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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Commission v TVR (Law governing the institutions) [2001] EUECJ C-40/98 (16 January 2001) URL: http://www.bailii.org/eu/cases/EUECJ/2001/C4098.html Cite as: EU:C:2001:19, [2001] EUECJ C-40/98, ECLI:EU:C:2001:19, [2001] ECR I-307, Case C-40/98

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JUDGMENT OF THE COURT (Sixth Chamber)

16 January 2001 (1)

(Arbitration clause - Non-performance of contract)

In Case C-40/98,

Commission of the European Communities, represented by E. de March, acting as Agent, and A. Dal Ferro, Avvocato, with an address for service in Luxembourg,

applicant,

v

Tecnologie Vetroresina SpA (TVR), established in Rome, Italy, represented by G. Merla, Avvocato,

defendant,

APPLICATION by the Commission under Article 181 of the EC Treaty (now Article 238 EC) against Tecnologie Vetroresina SpA for reimbursement of the sum of ECU 211 307 advanced by the Commission under Contract No 3440/1/0/187/91/6-BCR-I(30), together with interest at the agreed rate from 21 December 1991, and damages of ECU 20 000 in respect of the harm sustained by the Commission,

THE COURT (Sixth Chamber),

composed of: C. Gulmann (Rapporteur), President of the Chamber, J.-P. Puissochet and R. Schintgen, Judges,

Advocate General: D. Ruiz-Jarabo Colomer,

Registrar: H.A. Rühl, Principal Administrator,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 11 May 2000,

after hearing the Opinion of the Advocate General at the sitting on 15 June 2000,

gives the following

Judgment

1. By application lodged at the Court Registry on 18 February 1998, the Commission of the European Communities brought an action pursuant to an arbitration clause based on Article 181 of the EC Treaty (now Article 238 EC) against Tecnologie Vetroresina SpA (hereinafter 'TVR) for, first, reimbursement of the sum of ECU 211 307 advanced by the Commission under Contract No 3440/1/0/187/91/6/BCR-I(30) (hereinafter 'the contract), together with interest as provided for in the contract, namely ECU 69.47 per day from 21 December 1991 and, second, damages of ECU 20 000 in respect of the harm sustained by the Commission.

2. The contract was concluded on 13 August 1991 between the European Economic Community, represented by the Commission, of the one part, and TVR and an English university, Brunel University (hereinafter 'Brunel), of the other part, within the framework of the financial support granted on the basis of the research and development programme for the Community in the field of applied metrology and chemical analysis (1988 to 1992) adopted by Council Decision 88/418/EEC of 29 June 1988 (OJ 1988 L 206, p. 29).

3. The contract, which was concluded for a period of 36 months from 1 September 1991, was for research into in-line dimensional measurements of composite workpieces produced by filament winding technology. The purpose of the research was to put an end to the high scrap rates and manpower costs associated with that process.

4. Under the contract, TVR was designated as contract coordinator. In that capacity, it was specifically responsible for, inter alia:

   - receiving all payments from the Commission and immediately transferring the appropriate amount to each contractor (Article 4(3) of the contract);

   - sending the Commission the annual cost statements and six-monthly progress reports, within one month from the end of each relevant period, and the consolidated cost statement and final report, within three months and two months respectively of the completion, cessation or termination of the work financed by the Commission (Article 5(1) and (2) and Article 6(1) of the contract, and Articles 6(1) and 36(1) of Annex II thereto).

5. Article 8(2)(d) of Annex II to the contract provides that the Commission may terminate the contract in the event of non-performance by one of the contractors, unless there are reasonable and justifiable technical or economic grounds for such non-performance, after giving notice in writing by recorded delivery or registered post, where the contractor is still in breach of its obligations one month after the receipt thereof.

6. The first subparagraph of Article 8(4) of that annex provides that where Article 8(2)(d) is applied, the Commission may require the reimbursement of all or part of its financial contribution and is to have regard, to such extent as may be fair and reasonable, to the nature and results of the work undertaken and its use to the Commission.

7. Under the second subparagraph of Article 8(4) of Annex II, interest may be payable from the date on which the payments were received by the contractor at the rate applied by the European Monetary Cooperation Fund for its operations in ecus, increased by 2 percentage points, such rate being published in the Official Journal of the European Communities for the first working day of each month.

8. Article 12 of Annex II to the contract provides that the Court of Justice is to have jurisdiction in respect of any dispute concerning the contract, which, pursuant to Article 11 of the contract, is to be governed by Italian law.

9. On 20 September 1991 the Commission paid to TVR, by way of advance on the work to be carried out, the sum of ECU 230 000. Of that amount, ECU 65 000 was intended for TVR and ECU 165 000 for Brunel.

10. On 25 March 1993 TVR informed the Commission that, while it accepted that it was responsible for transferring the sum of ECU 165 000 to Brunel, there was some doubt,following a series of misunderstandings, as to whether that sum had been transferred to Brunel. TVR undertook to transfer that sum as quickly as possible in the event that it had not already been transferred.

11. By letter of 15 April 1993 the Commission gave TVR notice in writing to send documentary evidence that the transfer had been duly effected. The Commission stated that, in the absence of such evidence, it would terminate the contract and demand reimbursement by TVR of the advance of ECU 230 000, together with interest at the agreed rate.

12. By two letters of 31 January 1994, the Commission informed TVR that as it had not received the evidence requested it was terminating the contract, and demanded reimbursement of the amount of ECU 165 000 plus interest at the agreed rate. The Commission also considered that the costs declared by TVR in the cost statements for the period 1 September 1992 to 26 May 1993 were excessive, and requested TVR to forward the documents necessary to establish their accuracy, failing which it would be required to reimburse to the Commission the advance of ECU 65 000, together with interest at the agreed rate.

13. On the same date the Commission also terminated its contract with Brunel, which did not have the technical resources to complete the project financed by the Commission on its own.

14. In July 1994, the Commission, which approved only part of the costs indicated by TVR in the cost statements, requested TVR to reimburse the sum of ECU 46 307, representing the difference between the initial contribution of ECU 65 000 and half the approved costs, as, pursuant to Article 3(2) of the contract, the Commission was to contribute 50% of the allowable costs.

15. In September 1994, the Commission received an auditor's report in respect of the period 1 September 1991 to 31 August 1992, drawn up at its request by Reconta Ernst & Young. That report concluded, first, that there was no evidence that the sum of ECU 165 000 had been transferred to Brunel and, second, that the labour costs invoiced by TVR were lower than costs actually incurred.

16. By letter of 22 June 1995, the Commission requested TVR to reimburse the sum of ECU 165 000, plus interest at the agreed rate, representing the contribution intended for but not received by Brunel, and also the sum of ECU 46 307 representing the amount by which the contribution intended for TVR exceeded the approved costs.

17. TVR has not made any reimbursement.

    Admissibility

18. TVR claims that the Commission's claim is inadmissible. As the Commission has not expressly requested the Court to make a preliminary finding that the contract is terminated, it cannot take advantage of the restitutory effects of termination defined in Article 1458 of the Codice Civile (hereinafter 'the Italian Civil Code), especially as TVR has challenged the termination of the contract by the Commission.

19. The Commission contends that the claim for reimbursement of the sums improperly retained by TVR is based on the termination of the contract by the Commission in accordance with Article 8(2)(d) of Annex II to the contract. Provided that the contract was terminated pursuant to that provision, according to the Commission, the claims for reimbursement of the financial contribution and for damages include by implication an application for a declaration that the contract is terminated.

20. In that regard, it should be pointed out, first, that where the law or the contract provides that the parties may unilaterally terminate the contract for non-performance of a contractual obligation, any party to the contract who has relied on that provision may, where necessary, apply to the court for a declaration that the contract is automatically terminated (see, in that regard, judgments of the Corte Suprema di Cassazione (Supreme Court of Cassation, Italy) of 12 December 1979, No 6489, Mass. Foro It. 1979, p. 1309, and 5 April 1990, No 2802, Mass. Foro It. 1990, p. 406).

21. Second, it should be observed that the Corte Suprema di Cassazione accepts that an unformulated claim may be regarded as being submitted by implication and as inherent in the application initiating the action, provided that it is necessarily linked to the subject-matter and basis of the action (see, in particular, judgment of the Corte Suprema di Cassazione of 14 June 1991, No 6727, Mass. Foro It. 1991, p. 582).

22. In the present case, the Commission states in its application that it relied on the termination clause referred to in Article 8(2)(d) of Annex II to the contract, owing to TVR's non-performance of the contract, and that, proceeding on the basis that the contract had been terminated, it required that TVR produce the documents necessary to establish the amounts received under the contract that TVR had to reimburse. The Commission goes on to state that it requested TVR to reimburse the sums advanced under the contract, apart from the amount allocated to the part of TVR's costs approved by the Commission. On that basis, the Commission requests the Court, in particular, to order TVR, pursuant to the first subparagraph of Article 8(4) of Annex II to the contract, to reimburse in part the amounts received by way of financial contribution.

23. As the Commission claims reimbursement in accordance with the first subparagraph of Article 8(4) of Annex II to the contract on the ground that the contract was, it contends, terminated following the implementation of the termination procedure provided for in Article 8(2)(d) of Annex II to the contract, its claim necessarily presupposes that the Court will declare that the contract was actually terminated.

24. It is therefore necessary to hold that in the present case the Commission has submitted by implication an application for a declaration that the contract was automatically terminated pursuant to the termination procedure.

25. It follows that the plea of inadmissibility must be rejected.

    Termination of the contract

26. The Commission contends that it exercised its right to terminate the contract on the ground that TVR, which had received an advance of ECU 230 000, which included ECU 165 000 for Brunel, never transferred that sum to Brunel and was thus in breach of Article 4(3) of the contract. The Commission points out that it first gave TVR notice in writing, by registered letter of 15 April 1993, to make the payment to Brunel and that, when TVR failed to do so, it then terminated the contract by registered letter of 31 January 1994. In its reply, the Commission likewise claims that as TVR did not fulfil its obligation within one month of receiving the letter of 15 April 1993, the contract was automatically terminated upon the expiry of that period. Accordingly, the letter of 31 January 1994 merely confirmed that the contract had been terminated.

27. TVR maintains that the conditions which would have justified sending the letter of 15 April 1993 giving notice of termination or the declaration that the contract had been terminated contained in the letter of 31 January 1994 were not satisfied. In that regard, it states that the total sum of ECU 230 000 was paid by the Commission by bank transfer to the bank nominated by TVR. That bank credited the amount of ECU 65 000 to a foreign currency account opened by TVR and retained ECU 165 000 in order to transfer it to Brunel. However, Brunel never received anything. As the bank retained the ECU 165 000 without crediting it to TVR's accounts, TVR cannot be ordered to reimburse it, since it never had the sum in question at its disposal.

28. In that regard, it should be pointed out that, as the Commission made a bank transfer of the sum of ECU 230 000 to the bank nominated by TVR, it properly discharged its obligation to make payment to TVR. For the purposes of the contractual relationship between those two parties, TVR must be considered to have received that amount.

29. Under Article 4(3) of the contract, TVR was required to transfer immediately to Brunel the sum payable to it under the contract.

30. In the present case, it is common ground that the sum which should have been transferred to Brunel, namely ECU 165 000, was never credited to its account.

31. Accordingly, it must be held that TVR was in breach of its obligation under Article 4(3) of the contract, an obligation which, moreover, was of the essence of the contract.

32. Even supposing that the non-performance of that obligation is, in the context of the relations between TVR and the bank which it had instructed to make the transfer,attributable to the bank, that is immaterial to the contractual relationship between the Commission and TVR, in the context of which TVR was under an obligation to the Commission to transfer the sum of ECU 165 000 to Brunel. Any negligence on the part of the bank which may have resulted in the transfer not being made cannot preclude TVR's liability to the Commission.

33. In any event, therefore, and contrary to what TVR maintains, the substantive conditions for terminating the contract were satisfied.

34. In the light of the foregoing, it must be held that the contract was terminated at the latest on the day on which TVR received the Commission's letter of 31 January 1994.

    Reimbursement of the advance

35. Under the first subparagraph of Article 8(4) of Annex II to the contract, where the Commission terminates the contract on the ground of non-performance by a contractor of its obligations, it may require the reimbursement of all or part of its financial contribution and is to have regard, to such extent as may be fair and reasonable, to the nature and results of the work undertaken and its use to the Commission.

36. As regards the sum of ECU 165 000 which TVR should have transferred to Brunel by way of advance on the work to be carried out by Brunel, the Commission claims reimbursement in full.

37. It follows from the foregoing, in particular paragraphs 30 to 34 of the present judgment, that the Commission's claim must be upheld.

38. As regards the claim for reimbursement of the sum of ECU 46 307, the Commission contends that, having regard to the scientific records, the costs statements and the other information provided by TVR, the expenditure incurred by TVR that should be borne by the Commission comes to ECU 18 693. Since the Commission made an advance payment of ECU 65 000 to the applicant, the applicant must therefore be required to reimburse the sum of ECU 46 307.

39. TVR submits that that claim must be rejected, on the ground that the entire advance of ECU 65 000 paid by the Commission was used in performing the contract. TVR claims that Reconta Ernst & Young stated in its auditor's report that the working hours invoiced by TVR corresponded in full to the work carried out and its actual cost. According to that report, the cost of the working hour was even undervalued, since it was calculated on the basis of the scale applicable in 1991, not the scale for 1992, the year during which the work was carried out.

40. It should first of all be pointed out that the auditor's report to which TVR refers is in any event of no relevance to the present case. That report relates exclusively to theperiod 1 September 1991 to 31 August 1992, whereas the dispute between the parties concerns the costs associated with the period 1 September 1992 to 26 May 1993.

41. Next, as regards the costs associated with the latter period which were not approved by the Commission, TVR has not provided the Court with any evidence capable of calling the Commission's assertions in question. In particular, it has not produced any document itemising the costs incurred with reference to the work undertaken and the list of tasks to be carried out. In essence, TVR has merely produced a summary cost statement for the period 1 September 1991 to 26 May 1993.

42. Having regard to the inadequacy of the evidence adduced by the defendant, the claim for reimbursement of ECU 46 307 must be allowed.

    Interest

43. The Commission also claims that TVR should be ordered to pay interest at the agreed rate on the sums of ECU 165 000 and ECU 46 307 from 21 December 1991.

44. TVR has submitted no argument on that point.

45. According to the second subparagraph of Article 8(4) of Annex II to the contract, in the event of termination of the contract by the Commission, the party in breach must reimburse not only the sums advanced by the Commission but also interest at the agreed rate on those sums from the date on which payments were received. The rate of interest applicable is the rate applied by the European Monetary Cooperation Fund for its operations in ecus, published on the first working day for each month, increased by 2 percentage points.

46. As it must make reimbursement to the Commission of the total sum of ECU 211 307 representing its primary obligation, TVR must also discharge its secondary obligation by paying interest at the agreed rate on that sum from 21 December 1991, the date on which it accepts that it received the advance of ECU 230 000.

    Compensation for damage

47. Relying on Article 1453 of the Italian Civil Code, the Commission also claims that TVR should be ordered to pay the sum of ECU 20 000 by way of compensation for the damage which the Commission says it has sustained as a result of non-performance of the contract.

48. In that regard, it points out, first, that some of its officials spent a large number of hours monitoring the defendant's activities and requesting from it the periodic reports provided for in the contract. Second, the Commission was obliged to employ the services of a firm of auditors in order to audit TVR's work. Third, the Commissionwas unable to enjoy the advantages provided for in Article 19 of Annex II to the contract and thus profit from the knowledge acquired through the research which it had funded or from the exploitation of the patents which might have been taken out on that occasion. Fourth, by entering into a contract with a party which did not honour its commitments, the Commission suffered a loss of credibility in the eyes of all those with a potential interest in entering into a contract with it.

49. TVR contends that the Commission has failed to show that it suffered the alleged loss.

50. First of all, it should be pointed out that, under Article 11 of the contract, the contract is to be governed by Italian law.

51. Even supposing that Article 1453 of the Italian Civil Code, which provides that a contractor is entitled to demand that the defaulting party compensate it for its loss, applies only where the contract is terminated by the court, the fact remains that, under Article 1218 of that code, any party who does not properly discharge his obligations is required to make good any consequent loss unless he can show that his failure to do so was due to force majeure.

52. It is therefore necessary to ascertain whether the Commission has succeeded in establishing that it actually sustained the harm alleged.

53. As regards the costs allegedly caused by the additional work which the Commission's officials were required to perform in administering the contract, it should be pointed out that the combined provisions of Article 4(3) of the contract and Article 8(2)(d) of Annex II thereto gave the Commission the right to take the appropriate steps in due time in consequence the other party's failure to honour its contractual undertakings and to bring the contractual relationship to an end, in advance and unilaterally (see, in that regard, Case C-334/97 Commission v Montorio [1999] ECR I-3387, paragraph 53).

54. Since the Commission tolerated TVR's failure to honour its commitments over what in the event was quite a long period before terminating the contract, the additional costs of administering the contract during that period do not constitute harm attributable to TVR.

55. As regards the alleged harm represented by the auditor's fees, it is clear from the case-file that, for the period from September 1991 to August 1992, covered by the audit, the Commission was in a position, even before receiving the auditor's report, to allow virtually all the costs recorded by TVR. It is also clear from the case-file that several months before instructing Reconta Ernst & Young to carry out the audit, the Commission had told TVR that its revised cost statement for the abovementioned period appeared to be acceptable from the technical point of view. In those circumstances, the auditor's fees cannot in any event be attributed to TVR.

56. As regards the other heads of damage formulated by the Commission, it has adduced no specific and persuasive evidence to substantiate them.

57. The Commission's claim for damages must therefore be dismissed.

58. Pursuant to Article 2(1) of Council Regulation (EC) No 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the euro (OJ 1997 L 162, p. 1), the reference to the ecu must be replaced by a reference to the euro at a rate of one euro to one ecu.

    Costs

59. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. Since the Commission has applied for costs and TVR has been unsuccessful, the latter must be ordered to pay the costs

On those grounds,

THE COURT (Sixth Chamber)

hereby:

1. Orders Tecnologie Vetroresina SpA (TVR) to pay the Commission of the European Communities the sum of EUR 211 307, together with interest at the agreed rate from 21 December 1991 until the debt is paid in full;

2. Dismisses the remainder of the application;

3. Orders Tecnologie Vetroresina SpA (TVR) to pay the costs.

GulmannPuissochet Schintgen

Delivered in open court in Luxembourg on 16 January 2001.

R. Grass C. Gulmann

Registrar President of the Sixth Chamber

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1: Language of the case: Italian.