Industrias Nucleares do Brasil and Siemens (EAEC) [2006] EUECJ C-123/04 (12 September 2006)

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(References for a preliminary ruling submitted by the Oberlandesgericht Oldenburg (Germany))

(EAEC Treaty - Supply arrangements - Property ownership - Enrichment of uranium on Community territory)

1. For many years there has been a question that constantly arises for the parties primarily involved in the European Atomic Energy Community ("the Community"). Should uranium enrichment operations carried out by Community undertakings on behalf of foreign customers be classified as activities for the processing, conversion or shaping of nuclear materials within the meaning of Article 75 EA or must they be regarded as operations for the production of nuclear materials within the meaning of Article 52 EA? Certain Member States consistently uphold the first view. The Commission is equally firm in taking the second.

2. The question is difficult and important. For too long it has given rise to disagreement in institutional circles. And now, as a consequence of disputes between private individuals, the Court is asked to decide the issue. The rules for nuclear materials imported and enriched in the Community depend on this classification. If materials are regarded as converted materials governed by Article 75 EA, they will fall outside the ambit of the Treaty rules on the supply of special fissile materials in the Community and the rules of ownership will be essentially determined by the law of property of the Member State where they are situated. If, on the other hand, they are classified as nuclear products for the purpose of Article 52 EA., they will fall entirely under the control of the Community and, on becoming subject to the rights of the European Atomic Energy Community Supply Agency ("the Agency"), they can no longer be freely disposed of.

3. Although the facts and the relevant Community measures are numerous and complex, they are not difficult to understand. It is sufficient to mention the essential elements.

4. These two cases were brought before the Oberlandesgericht Oldenburg as the culmination of a long chain of legal proceedings involving many parties.

5. Industrias Nucleares do Brasil SA ("INB") is a company incorporated under Brazilian law and has the object, in particular, of procuring nuclear fuels for Brazilian nuclear power stations. For this purpose it maintains a continuous business relationship with Urenco Limited ("Urenco"), a company incorporated under English law and specialising in the production of enriched uranium.

6. Accordingly in 1976 a contract was concluded for the supply of source materials to Urenco, accompanied by the transfer of ownership of the materials, with a view to the production of enriched uranium on behalf of INB. This contract is said to have been notified by Urenco to the Commission of the European Communities on 4 July 1980. (2)

7. After having been delivered to INB in 1984, the uranium was the subject of a contract with Siemens AG ("Siemens") whereby the latter undertook to store it. Consequently it was stored in Germany, first in Hanau and then in Lingen, on the premises of a subsidiary of Siemens.

8. In 1993 INB decided to part temporarily with some of this stock. It therefore concluded a so-called "loan" agreement with the Swiss company Nuexco Exchange AG ("NEAG"), which proposed to resell the uranium to nuclear power station operators in the United States of America. Under this contract, the lender transfers the title to the enriched uranium to the borrower who, in return, undertakes to deliver to the lender, at a later date, the lots of enriched uranium of the same kind and to pay the lender a loan fee during the term of the loan.

9. In 1989 NEAG had itself concluded with UBS, a bank established in Switzerland, an agreement on the "pledge and assignment of goods". This agreement provided that UBS had a lien on all the goods held by NEAG and designated in separate correspondence and on all claims arising from the rights existing in those goods By a separate letter the lien was granted on the enriched uranium obtained by NEAG from INB

10. In addition, in 1992 Nuexco Trading Corporation ("NTC"), of Denver (United States), which belonged to the same group as NEAG and acted on its behalf, concluded a similar loan and transfer of ownership agreement with Texas Utilities Electric Corporation ("TUEC"), a company operating a nuclear power station in Texas. This loan also related to certain lots of enriched uranium obtained from INB and stored by Siemens at Hanau.

11. In 1995 NTC became insolvent and, slightly more than one year later, insolvency proceedings were opened in respect of NEAG. That is the event which has given rise to the disputes before the national court. Accordingly INB seeks the return by Siemens of the lots of uranium enriched for it by Urenco and stored on its premises while, in respect of the same lots, UBS claims that it has acquired a lien and TUEC claims that it has acquired title.

12. When the two cases were brought at first instance before the Landgericht Osnabrück (Germany), it found that INB had no right to the return of the lots of enriched uranium. INB appealed against this judgment on the ground that the court of first instance wrongly found that the uranium had been enriched outside the territories of the Member States. If the disputed uranium had not been produced or stored by a person residing in the territory covered by the EAEC Treaty, the natural consequence would have been that the Community could not acquire title to it and, therefore, it could have been freely transferred. However, it is common ground that the lots of uranium in question were produced by Urenco in the United Kingdom, in territory within the ambit of the Treaty. It follows that the first instance judgment is flawed by a factual error.

13. In those circumstances the national court, before which an appeal has been brought, has found it necessary to refer the following question to the Court of Justice: does the EAEC Treaty, Article 86 of which provides that special fissile materials produced or imported into a Member State are the property of the Community, preclude the acquisition of a lien on or title to fissile materials produced by a Community undertaking under an enrichment contract with a national of a non-Member State? If the reply is in the affirmative, this could call into question all the dispositions relating to the contested uranium. If the reply is in the negative, the national court has indicated that it intends to dismiss INB's appeal as unfounded.

14. To understand correctly the context of these two cases, it is not sufficient to refer to the main Treaty provisions concerned. It is necessary to show how they relate to all the questions from the national court.

15. As is clear from the preamble to the Treaty and Article 1, the Community is the result of a "joint effort" of the Member States to create "the conditions necessary for the speedy establishment and growth of nuclear industries". In order to acquire a reliable, independent nuclear capacity, the Community must, in particular, "ensure that all users in the Community receive a regular and equitable supply of ores and nuclear fuels", "make certain, by appropriate supervision, that nuclear materials are not diverted to purposes other than those for which they are intended" and "exercise the right of ownership conferred upon it with respect to special fissile materials". (3)

16. To enable the Community to achieve these aims, the Treaty institutes a "common supply policy". (4) As this policy is not of the nature of the common policies pursued in the framework of the EC Treaty, it takes the form of "managed" integration. Accordingly a special body, the Agency, is set up and is given the exclusive right to ensure in the Community equal access for users to nuclear resources. For that purpose, pursuant to Chapter 6 of the EAEC Treaty, the Agency has a right of option on ores, source materials and special fissile materials produced in the territories of Member States and an exclusive right to conclude contracts relating to the supply of ores, source materials and special fissile materials coming from inside the Community or from outside. In this way the Agency becomes a kind of "exclusive broker" with the task of matching supply and demand for nuclear materials in the territory of the Community. (5)

17. In practice, however, it appears that the Community has made "light" use of these provisions. Taking the circumstances into account, it has chosen to oversee, rather than manage, nuclear development in the Community. Thus simplified procedures were introduced by the Rules of 5 May 1960 of the Supply Agency of the European Atomic Energy Community determining the manner in which demand is to be balanced against the supply of ores, source materials and special fissile materials. (6)

18. In addition, the EAEC Treaty enshrines exceptions to the common supply rules. Alongside Article 66 EA, which provides for a general exception to the application of Article 64 where the Agency fails to act, there are three "specific exceptions" (7) arising from the special provisions of Chapter 6 of the Treaty.

19. First, by way of exception to Article 64 EA, which gives the Agency the exclusive right to enter into agreements or contracts for the supply of ores, source materials or special fissile materials, Article 73 EA provides that the conclusion or renewal of agreements or contracts between a Member State, a person or an undertaking of a Member State on the one hand, and a third State, an international organisation or a national of a third State on the other, providing inter alia for the delivery of products which come within the province of the Agency, are to be subject to the prior consent of the Commission.

20. Secondly, it follows from Article 74 EA that the Commission may exempt from the provisions of Chapter 6 of the Treaty the transfer, import or export of small quantities of ores, source materials or special fissile materials such as are normally used in research.

21. Finally, the first and second paragraphs of Article 75 EA provide as follows:

(a) by several persons or undertakings, where the material is to return to the original person or undertaking after being processed, converted or shaped; or

(b) by a person or undertaking and an international organisation or a national of a third State, where the material is processed, converted or shaped outside the Community and then returned to the original person or undertaking; or

(c) by a person or undertaking and an international organisation or a national of a third State, where the material is processed, converted or shaped inside the Community and is then returned either to the original organisation or national or to any other consignee likewise outside the Community designated by such organisation or national.

22. The third paragraph of Article 75 EA states that the materials to which such commitments relate shall be subject in the territories of he Member States to the safeguards laid down in Chapter 7 of the EAEC Treaty relating to "safeguards". However, it is stated that the provisions of Chapter 8 concerning "property ownership" are not applicable to special fissile materials covered by the commitments referred to in subparagraph (c) of that Article.

23. Pursuant to Article 86 EA, which is in Chapter 8 of the EAEC Treaty, special fissile materials are the property of the Community. This right of ownership extends to all special fissile materials produced or imported by a Member State, a person or an undertaking and are subject to the safeguards provided for in Chapter 7.

24. To ascertain the effect of these provisions in the present cases, the national court has referred to the Court of Justice, in the context of these two cases, eleven questions in identical terms. All the questions arise from the formulation of a number of hypotheses which have their own logic and which must be mentioned briefly.

25. The essential question before the national court is whether the ownership of nuclear products conferred upon the Community could preclude the validity of the contracts for transferring ownership of the fissile materials in issue in these cases. If the initial contract for enrichment concluded by INB and Urenco were subject to the Community supply rules, it would follow that the materials enriched by that means belong to the Community and that they cannot be freely transferred. It would be otherwise only if it were shown that the contract is outside the ambit of those rules. That is why the Court is questioned, first, concerning the conditions for the application of the exceptions laid down in Articles 73 and 75 EA.

26. The first four questions from the national court seek clarification of the terms and condition of Article 75 EA. The first question is decisive for the entire interpretation by way of preliminary ruling which the Court is required to give in these cases.

"1. Do the terms "processing, conversion or shaping" in the first paragraph of Article 75 [EA] also encompass the enrichment of uranium?"

27. Assuming that this is the case, it is also necessary to know which of the three situations referred to in Article 75 EA. is relevant. Indent (a) of the first paragraph of Article 75 applies only where the parties to the enrichment contract are undertakings within the meaning of Article 196 EA, which leads to the second question concerning the nature of INB:

"2. Does an undertaking having its seat outside the territory of the EAEC Treaty pursue all or any of its activities in the territory of the [...] Community within the meaning of Article 196(b) [EA] if it maintains with an undertaking having its seat in the territory of the Community a commercial relationship for

(a) the supply of source material for the production of enriched uranium by, and the procurement of enriched uranium from, the undertaking having its seat in the territory of the Community

(b) the storage thereof with another undertaking having its seat in the territory of the Community?"

28. If INB is not an undertaking within the meaning of the EAEC Treaty and in so far as the case provided for by indent (b) of the first paragraph of Article 75 is clearly excluded, it remains to consider the situation provided for by indent (c) of the same paragraph. However, in that case, do not the special conditions of an enrichment operation such as that in the present case preclude the application of that provision? That is the significance of the third question referred to the Court:

"3. (a) Does Article 75(c) [EA] require the material supplied for processing, conversion or shaping and the material subsequently returned to be identical in substance, apart from the physical changes associated with those processes?

(b) Or is it sufficient for the processed material to be commensurate in terms of quantity and quality with the material supplied?

(c) Is the application of Article 75(c) [EA] precluded where the material returned cannot be attributed to any material supplied by the consignee?

(d) Is the application of Article 75(c) [EA] precluded where the undertaking carrying out the processing acquires title to the source material on delivery and therefore has to transfer title to the enriched uranium back to the other contracting party on completion of the process?"

29. Furthermore, in all the cases referred to by the first paragraph of Article 75 EA, the second paragraph requires the Agency to be notified of the contract. In the circumstances of the present case, it appears right to the national court to ask what are the consequences of failing to carry out this formality:

"4. (a) Is the application of Article 75 [EA] precluded if the persons or undertakings concerned do not fulfil their duty to notify the ... Agency under the second paragraph of Article 75 [EA]?

(b) Can breach of the duty to notify the ... Agency under the second paragraph of Article 75 [EA] be remedied by the persons or undertakings concerned subsequently fulfilling their duty to notify or by the Agency subsequently becoming cognisant in some other way?"

30. The application of Article 73 EA also depends on a formal requirement consisting in obtaining the prior consent of the Commission. Therefore the fifth question is asked in the event of that situation arising:

"5. (a) Is an agreement or contract within the meaning of Article 73 [EA] invalid if the contracting parties do not obtain the prior consent of the ... Commission required thereunder?

(b) If so, can the invalidity of the transaction be remedied by the persons or undertakings concerned subsequently obtaining such consent or by the institutions of the Community failing to take action after becoming cognisant in some other way?"

31. However, the exceptions of Articles 73 and 75 EA may have to be ruled out in the present case. It then remains to determine the consequences of applying the EAEC Treaty rules to the transactions in question.

32. If the enrichment of uranium is to be deemed the production of materials for the purpose of Article 57 EA, the national court wishes to know the consequences of failing to fulfil the obligation, laid down by the same Article, to offer produced materials to the Agency:

"6. (a) Is the disposal of materials within the meaning of Article 57(1) [EA] prohibited if the producer does not fulfil his obligation to make an offer to the ... Agency under the second sentence of Article 57 (2) [EA]?

(b) Can breach of the duty to offer materials to the ... Agency under the second sentence of Article 57 (2) [EA] be remedied by the producer subsequently fulfilling his duty to make an offer or by the Agency subsequently becoming cognisant in some other way and not exercising its right of option?"

33. Moreover, in that case, Article 86 EA may be found applicable. Once again it is necessary to ascertain whether the contested uranium is to be understood, for the purpose of that provision, as "production" of "special fissile materials":

"7. Does the concept of production in Article 86 [EA] also encompass the enrichment of uranium?

8. Are uranium and light-enriched uranium "source materials" within the meaning of the last phrase of Article 197 (1) [EA]?"

34. Finally, on the assumption that the Community's ownership of the contested materials has to be recognised, the national court asks whether it precludes the recognition of other rights of ownership granted and exercised in accordance with the rules of the German Civil Code (Bürgerliches Gesetzbuch):

"9. (a) Can civil-law title under Paragraph 903 of the German Civil Code be acquired and transferred in respect of materials that have become the property of the [EA] under the first sentence of Article 86 [EA]?

(b) Does the unlimited right of use and consumption afforded to holders of rights under Article 87 [EA] exist as a property or quasi-property interest sui generis alongside rights in rem under [the German Civil Code]?"

35. The last two questions relate to the other agreements in these cases. The tenth question concerns the loan agreement between INB and NEAG and asks whether, in that connection, the conditions for the exception under Article 73 EA are fulfilled. That would be the case if INB were classified as an "undertaking" for the purposes of the EAEC Treaty:

"10. Does an undertaking pursue any of its activities in the territories of the Member States of the Community within the meaning of Article 196(b) [EA] if it acquires or disposes of enriched uranium stored there?"

36. Finally, the national court puts a similar question with regard to the contracts between UBS and NEAG and between TUEC and NTC respectively:

"11. Does Article 73 [EA] also apply mutatis mutandis to agreements concerning enriched uranium stored within the territory of the Community where all of the parties are nationals of third States?"

37. It is of some interest to set out briefly the technical characteristics of the enrichment operation which calls for interpretation in the present case.

38. The enrichment of uranium is one of five stages constituting the fuel cycle for feeding the nuclear reactors which produce electric power. The cycle begins with the extraction and refinement of uranium ore. The ore is then concentrated, which leads to the production of a compound rich in uranium. The uranium is then processed by conversion into a gaseous compound required for later use, called uranium hexafluoride. Conversion is followed by enrichment. This is the fourth stage of the cycle. To understand this, it must be borne in mind that natural uranium consists, as to more than 99%, of fertile isotope (isotope 238) and as to only 0.71% of fissile isotope (isotope 235). Enrichment is the operation which consists in separating the components of uranium so as to raise the uranium 235 content to 3 or 4% and to render it suitable for use in a reactor. In the fifth and final stage, the enriched uranium hexafluoride is converted into uranium dioxide and then compressed and heated in order to obtain the nuclear fuels

39. At present there are two industrial processes for enriching uranium, both based on the difference in mass of isotopes 238 and 235. The gaseous diffusion process uses the slight difference in the speed of diffusion of the two isotopes in gaseous form through a porous barrier. This is known as the "diffuser" method. The other method is the gas centrifuge method, which consists in feeding the gaseous mixture of uranium into a rapidly rotating cylinder, in which the centrifugal force causes separation of the enriched components, which are the lightest. This is known as the "centrifuge" process. (8)

40. Urenco was formed in 1971 on the basis of a treaty concluded on 4 March 1970 between Germany, the Netherlands and the United Kingdom with the aim of developing jointly the technique of enriching uranium by the gas centrifuge process. Recently, after decades of separate development, Areva, which uses the gas diffusion technology in Europe, proposed an association with Urenco in order to acquire the more efficient centrifuge technology. Consequently an agreement was signed in Cardiff on 12 July 2005 between France, Germany, the Netherlands and the United Kingdom on cooperation in the field of centrifuge technology. (9) In addition, by decision of 6 October 2004, the Commission declared compatible with the common market, subject to the commitments by the parties concerned, the concentration whereby Areva was to acquire a 50% share in ETC, a company of the Urenco group, which will therefore become a joint venture of Areva and Urenco. (10)

41. For the sake of clarity, it will be convenient to divide all the questions from the national court into three parts. The first five questions relate to the classification of the enrichment contract between a Community undertaking and a national of a third State. Examination of the four following questions will make it possible to determine the status of the materials enriched pursuant to such a contract. The last two questions relate to the rules applying to the loan or pledge agreements in the present case.

42. The EAEC Treaty does not give a classification of uranium enrichment activities. It seems that, at the time when it was drafted, that kind of activity had not been developed on a commercial scale. The fact that the Treaty gives no indication has resulted in two conflicting interpretations.

43. According to the first interpretation, which is upheld by the Commission and supported in the present case by the applicant in the main proceedings, the exception under Article 75 EA cannot apply to enrichment operations. The nature of such an operation is incompatible with the purpose of that provision. Enrichment affects the principal qualities of the materials supplied. Whereas Article 75 EA refers to minor modification operations relating to the chemical composition or the form of the materials, the enrichment of uranium brings about a substantial change in the materials, both physical and economic. In this sense the operation cannot be classified as merely "processing, conversion or shaping". Furthermore, to accept that the enrichment of uranium may be classified in that way would seriously limit Chapter 6 of the EAEC Treaty, which the Court has had occasion to find is fundamental in nature. (11) In any case, this provision, which is an exception to the rules of the EAEC Treaty, must be strictly interpreted. As enrichment operations are a common means of supply for users of nuclear fuels, they must be subject to the rules of the Community's common policy of supply. To decide otherwise would result in depriving the Community of an important source of supply.

44. That is not the opinion of the governments intervening in these cases, which are supported by the defendants in the main proceedings. They find that, on the contrary, to apply the exceptional rules of Article 75 EA to those operations accords with the letter and the spirit of the EAEC Treaty. The enrichment of uranium is a common form of processing materials supplied by customers. Treating an enrichment activity such as that in the present case as an operation for the supply and production of nuclear fuels amounts to distorting both the nature and the purpose of enrichment. It is not an activity consisting in the production of goods, but in the supply of a service carried out on materials delivered by a third party and placed at the disposal of that party. In so far as it has the object of processing goods in transit, on behalf of a foreign national, and not of supplying the Community with nuclear materials, the supply and ownership rules of the EAEC Treaty should not be applied to it. It is true that any exception must be strictly interpreted, but an interpretation that renders the exception meaningless must not be adopted.

45. It must be admitted that both interpretations are soundly based. No doubt they defend divergent interests. To tell the truth, they reflect two opposing concepts of the management of nuclear materials in the Community. For one, it is in the overriding interest of the Community that such materials be entrusted to a "common public authority" (12) holding powers conferred by public law. No production of dangerous materials and no large-scale commercial operation should escape its supervision, control and participation. According to this concept, the considerations of the Community's nuclear independence and security appear decisive. For the other viewpoint, beside the power relations characterising the management of nuclear materials in the Community, there are also commercial relations that are outside its control. No doubt the Community, as an external authority supervising the operation, may intervene in relations between a foreign customer and a Community undertaking with a view to the enrichment of source materials, but the Community is not entitled to be a party to the operation. According to this concept, civil and commercial considerations must be given priority.

46. In my opinion, these two kinds of relations are given expression in the system of the EAEC Treaty. They are combined in the following way. The essential aim is to ensure a regular and equitable supply of nuclear materials for Community users. To enable the Agency to pursue this public-interest objective, the EAEC Treaty confers upon the Agency powers under public law that the Agency cannot surrender. (13) However, provided that this objective is achieved, the Agency has in essence a commercial role. Acting as "the intermediary" (l'intermédiaire nécessaire) between suppliers and users of nuclear materials, (14) it publicises their transactions and ensures that they are effective. It is not the Agency's task to determine the economic terms of such transactions, which are assessed according to the ordinary principles of trade.

47. It appears that this system has no meaning apart from its purpose. The establishment of a common public authority is coupled, in this system, with a specific task, which is the pursuit of a common policy of supply. The option right and the exclusive right over contracts relating to nuclear materials are ways of managing that policy. (15) With regard to the right of ownership, this is a further way of controlling the most sensitive materials intended for supplying the Community and circulating on the common nuclear market. In this system, therefore, the ownership element is essentially a means of controlling the distribution and use of nuclear materials, and use remains inseparable from the aim of supplying Community users.

48. Consequently such a system is certainly not intended to extend to technical operations or commercial relationships which have no direct effect on supplies to users in the Community. That, precisely, is the point of the exceptions set out in Article 75 EA. It seemed necessary to the authors of the EAEC Treaty with this provision to remove from the ambit of Community rights commitments which, although they necessitate the movement of nuclear materials in the Community, do not entail a transfer affecting Community users.

49. In my opinion, those exceptions should include uranium enrichment operations such as those referred to in the present cases.

50. The reason for this is neither economic nor political. Just as it appeared "advantageous" to provide for a system of ownership of the special fissile materials to be supplied to the Community by American producers, (16) certain parties to the dispute suggest that it is now advantageous not to impose such a system in the legal and economic relationships maintained by the European enrichment industries with foreign customers. A burden of that kind would be likely to impede third-country undertakings wishing to trade with Community enrichment undertakings and to put the latter at a disadvantage compared with their world competitors.

51. This argument is not admissible. Considerations of that kind cannot prevail over respect for rights justified by overriding reasons of public interest, if it were shown that they should be applied. In any case, as the Commission pointed out at the hearing, it has not been shown in practice that compliance with the obligations imposed by the EAEC Treaty rules of supply and ownership is an excessive burden for operators in this sector.

52. In my view, if the exceptional arrangements provided for by Article 75 EA are to be found applicable to enrichment operations, that is by virtue of the letter and the general scheme of the EAEC Treaty.

53. First, the activity of uranium enrichment does indeed fall within the scope of the terms used in that provision to describe the object of the commitments in question. The terms "processing, conversion or shaping" must be regarded as generic terms appropriate for covering all contract work on nuclear materials. This applies to the word "conversion" in Article 75 EA, which also appears in Article 59(a). (17) Whereas Article 59 EA refers to materials produced and processed by the producer himself, Article 75 relates to materials supplied by a third party and processed on his behalf. However, in both cases the term means all the technical processes that modify the form or the proportion of the components of the materials worked on. To convert a thing means returning it in a different form. That is precisely the object of a process such as enrichment, as shown by the technical description of that operation. (18)

54. Secondly, rather than discussing in detail the meaning of the terms used in Article 75 EA, it is more important to take account of the general scheme of the EAEC Treaty. In this connection, it appears that the criterion for applying this exception does not consist in the economic or strategic importance of the conversion operations concerned, but rather in the purpose and the intended use of those operations. Contract work operations which are not covered by the supply rules and Agency intervention procedures are those resulting in a product which is not intended to be the subject of a transfer of materials within the Community, either because it must be returned to the original undertaking (19) or because it must be transported outside the Community. (20) In either case, the processed materials are not in fact intended to enter the Community supply system.

55. Such is indeed the outcome of a uranium enrichment operation when the product thereof is intended to be returned to the original undertaking or to be used outside the Community. Therefore, in an operation such as that in the present case, it is not the customer who "delivers" nuclear materials to a Community enrichment undertaking, but rather the latter that processes the enriched materials delivered by a customer outside the Community on behalf of that customer. Consequently it cannot be said that the materials in question are "resources" for the Community. Therefore it seems to me that there can be no question of using the Community's rights in the sphere of the EAEC Treaty as a means of taking possession of materials belonging to third parties and intended for use outside the Community.

56. As the security of the supply and equal access of European users to nuclear resources in the Community are not directly at stake in operations of that kind, (21) I see no reason for invoking the Agency's "general responsibility" for the functioning of the common nuclear market and the diversification of the Community's sources of supply. (22)

57. Before concluding, I should like to add the following observation. The question arises of whether this assessment is likely to create a risk to the safety of persons and of the environment. I consider that control of the use of nuclear materials present on Community territory is a compelling requirement overriding all the other interests at stake in this matter. However, such a fear does not seem to me justified. The third paragraph of Article 75 EA, far from excluding any control, provides that "the materials to which such commitments relate shall be subject in the territories of the Member States to the safeguards laid down in Chapter 7" of the EAEC Treaty. Consequently, if the Agency cannot use the extensive means of market control provided for in Chapters 6 and 8 of the Treaty, the Commission still has at its disposal the safeguards provided for by Chapter 7. Pursuant to Article 77, these safeguards, which are based on a territorial criterion, are of a general nature. It follows that all nuclear materials present in the territories of the Member States must be subject to those safeguards. In that case, the intended use of the materials concerned is irrelevant. Under Article 84 EA, "in the application of the safeguards, no discrimination shall be made on grounds of the use for which ores, source materials and special fissile materials are intended". (23)

58. In support of this, the Court has already had occasion to note that, even for the quantities of fissile materials which do not fall within the monopoly of the Agency, the EAEC Treaty makes provision for close supervision by the Community. (24) In addition, such control must be understood broadly. Under Article 77 EA, the Commission has the task of ensuring that the materials processed on that occasion "are not diverted from their intended use as notified by the users" and that the Community undertaking's obligation to provide information is fulfilled. However, as the Court has observed, "the Treaty here envisages all diversions of nuclear materials entailing a security risk, that is to say, the danger of interference with the vital interests of the public and the States". (25)

59. Taking account of these observations, I think it must be accepted that the enrichment of uranium may be regarded as an operation for the processing, conversion or shaping of nuclear materials within the meaning of Article 75 EA.

60. It remains to determine whether the contract in question falls within one of the three categories of commitments listed in the first paragraph of Article 75.

61. The second question seeks to verify the proposition that that Article 75(a) EA applies to the present case. It must be borne in mind that the commitments in question were entered into by several undertakings.

62. Article 196(b) EA defines "undertaking" in the context of the EAEC Treaty. According to this provision, the word means any undertaking or institution which pursues all or any of its activities under the same conditions, whatever its public or private status. (26) Those conditions are the same as in Article 196(a), which states that all or any of the said activities must be pursued in the territories of Member States within the field specified in the relevant chapter of the EAEC Treaty.

63. Obviously the fact that an undertaking established in a third State maintains a commercial relationship with an undertaking situated in Community territory with the aim of enriching uranium delivered by it cannot be considered to fulfil those conditions. The important factor in this connection is the place where the undertaking concerned carries out its own activities in the nuclear field, not the place where it has certain operations carried out by its business partners. In the present case it is clear that INB carries out its activities outside Community territory.

64. In this context, the operation and the place of storage of the uranium are also irrelevant. Either storage entails "shaping" and "conversion" of the stored materials, in which case what was said above also applies, or it does not involve contract work and in that case it is not a relevant factor for deciding whether Article 75(a) EA, which expressly refers to commitments relating to contract work, is applicable

65. It is now necessary to determine whether Article 75(c) can be applied. The question is whether the specific conditions of the enrichment operation in issue in this case preclude the application of Article 75(c).

66. The enrichment of uranium is not a mere conversion operation, but a complex technical operation. As the Commission has observed, in that kind of operation it is impossible to ascertain whether the materials delivered for enrichment purposes are the same as the enriched materials which are returned. Furthermore, the principle of fungibilty is accepted in international practice and recognised in the external relations of the Community. (27) This principle means that the original nuclear materials are deemed to be interchangeable. On the other hand, according to international practice, it is perfectly legitimate to check, pursuant to the principles of equivalence and proportionality, that the quality and the quantity of the original materials have been retained in the course of conversion.

67. The standards of international practice indeed match the requirements of the system of the EAEC Treaty. From the latter viewpoint, the essential requirement is that the conversion of materials should not cause a loss of resources for the Community. It is important that operations of that kind, carried out in the territory of Member States, should not jeopardise the Community's sources of supply. That is the logic behind, in particular, the second paragraph of Article 75 EA, which requires undertakings carrying out that kind of conversion to notify the Agency of the quantities of materials used. If, therefore, enrichment is carried out in accordance with standards ensuring that the quality and quantity of the materials used are retained, it must be concluded that the conditions for Article 75 EA to apply are fulfilled, irrespective of whether the converted materials are the same as the materials delivered.

68. The transfer of the ownership of the original materials to the undertaking with the task of enrichment likewise does not preclude the application of Article 75(c) EA. In the context of such operations, ownership is transferred essentially for practical reasons, taking account of the fungibility of the materials. However, it must be observed that title acquired in this way is provisional and contingent. On the one hand, title is inevitably extinguished with conversion. On the other, the grant of title is subject to the obligation to convert the original materials and to return the converted materials. The latter, which are the principal subject of the commitment, remain in any case the property of the undertaking which delivered the original materials. In those circumstances, a transfer of ownership of the original materials cannot affect the nature of the conversion and return operation governed by the rules of Article 75(c) EA.

69. The national court questions the Court of Justice on the nature and the consequences of failure to give notice, in the manner prescribed by the EAEC Treaty, of a commitment relating to an enrichment operation. However, it has been found in the course of the proceedings that this question is not relevant for the purpose of determining the disputes in the main proceedings. It appears that the Agency was notified of the enrichment contract between INB and Urenco. Consequently, as the Commission confirmed at the hearing, the formalities laid down by the second paragraph of Article 75 were complied with. It follows that this question is no longer relevant in the context of these requests for a preliminary ruling.

70. This question is asked by the national court only on the basis of the hypothesis that Article 73 EA applies to the contract between INB and Urenco. However, it follows from the foregoing assessment that the contract does not relate to the delivery of products which come within the province of the Agency, but to contract work within the meaning of the first paragraph of Article 75. However, according to the latter provision, the other provisions of Chapter 6 of the EAEC Treaty, of which Article 73 forms part, do not apply to contracts of that kind. I therefore propose that the Court rule that it is unnecessary to reply to this question.

71. The following four questions from the national court concern the exercise of the Community powers relating to the Agency's option right and to the Community's right of ownership in relation to the contested fissile materials.

72. The sixth, seventh and eighth questions arise from the premiss, set out by the national court in the orders for reference, that the uranium enrichment operation in issue in this case has the effect of "producing" special fissile materials. It is clear from the EAEC Treaty that the "production" of such materials is subject, in the Community, to special constraints. First, under Article 57 EA, they must be offered to the Agency before they are used, transferred or stored. Secondly, under Article 86, they are deemed to belong to the Community.

73. It seems difficult to deny that special fissile materials are produced in the Community by this type of operation. If "produce" means "create, make from source materials", (28) it must be admitted that Community undertakings "produce" special fissile materials by the enrichment process. "Produce" undoubtedly includes "convert".(29) But it is one thing to apply the terms of everyday speech to this operation and another to classify it legally. Because the said materials are produced, in the everyday meaning of the word, it does not mean that they lose the status of converted materials within the meaning of Article 75 EA. What is important in this connection is the intended use of the products in issue. As shown by the foregoing appraisal, in the present case they are intended to be consigned for use outside the Community, not to supply the Community market for nuclear resources. Therefore materials produced in the circumstances of the present case must be regarded as converted materials governed by Article 75 EA..

74. Three kinds of consequences follow from what has been said with regard to the rules governing the contested materials.

75. First, it is common ground that the status of converted materials within the meaning of Article 75 EA is incompatible with that of produced materials within the meaning of Chapter 6 of the EAEC Treaty. It is clear from the first paragraph of Article 75 EA that the provisions of Chapter 6, which include Articles 52 EA and 57 EA, are not applicable to commitments relating to that type of conversion.

76. Secondly, it must however be observed that such status is not incompatible with that of materials produced in the territory of the Community within the meaning of Chapter 7 of the EAEC Treaty. (30) In that context, there is no doubt that a Community enrichment undertaking may be regarded as a "producer" of sensitive nuclear materials which, as such, are subject to the Community safeguards. (31)

77. Thirdly, that status also affects the applicability of the provisions of Chapter 8 of the EAEC Treaty. The third paragraph of Article 75 EA states that those provisions are not applicable to special fissile materials covered by the commitments referred to in subparagraph (c). If that is the case with regard to enriched materials delivered by a national of a third State and processed in the Community on behalf of that national, the same must be true with regard to materials enriched in the Community and returned to a national of a third State. The reason for this exception is that, where the enriched materials present in Community territory are not intended to be supplied to Community users, there is no reason to make them subject to the Community's right of ownership provided for by Article 86 EA.

78. It is clear from this that special fissile materials converted and produced in the circumstances of the present cases are not subject to the provisions of Articles 57 and 86 EA. Consequently the sixth, seventh, eighth and ninth questions from the national court are purely hypothetical. I therefore consider that they do not call for a reply.

79. If the Court decides to accept this proposal, it will be prompted to conclude, as it did in Ruling 1/78 that "for the purposes of these proceedings it is not necessary to determine the dividing line between the powers reserved to the Community, as owner of the special fissile materials, by Article 86 [EA] and the "right of use and consumption" guaranteed to the Member States and to other persons or undertakings under Article 87 [EA]." (32) However, it is clear from the information given in the order for reference that the dividing line remains very uncertain even today. That is why it is permissible to add the following observations by way of an alternative reply.

80. It is important to know the developments which led to this system of ownership. The distinction, enshrined by Article 86 EA, between legal ownership and the economic elements of that right is the product of a compromise. The negotiators of the Euratom Treaty had started from the system existing in the United States, where special fissile materials are the property of the Federal Government. (33) This public ownership was instituted in order to ensure effective control of the use of materials regarded as dangerous on American territory. The transposition of this system into a Community context had been envisaged with the aim of facilitating relations with the United States in the nuclear field. However, the project offended those who saw public ownership as contrary to the principles of a liberal economy. In this way it was recognised in principle that the Community had a right of ownership that was dépatrimonialisé. (34) This compromise is an original solution. (35) The Community is recognised as having the legal title to special fissile materials which gives rise to rights and obligations. The holders of special fissile materials have the "economic ownership" thereof. They have all rights to make effective use of the materials. The Community, however, retains sovereign control of them. As the Court stated in ruling 1/78, "the system of property ownership defined by the Treaty signifies that, whatever the use to which nuclear materials are put, the Community remains the exclusive holder of the rights which form the essential content of the right of property". (36)

81. Such a concept has consequences for the distribution of the rights of holders and the designation of the relevant legal systems in this field. The Community's right of ownership is essentially a power of supervision, of keeping accounts and control of special fissile materials produced in or imported into the Community. However, by virtue of Article 87 EA, the holders of the materials concerned have an unlimited right to manage and administer them for the purposes of their own interests. It follows that, in principle, the rights and obligations arising from commitments entered into by holders with third parties are not affected by the Community's right of ownership. Furthermore, such commitments are not intended to be governed by Community law; they are primarily governed by national law. Therefore the EAEC Treaty does not prevent dispositions by holders of fissile materials for purposes of economic exploitation from being subject to the property law of the Member State in which those materials are located.

82. However, in this field the scope of the relevant national law is necessarily limited. It can only be applied subject to the proviso that it does not interfere with the Community's powers in the management and control of nuclear materials. Although the holders of such materials must be recognised as having a right of enjoyment and of disposal, the fact remains that "in the final analysis, the Community retains the right to dispose of special fissile materials." (37)

83. In my view, this reservation has two consequences. First, such materials cannot be transferred without the Community having the possibility of exercising its control. Secondly, the Community must be recognised as having the right to object to such transfers. Therefore it does not appear to be possible for the title to such materials to be transferred under national rules granting creditors of holders of fissile materials a lien on the holders" assets. Accordingly the EAEC Treaty opposes dispositions which would allow the acquisition of fissile materials by the mere effect of a pledge or loan security. Materials acquired in this way cannot be considered as having "properly" come into the possession of the holder within the meaning of Article 87 EA. That, it seems to me, must be the practical consequence of recognising a right of ownership for the Community.

84. With these last two questions the Court is asked about the application of the provisions of the EAEC Treaty concerning supply arrangements and ownership to the loan or pledge agreements between INB and undertakings established outside the Community.

85. It follows from the discussion of the second question that the fact that an undertaking maintains business relations with Community undertakings or arranges for the storage of nuclear materials on Community territory is not sufficient to classify it as an undertaking within the meaning of Article 196 EA. The EAEC Treaty requires the undertaking in question to pursue all or some of its nuclear activities in the Community. Therefore the reply to the tenth question, which is whether the place where the uranium which is the subject to the transaction is stored is relevant for the purpose of the definition in Article 196 EA, must be in the negative.

86. It is clear from the wording of Article 73 EA that this Article applies only to agreements and contracts between a Community undertaking and a national of third State. The origin of the contracting parties is decisive for determining whether that provision applies. As agreements between nationals of non-Member States cannot affect the aim of security of the Community's supply, it is unnecessary to make such agreements subject to the authorisation rules of Article 73 EA. Consequently the place where the subject-matter of the agreement is stored is irrelevant.

87. In the light of all the foregoing observations, I propose that the Court reply as follows to the questions on which the Oberlandesgericht Oldenburg seeks a preliminary ruling in these two joined cases:

(1) A commitment for the enrichment of uranium entered into by a Community undertaking and a national of a third State, such as that in the present case, is a commitment with the object of the processing, conversion or shaping of ores, source materials or special fissile materials within the meaning of the first paragraph of Article 75 EA.

(2) An undertaking having its seat outside the territory of the EAEC Treaty is not an undertaking within the meaning of Article 196 (b) EA. merely by reason of the fact that it maintains a commercial relationship with a Community undertaking for the supply of source materials for the purposes of enrichment or the storage of enriched uranium.

(3) The application of the first paragraph of Article 75 EA is not subject to the condition that the materials delivered for enrichment purposes are identical with those delivered in return. It is sufficient if the materials delivered match in quality and quantity the materials supplied. In addition, the fact that ownership of the source materials is transferred to the undertaking commissioned to enrich them does not preclude the application of that provision.

(4) Taking account of the circumstances of the present case, it is unnecessary to reply to the fourth question from the national court.

(5) Having regard to the reply to the first question, it is unnecessary to reply to the fifth, sixth, seventh, eighth and ninth questions from the national court.

(6) The fact that an undertaking established in a third State procures the storage of enriched uranium on the territory of the Community is not sufficient to classify it as an undertaking within the meaning of Article 196(b) EA.

(7) Article 73 EA is not applicable to agreements relating to uranium stored on the territory of the Community which are concluded between nationals of non-Member States of the Community.

2 - The orders for reference are uncertain on this point, but any doubt was dispelled at the hearing before the Court (see paragraph 69 of this Opinion).

5- This is how the Agency is described in the study by G. Vedel, "L'Euratom", Les problèmes juridiques et économiques du marché commun, Librairies techniques, Paris, 1960, p. 196.

6 - OJ, Special English Edition Chapter 1959-1962, p. 44. It should however be noted that the simplified procedure laid down by Article 5 of these Rules, which provides that users and producers are authorised to negotiate directly and to sign supply contracts has not been used since 1973. A new simplified procedure was put in place by the Agency Regulation of 15 July 1975 (OJ 1975 L 193, p. 37) introducing an Article 5a into the Rules of 5 May 1960. This procedure restores to the Agency the exclusive right to sign contracts, while authorising users to contact producers direct and to negotiate freely with them.

7 - Described as such by the Court in Ruling 1/78 of 14 November 1978 [1978] ECR 2151, paragraph 16.

8 - See S. Courteix, "La coopération européenne dans le domaine de l'enrichissement de l'uranium", Annuaire français de droit international, 1974, p. 772.

9- Act 2005-1409 of 16 November 2005 authorising the approval of the agreement between the governments of France, Germany, the United Kingdom and the Netherlands on cooperation in the field of centrifugation technology (JORF 17 November 2005, p. 17921).

10- Commission Decision 2006/170/EC of 6 October 2004 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.3099 - Areva/Urenco OJ 2006 L 61, p. 11).

13 - See, to that effect, the judgment in Commission v France, paragraph 43,

15 - See the judgment in Joined Cases T-149/94 and T-181/94 Kernkraftwerke Lippe- Ems v Commission [1997] ECR II-161, paragraph 85.

16- Analysing the drafting history of the EAEC Treaty, S. Neri and H. Sperl report that, according to the promoters of a Community right of ownership of fissile materials, "provision should therefore be made for a similar system [to that in force in the United States, consisting in establishing a public right of ownership of such materials] if we wish to do business with them on advantageous terms and, in particular, bring the Americans to accept Euratom's control, instead of theirs, of the fissile materials which they would supply to the Community" (Traité instituant la Communauté européenne de l'énergie atomique. Travaux préparatoires, déclarations interprétatives des six gouvernements, documents parlementaires, Cour de Justice des Communautés européennes, Luxembourg, 1962, p. 251, note 4).

17 - According to this provision, "if the Agency does not exercise its right of option on the whole or any part of the output of a producer, the latter may, either by using his own resources or under contract, process or cause to be processed the ores, source materials or special fissile materials, provided that he offers to the Agency the product of such processing" (emphasis added). In favour of a generic definition of these terms, it should be noted that the English version of the EAEC Treaty uses the word "processing" to translate "transformation" in Article 59, whereas it uses the words "processing, conversion or shaping" to translate "traitement, transformation ou mise en forme". Consequently, "processing" is sometimes used for "transformation" and sometimes for "traitement".

22 - See, to that effect, Ruling 1/78 paragraph 18. The legitimacy of the requirements of the diversification of supply was recognised by the Court in the judgment in Case C-161/97 P Kernkraftwerke Lippe-Ems v Commission [1999] ECR I-2057, paragraph 62 et seq..

27 - See Article 16 (2) of the Agreement for cooperation in the peacceful uses of nuclear energy between the European Atomic Energy Community and the United States of America (OJ 1996, L 120, p. 1). recognising that "the principles of fungibility, equivalence and proportionality shall apply to nuclear material subject to the Agreement and the detailed provisions thereof will be set out in the Administrative Arrangement". To the same effect, see the Recommendation of the Commission to the Council concerning the approval of an agreement between the Government of Japan and the European Atomic Energy Community on cooperation in the peaceful uses of nuclear energy and an agreement for cooperation between the Government of Japan and the European Atomic Energy Community on nuclear research and development (SEC/2004/524 final).

28 - Definition of the verb "produce", Oxford Dictionary of English, 2nd ed, 2003. See, to the same effect, the definition of the verb "produire", Nouveau Larousse encyclopédique, 2003.

29 - This is the meaning expressed by the EAEC Treaty itself in Annex 2, where it places "production of enriched uranium" among the industrial services referred to in Article 41 EA.

31 - This interpretation is confirmed by Commission Regulation (Euratom) No 302/2005 of 8 February 2005 on the application of Euratom safeguards - Council/Commission statement (OJ 2005 L 54, p. 1). It appears from Article 1 of the Regulation that the obligations which it lays down apply to any person or undertaking setting up or operating an installation for the production, separation, reprocessing, storage or other use of source material or special fissile material. However, Annex 1 of the Regulation shows that enrichment undertakings are subject to those safeguards.

33 - It should be noted that this model was abandoned in favour of a strictly controlled system of private property.

34 - The term used by G. Vedel, "Le régime de propriété" dans le traité d'Euratom, Annuaire français de droit international, 1957, p. 592.

35 - This is the explanation given for the temptation of legal theorists to compare this institution with ancient concepts. G. Vedel sees in it "certain aspects of the Roman-law commodat", while P. Böhm seeks a parallel with the division of "dominium directum" and "dominium utile" ("Ownership of Nuclear Mateials in Euratom", The American Journal of Comparative Law, 1962, p. 1267).

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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Industrias Nucleares do Brasil and Siemens (EAEC) [2006] EUECJ C-123/04 (12 September 2006) URL: http://www.bailii.org/eu/cases/EUECJ/2006/C12304.html Cite as: [2006] EUECJ C-123/4, [2006] ECR I-7861, [2006] EUECJ C-123/04

Court of Justice of the European Communities (including Court of First Instance Decisions)