiated by errors of fact and of law.

My Lords, I cannot see that, in this respect, the Commission made any material error of fact or of law. The argument of the applicants, as I understand it, is, in a nutshell, that the restriction has the effect of concentrating the supply of and demand for imported fruit at the Rotterdam auctions and that it thereby conduces to a more stable market, a more assured availability of supplies and more reasonable prices to the consumer. Remove the restriction, they say, and the resultant dispersal of supply and of demand would impair those advantages.

In my opinion there is a fallacy underlying that argument. The fallacy is that Article 2 confers on the parties to an agreement the right to claim exemption for any restriction it contains if only they can show that, in relation to the market in any agricultural product, the restriction conduces to the attainment of one or some of the objectives set out in Article 39 of the Treaty. The argument overlooks that the objectives set out in Article 39 are those of the common agricultural policy and that, as such, they relate to Community agriculture and are inseparable from each other. It also overlooks that Article 2 in terms requires that an agreement, in order to be exempt thereunder, must be ‘necessary for the attainment’ of those objectives. It follows in my opinion that an agreement cannot be exempted under that provision unless it is designed, either alone or in conjunction with other measures, to secure all those objectives, and is necessary for the purpose.

It is common ground that the Agreement in this case, applying as it does only to fruit grown outside the Community, cannot promote either of the first two objectives of the common agricultural policy, which are:

Nor is it suggested that the Agreement forms part of a system other features of which are designed to achieve those objectives. There is a common organization of the market in fruit and vegetables, set up by Council Regulation (EEC) No 1035/72 of 18 May 1972, but the Agreement in no way fits into this. Even less does it bear any relation to the measures instituted by Council Regulation (EEC) No 2511/69 of 9 December 1969 for improving the production and marketing of Community citrus fruit. The Agreement in fact operates quite independently and, indeed, regardless of the common agricultural policy. It is significant, I think, that, as the Commission points out, nothing like it has been found ‘necessary’ in any other Member State.

I should add that to some extent the Commission's Decision on this part of the case is based on its evaluation of complex economic matters, such as the effect, if any, that the removal of the restriction would have on prices for citrus fruit in the Netherlands. In my opinion it would not be open to the Court, under Article 2 (2) of Regulation No 26, to substitute its judgment for that of the Commission on such matters: consider Cases 56 and58/64 Consten and Grundig v Commission [1966] ECR 347.

G —

The applicants contend that the Agreement, being one between trade associations, is not within Article 85. They point to the wording of that Article, which prohibits ‘all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States etc.’ and say that agreements between associations of undertakings are not comprised in that catalogue. Fortified by an opinion of Professor Haardt of the University of Leiden (Annex XXII to the Application) they say that under Dutch law, which governs it, the Agreement created no contractual relations between the undertakings that are members of the two associations parties to it. They liken the terms of the Agreement to the rules of a commodity exchange, which, they say, do not give rise to contractual rights and obligations as between those who buy and sell on such exchange. The analogy is appropriate enough, perhaps, as it seems that some at least of the auctions in question are held in a building called ‘the Rotterdam Fruit Exchange’.

But, my Lords, I would reject this contention both on principle and on authority.

In principle I would say that the answer to the question whether an agreement is within Article 85 does not depend upon whether it creates contractual relations between the undertakings that it affects. What matters is only whether it exists and effectively binds them. In some at least of our countries — certainly this is the position in England — parties are entitled to agree that an agreement between them shall not create legal relations but shall be binding in honour only. Such an agreement, sometimes . called a ‘gentlemen's agreement’, is outside the sphere of the law of contract. But it is not outside the sphere of competition law, for if it were that law could too easily be subverted. That the same is true in Community law is, I think, implicit in the Judgments of the Court in Cases 41, 44 and 45/69, the Quinine cases (Rec. 1970 at pp. 695-696, 757-758 and 802-804). In the instant case the fact is that the associations concerned (the applicants) in entering into the Agreement, can only have been acting on behalf of their members. Moreover, they saw to it that their members were effectively bound to comply with the Agreement by providing for penalties for those who transgressed, ranging from ‘a reprimand’, through ‘communication of the infringement to the parties bound by the Agreement’ and ‘a fine of up to Fl. 10000’, to ‘a prohibition in taking part in auctions for a certain period’ and finally ‘exclusion from auctions’ — see recital I (1) (h) of the Commission's Decision, the findings in which are not challenged.

The authority I have in mind is Case 67/63 SOREMA v High Authority [1964] ECR 161-162. The Court there held that an agreement entered into by an association of undertakings was within Article 65 of the ECSC Treaty, which is, so far as material, in the very same terms as Article 85 of the EEC Treaty.

Hand I —

The applicants contend that the Commission was wrong in holding that the restriction in Article 9 of the Agreement was susceptible of affecting trade between Member States and wrong in holding that it had as its object and effect the restriction of competition within the common market.

I propose to deal with these two contentions together, because the arguments on them largely overlap.

The applicants say firstly that, in practice there are only two kinds of transaction that wholesalers bound by the Agreement ever want to enter into but are precluded from entering into by the restriction. The first is the direct re-sale to Dutch retailers of surpluses bought at low prices from German importers. The other is the direct sale to such retailers of Spanish oranges bearing exclusive brands. The applicants say that both types of transaction are undesirable, the first because it disturbs the market and the second because the oranges in question are in fact of the same qualities as unbranded oranges sold at the auctions.

It seems to me, my Lords, that this argument wholly misses the point, for the question arising under Article 85 (1) of the Treaty is not whether the restriction prevents competition that is desirable or competition that is undesirable, but whether it restricts competition at all and, if so, whether in a way that may affect trade between Member States.

Moreover neither the Commission nor the Intervener accepts that the two kinds of transaction described by the applicants are the only ones that the restriction in practice prevents. They give instances of many others. Of these it will, I think, be enough if I recall two. The first is the sharing between a wholesaler in Maastricht and wholesalers in Liège and Aachen of trainloads of oranges imported direct from Spain. The other is the purchase by a Dutch wholesaler under long term contracts of fruit originating in third countries from an importer established in France (where the evidence shows that there are important fruit markets: one at Perpignan and the other at Rungis, near Paris.)

The applicants sought to counter the points thus made partly by emphasizing that nothing in the Agreement prevented a Dutch wholesaler from marketing fruit so imported through the Rotterdam auctions or prevented an importer established anywhere in the Community from selling at those auctions; and partly by emphasizing the narrow scope of the restriction: it did not apply to fruit grown within the Community; it did not apply to fruit in transit through the Netherlands; it did not apply to sales elsewhere than in the Netherlands or to sales to processing plants in the Netherlands; it did not apply to fruit already in free circulation in the Community (i.e. cleared through customs in another Member State); and it did not affect wholesalers (chain stores and others, representing some 25 % of the trade) who never wished to attend the auctions.

My Lords, it does not seem to me that all this overcomes the crucial difficulty in the applicants' way. The fact remains that, subject to one qualification, a Dutch wholesaler, whose business or main business is to sell to Dutch retailers, is precluded, if he ever wishes to buy on his own account at the auctions, from availing himself of any alternative source of supply in the Community of fruit originating from outside the Community. The qualification in question is that such a wholesaler may buy fruit that has already been cleared through customs in another Member State. But this is a privilege of little value. As the applicants themselves were at pains to underline in another context, importations of foreign fruit, in order to be economic, must be effected under long-term contracts.

In reliance on what was said by the Court in Cases 6 and 7/73 Commercial Solvents v Commission [1973] ECR 252-253, the Commission advanced an interesting argument to the effect that the restriction should be held susceptible of affecting trade between Member States even in so far as it prevents direct imports by Dutch wholesalers from third countries under transactions involving, at that stage, no one in any other Member State. For, said the Commission, such a wholesaler might want to re-sell to retailers in, say, the Netherlands, Belgium and Germany. The restriction, whilst it would not preclude him from re-selling to retailers in the last two countries, would prevent him from doing so to retailers in the Netherlands. This artificial closing to him of his own natural home market could frustrate the whole venture. It is not necessary, in order to decide the case in favour of the Commission, to accede to this perhaps somewhat theoretical argument. But no satisfactory answer to it was put forward by the applicants.

J —

As regards Article 85 (3), the Commission, in its Decision, accepted that the Rotterdam auctions might contribute to improving the distribution of fruit in the Netherlands, at all events in the case of those imported by sea from distant countries, and also accepted that, possibly, a fair share of the resulting benefit accrued to consumers. On that basis, it assumed in favour of the applicants that the Agreement passed the first two tests applicants that the Agreement passed the first two tests prescribed by that provision. But it held that the restriction was not ‘indispensable’ to the attainment of those objectives, so that it failed to pass the third test.

The applicants challenge this conclusion. They say first that the Commission underestimated the value of the benefits conferred by the Agreement on Dutch traders and consumers. Secondly they say that the Commission was wrong in holding that the restriction was not indispensable to secure those benefits.

Their argument, which extends to many pages, may, I think, fairly be summarized thus: they say that, in the absence of the restriction, the Dutch importers who sell at the auctions could not longer rely on their market and could therefore no longer risk committing themselves to the bulk long-term contracts that they now enter into, and that this would result, for wholesalers, in higher prices and less dependable supplies. In support of that argument, the applicants have put in an opinion of Professor Kreukniet of Leiden University (Annex XXI to the Application). Professor Kreukniet, besides being a professor of economics, has also been a member of, and is now consultant to, a committee charged with the duty of advising the Dutch Minister of the Economy on matters concerning competition law.

The Commission, however, takes a different view. It says that such advantages as are yielded by the concentration of supply and demand at the Rotterdam auctions arise naturally from Rotterdam's position as a great port, serving a densely populated hinterland with near-perfect communications. These advantages would not disappearwith the removal of the restriction, which merely piles an additional element of artificial concentration on that which would occur naturally.

My Lords, I do not think that it is for the Court to adjudicate on such arguments, which raise questions purely of economic judgment or opinion. I have referred already to the Consten and Grundig Case, where, in relation actually to Article 85 (3), the Court held that judicial review of the Commission's appreciation of such matters must be confined to an examination of the facts and of the legal propositions relied on by the Commission. It is no part of the function of the Court to make economic prognostications. The applicants' appeal to it on the present point is therefore, in my opinion, misconceived.

K —

As I have already mentioned, the Commission in its Decision (recital IV (4)) gave as its reason for rejecting the applicants' claim for exemption under Article 85 (3) that the restriction was not indispensable to the attainment of such advantages as flowed from the existence of the Rotterdam auctions. It added however:

‘It should nevertheless be pointed out that the Agreement, by causing a major concentration of the Dutch demand for citrus fruit at the Rotterdam auctions, eliminates or hinders direct competition on the Dutch market in respect of a substantial part of the supply of such fruits from sellers established in other EEC countries.’

The applicants challenge this conclusion. The arguments they adduce in so doing are however merely repetitive of some of the arguments advanced by them in support of their grounds (H) and (I), with which I have already dealt. That being so, and the point being in any case obiter so far as the Commission's Decision is concerned, I need not, I think, take up any more of Your Lordships' time with it.

L —

Lastly, the applicants compendiously contend that the Commission's Decision is insufficiently reasoned to comply with Article 190 of the Treaty. They make it plain, however, in their pleadings, that this is no more than an alternative way of formulating their complaints under heads (F), (G), (H), (I), (J) and (K). In my opinion the contention is little better than frivolous.