Implants (Procedure) [2006] EUECJ C-279/03 (26 January 2006)

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(Arbitration clause - Proceedings to have a judgment by default set aside - Reimbursement of an advance payment- Default interest)

APPLICATION under Article 94(4) of the Rules of Procedure, lodged on 14 April 2005, to have a judgment by default set aside,

Implants (International) Ltd, established in Cleveland (United Kingdom), represented by A. Kinnier, Barrister, instructed by R. Matharu, Solicitor, with an address for service in Luxembourg,

Commission of the European Communities, represented by R. Lyal and C. Giolito, acting as Agents, with an address for service in Luxembourg,

composed of J. Makarczyk, President of the Chamber, R. Schintgen and J. Klučka (Rapporteur), Judges,

having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,

1 By its application, Implants (International) Ltd (hereinafter -�Implants') has requested the Court to set aside its judgment of 24 February 2005 in Case C-279/03 Commission v Implants, not published in the ECR.

2 On 8 May 2001 the European Community, represented by the Commission of the European Communities, concluded with Implants and other contractors Contract No G5ST-CT-2001-50071 (hereinafter -�the Contract') relating to the carrying out of a project called -�Surface Engineering Approaches to Improved Orthopaedic Devices' (hereinafter -�the project'), within the framework of Council Decision 1999/169/EC of 25 January 1999 adopting a specific programme for research, technological development and demonstration on competitive and sustainable growth (1998 to 2002) (OJ 1999 L 64, p. 40) (hereinafter -�the RTD programme').

3 Under Article 2(1) of the Contract, the duration of the project was 24 months from the first day of the month after the last signature of the contracting parties, namely 1 June 2001.

4 In Annex II to the Contract (hereinafter -�the General Conditions'), Article 1 provided that Implants was the coordinator of the project.

5 By virtue of Article 3(1) of the Contract, the Commission undertook to contribute financially to the proper execution of the project, for which the total eligible costs had been estimated at EUR 1 420 000. Article 3(2) provided that the Commission would fund up to 50% of the eligible costs, that is to say EUR 710 000.

6 According to Article 3(3) of the Contract, the Commission was to pay its financial contribution to the project to Implants in its role as coordinator.

7 Under Article 3 of the General Conditions, payment of the Commission's contribution was to be made as follows:

- an initial advance of EUR 284 000 within 60 days of the last signature of the contracting parties;

- payments within 60 days of approval of each of the periodic reports and corresponding cost statements or other -�project deliverables';

- final payment within 60 days of approval of the last -�project deliverable'.

8 Under Article 2(1) of the General Conditions, Implants was in charge of the scientific, financial and administrative coordination of the project. On this basis, it was required, pursuant to Article 2(1)(e) of the General Conditions, to distribute the initial advance among the contractors and/or the RTD programme performers within 30 days of receipt of the funds.

9 Pursuant to Article 3(3) of the General Conditions, all payments made by the Commission are to be treated as advances until the last -�project deliverable' is approved.

10 Under Article 4(2) of the Contract, Implants was required to submit to the Commission periodic reports and corresponding cost statements, covering successive periods of 12 months from the date of commencement of the project. By virtue of Article 4(2) of the General Conditions, those statements were to be expressed in euro and to correspond to the format specified in Part E-2 of the General Conditions. Under Article 4(3) of the General Conditions, the reports and statements were to be submitted within two months of the end of the relevant period and, in the case of final reports and statements, within two months of the end of the project.

(b) to the withdrawal of a contractor from the project where all the other contractors have given their prior agreement in writing, unless this withdrawal substantially affects the carrying out of the project.

In the event of termination of the contract or of the participation of a contractor:

(a) pursuant to paragraph 2, first subparagraph, point (b), paragraph 3(b) or (d) or paragraph 4(c) of this Article, the Commission may require reimbursement of all or part of the Community's financial contribution, taking into account the nature and results of the work carried out and its usefulness to the Community in the context of the specific programme concerned,

12 Article 5(2) of the Contract stipulates that the Court of First Instance of the European Communities and, on appeal, the Court of Justice are to have sole jurisdiction to hear any disputes concerning the validity, the application and the interpretation of the Contract, which, under Article 5(1) thereof, is governed by Belgian law.

13 On 16 May 2001 the Commission, pursuant to Article 3(1)(a) of the General Conditions, paid to Implants the initial advance of EUR 284 000.

14 However, that company did not distribute it among the contractors or the RTD programme performers. As is apparent from the application to set the judgment aside, Implants stated at a meeting of the contractors on 19 December 2001 that it had substantial reservations regarding the capacity of one of its principal partners, Dünnschicht-und-Oberflächentechnologie GmbH (hereinafter -�DOT'), to discharge its contractual obligations.

15 Taking the view that it had not hitherto obtained the assurances necessary in order to be able to carry the project through to a successful conclusion, on 15 April 2002 Implants notified the Commission that it wished to withdraw from the project and indicated that it would forward to the Commission details of its costs incurred up to that date in connection with the project.

16 By letter of 19 April 2002, the Commission informed Implants that a recovery order for the advance payment would be made and requested it to submit, by 15 May 2002, the technical reports and the costs statements for its expenditure incurred in connection with the project so that account could be taken thereof when calculating the amount of the recovery order, failing which a recovery order would be issued for the full amount of the advance payment.

17 On 12 May 2002 Implants submitted a statement of its costs to the Commission. However, by letter of 17 May 2002 the Commission informed it that the statement could not be accepted since it was not in the form prescribed by the General Conditions. The Commission therefore informed Implants of its decision to start the procedure for recovery of the full amount of the advance payment, stating that any amount due by way of costs incurred on the project would be transferred to Implants upon receipt and review of the requisite technical report and of the costs statements drawn up in the prescribed form.

18 On 26 June 2002 the Commission issued Implants with Debit Note No 3240404230 (hereinafter -�the Debit Note') for the sum of EUR 284 000 payable by 31 August 2002, specifying under the heading -�Payment terms' that after that date default interest would be payable, at the rate applied by the European Central Bank to its refinancing operations in euro in August 2002 increased by 1.5 percentage points.

19 Nevertheless, by letter of 30 July 2002, the Commission informed Implants that, despite issue of the Debit Note for the full amount, its costs would be taken into account provided that the Commission received the abovementioned documents no later than 31 August 2002.

20 Since the Commission did not receive those documents, on 17 October 2002 it sent Implants a reminder of the Debit Note and gave it formal notice to pay the sum demanded, failing which legal proceedings would be instituted.

21 On 13 November 2002 further information regarding the costs was forwarded to the Commission. However, this document was submitted after the deadline of 31 August 2002 and was not in the form required by the General Conditions. On 11 December 2002 the Commission thus informed Implants that the recovery procedure was being continued.

22 By application lodged at the Court Registry on 26 June 2003, the Commission, acting pursuant to the arbitration clause laid down in the Contract, brought an action under Article 238 EC, claiming that the Court should order Implants:

- to pay it the sum of EUR 294 958.51, corresponding to EUR 284 000 as the amount due and EUR 10 958.51 as default interest;

- to pay it EUR 52.91 per day by way of interest from 1 May 2003 until the date on which the debt was repaid in full;

23 Since Implants, on whom the application initiating proceedings had been duly served, did not lodge a defence in accordance with the formal requirements prescribed by the third and fourth paragraphs of Article 19 of the Statute of the Court of Justice and Articles 40(1) and 38(2) to (5) of the Rules of Procedure, the Court, on application by the Commission, gave judgment by default.

24 By the judgment in Commission v Implants, the Court ordered Implants to pay to the Commission the principal sum due of EUR 284 000, together with default interest:

- at the rate of 6.8% per annum from 1 January 2003 until the sums payable were reimbursed in full,

25 Although Implants concedes that it was, as project coordinator, obliged to distribute the EUR 284 000 amongst the contractors, it considers that it was incumbent upon it to obtain reassurances as to the contractors' ability to fulfil their contractual obligations, and, if appropriate, to withhold the advance paid by the Commission. It asserts in this regard that the Commission was aware of the reservations which it had in relation to the difficulties which DOT was experiencing. Given that Implants had not been involved in the recruitment of this contractor, it took the view that not distributing the advance was the only way to ensure that its own obligations were fulfilled and, in particular, that the project was carried out.

26 Implants does not deny that it failed to fulfil within the time set the obligation to submit the cost statements to the Commission. It submits, however, that that timetable had no contractual force and was therefore not binding on the parties. Furthermore, the Commission's refusal to take account of the statements which Implants submitted to it on 12 May and 13 November 2002 was unjustified since, notwithstanding any formal irregularities which they may have had, they provided sufficiently precise information to enable the Commission to determine whether the costs had been properly incurred.

27 Implants contends that the failure to comply with the requirement to submit a technical report to the Commission is due to a lack of cooperation on the part of one of the contractors, which alone had the relevant details for drawing up such a document.

28 The Commission submits, first, that it was not in a position to have knowledge of the relations between the contractors. In any event, the present case concerns only the financial obligations existing between the Commission and Implants, irrespective of the reasons which led Implants to withdraw from the project. Consequently, the Commission simply recalls the relevant terms of the Contract, relating to the coordinator's unconditional obligation to distribute the initial advance among the contractors within 30 days.

29 Second, the Commission observes that the Community's financial contribution was conditional in particular on the obligation to provide the Commission with reports and cost statements drawn up in the prescribed form, in order that it should have all the detailed information needed for checking that the criteria set out in Articles 22 to 25 of the General Conditions had been complied with. Furthermore, the Commission gave Implants several opportunities to satisfy that requirement before initiating the procedure for recovery of the full amount of the advance payment. With regard to the mandatory nature of the deadlines, the Commission refers to Article 4(3) of the General Conditions, which provides that the cost statements were to be submitted within two months of the end of the relevant period, and the final statement within two months of the end of the Contract. By analogy, in the case of withdrawal of a contractor, the two-month period had to run from the date on which the Commission's letter accepting withdrawal was sent.

30 Finally, the Commission submits that the lack of cooperation of another contractor could not prevent Implants from making a report on its own contribution.

31 The Court points out first of all that, under Article 2(1)(e) of the General Conditions, it was incumbent upon Implants, as coordinator, to distribute the initial advance among the contractors and/or the RTD programme performers within 30 days of receipt of the funds. Although Article 2(1) of the General Conditions provides that the coordinator is in charge of the scientific, financial and administrative coordination of the project, it follows neither from the terms of the Contract nor from its general scheme that the coordinator could refrain from distributing those funds, including in the event of substantial reservations regarding the capacity of one of the contractors to discharge its contractual obligations.

33 Furthermore, as the Commission rightly observes, the action is not concerned with assessing the merits of the reasons which led Implants to withdraw from the project but with determining the consequences which that withdrawal had on the financial obligations existing between Implants and the Commission.

34 In that regard, under Article 7(6)(a) of the General Conditions, in the event of termination of a contractor's participation in the project the Commission may require, taking into account the results and usefulness of the work already carried out by that contractor, reimbursement of all or part of the Community's financial contribution if, inter alia, as provided for in Article 7(2)(b) of the General Conditions, withdrawal from the Contract has been requested by the contractor and accepted by the Commission.

35 It is clear that Implants withdrew from the Contract in accordance with Article 7(2)(b) of the General Conditions, following the Commission's acceptance of a request to this effect made by it.

36 However, contrary to Article 4(2) of the Contract and Article 4(2) and (3) of the General Conditions and notwithstanding the Commission's reminders, Implants did not submit to the Commission the reports and corresponding cost statements within the deadline or in the prescribed form.

37 It should be stated first that, by virtue of Article 4(3) of the General Conditions, the deadline for the submission of those documents to the Commission is mandatory in nature. It follows that the reports and statements had to be sent to the Commission no later than two months after its acceptance of Implant's withdrawal from the project, that is to say by 15 June 2002. Second, it is not in dispute that the failure of another contractor to cooperate cannot have the consequence of preventing Implants from sending the Commission a report on its own contribution to the project. Finally, it is clear that the requirement to produce the statements in question, in the prescribed form, has, as its specific objective, enabling the Commission to have the information necessary for checking whether the Community funds were used in accordance with the terms of the Contract.

38 The Commission was, therefore, not in a position to assess the nature and results of the work carried out or its usefulness to the Community.

39 Accordingly, the new facts and arguments placed before the Court in the present proceedings have not called into question the assessment, as set out in paragraphs 26 to 28 of the judgment in Commission v Implants, of the Commission's right to demand reimbursement of the total amount of the advance, namely EUR 284 000.

40 Implants asserts that it does not owe the Commission any sum by way of default interest.

41 However, it has not adduced any arguments in support of its assertion. There is thus no need to question the assessment, as set out in paragraphs 30 to 35 of the judgment in Commission v Implants, of the Commission's right to demand those sums.

42 In light of all of the foregoing considerations, Implants must be ordered to pay to the Commission the principal sum due of EUR 284 000, together with default interest:

- at the rate of 6.8% per annum from 1 January 2003 until the sums payable have been reimbursed in full.

43 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 Implants has been unsuccessful, the latter must be ordered to pay the costs.

1. Dismisses the application by Implants (International) Ltd to set aside the judgment in Case C-279/03 Commission v Implants;

2. Orders Implants (International) Ltd to pay the costs of the present proceedings.

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