JUDGMENT OF THE GENERAL COURT (Ninth Chamber)
18 October 2023 (*)
(Arbitration clause – Loan agreement concerning a project for the reinforcement of the electricity distribution system in a third country – Non-performance of the agreement – Repayment of the sums advanced – Default interest – Procedure by default)
In Case T‑469/22,
European Investment Bank (EIB), represented by T. Gilliams, R. Stuart and F. Oxangoiti Briones, acting as Agents, and by D. Arts and E. Paredis, lawyers,
applicant,
v
Syrian Arab Republic,
defendant,
THE GENERAL COURT (Ninth Chamber),
composed of L. Truchot, President, R. Frendo (Rapporteur) and M. Sampol Pucurull, Judges,
Registrar: V. Di Bucci,
having regard to the written part of the procedure,
gives the following
Judgment
1 By its action based on Article 272 TFEU, the European Investment Bank (EIB) requests that the Syrian Arab Republic be ordered to pay the European Union, which it represents, the sum of EUR 28 777 508.71, together with interest, under Loan Agreement No 20948 concerning a project for the reinforcement of the electricity distribution system in Syria (‘the loan agreement’).
Background to the dispute
2 Subsequent to the Cooperation Agreement between the European Economic Community and the Syrian Arab Republic of 18 January 1977 (OJ 1978 L 269, p. 2) and its protocols, the EIB concluded, on 5 February 2001, the loan agreement with the Syrian Arab Republic, as amended by the letters of 3 October 2003, 28 February 2006, 9 May and 8 October 2007.
3 Under Articles 1.01, 1.02 and 1.04 of the loan agreement, the EIB granted the Syrian Arab Republic a loan of EUR 115 000 000 to be drawn down on request. The total amount disbursed under the loan agreement between 29 March 2005 and 25 August 2009 amounted to EUR 100 600 000.
4 According to Article 4.01 of the loan agreement, the Syrian Arab Republic was to repay the loan in 30 semi-annual instalments, as from 1 August 2006, with interest:
– on the outstanding balance of each fixed-rate tranche, at an interest rate to be determined as at the date of the disbursement notice, on the basis of the standard interest rate applicable to comparable loans granted by the EIB, which are denominated in euros and subject to the same conditions, and on the outstanding balance of each floating-rate tranche, at a floating interest rate determined by the EIB (Article 3.01) (‘contractual interest’);
– on any sum that has fallen due at the relevant interbank rate plus 2% or at the rate payable under Article 3.01 of that agreement, plus 0.25%, with the higher rate being applied for each relevant period (Article 3.02) (‘default interest’).
5 Furthermore, in accordance with the guarantee agreements concluded on 10 November 1978 (‘the guarantee agreement of 10 November 1978’) and 25 April 1995 (together, ‘the guarantee agreements’) between the EIB and the European Economic Community concerning the loans to be granted by the EIB in the countries of the Mediterranean Basin, the European Union guarantees loans granted by the EIB in the context of the European Union’s financial commitments towards certain third countries, including the Syrian Arab Republic, and is subrogated to the EIB’s rights immediately upon making each payment to the EIB under the guarantee (Article 6.01 of the guarantee agreement of 10 November 1978).
6 Under the recovery agreement between the European Union and the EIB, signed in Brussels on 3 October 2018, governing modalities and procedures for recovery of payments made by the European Union under the guarantees granted by it to the EIB against losses under financing operations supporting investment projects outside the European Union, as amended on 10 August 2021, whenever the European Union has made a payment under the guarantee agreement and is subrogated to the rights and remedies of the EIB under and pursuant to, inter alia, a loan agreement, the EIB is to initiate recovery proceedings without undue delay on behalf and in the name of the European Union (Article 3.1).
7 Since December 2011, the Syrian Arab Republic has failed to pay the instalments due under the loan agreement.
8 By judgment of 6 June 2019, EIB v Syria (T‑540/17, not published, EU:T:2019:392), the Syrian Arab Republic was ordered to repay the European Union, represented by the EIB, first, the sum of EUR 52 657 141.77 in respect of the instalments that had not been paid by the Syrian Arab Republic on the due dates between 15 December 2011 and 15 June 2017 and the contractual and default interest for the period from 15 December 2011 to 9 August 2017, and, secondly, default interest calculated in accordance with the method laid down in Article 3.02 of the loan agreement from 9 August 2017 until the date that payment is made.
9 Between 9 August 2017 and 30 June 2022, seven instalments under the loan agreement fell due and, since the Syrian Arab Republic failed to make the payments due, the EIB issued a payment reminder on each occasion as follows:
Due date | Principal amount | Contractual interest | Reminder |
15 December 2017 | EUR 3 912 709.02 | EUR 30 629.25 | 27 December 2017 |
15 June 2018 | EUR 3 912 709.02 | EUR 26 349.50 | 25 June 2018 |
17 December 2018 | EUR 3 912 709.02 | EUR 22 872.50 | 27 December 2018 |
17 June 2019 | EUR 3 912 709.02 | EUR 18 950.56 | 27 June 2019 |
16 December 2019 | EUR 3 912 709.02 | EUR 10 430.93 | 27 December 2019 |
15 June 2020 | EUR 3 912 709.02 | EUR 4 285.92 | 25 June 2020 |
15 December 2020 | EUR 3 912 709.28 | EUR 2 572.61 | 28 December 2020 |
10 Nonetheless, the Syrian Arab Republic remained in default of payment.
11 In accordance with the guarantee agreements, by eight letters sent to the European Commission between 19 December 2017 and 16 March 2021, the EIB requested that the guarantee in question be activated in respect of the principal amounts and the contractual interest concerning the instalments relating to the due dates referred to in paragraph 9 above, plus default interest in respect of each instalment. The Commission complied with those requests by making the payments of the amounts at issue (‘the amounts disbursed by the European Union’).
Procedure and form of order sought by the EIB
12 By application lodged at the Court Registry on 22 July 2022, the EIB, acting on its own behalf and on behalf of the European Union, brought the present action.
13 By letter of 1 August 2022, the application, which is addressed, in accordance with Article 10.03 of the loan agreement, to the ambassador of the Syrian Arab Republic to the European Union in Brussels (Belgium), was duly served on the Syrian Arab Republic by registered post with acknowledgement of receipt.
14 Since the Syrian Arab Republic did not lodge a defence within the period prescribed in Article 81 of the Rules of Procedure of the General Court, the EIB, by document lodged on 26 November 2022, applied to the Court for judgment by default, in accordance with Article 123(1) of those rules.
15 The EIB claims, in essence, that the Court should:
– declare that the Syrian Arab Republic failed to fulfil its contractual obligations under the loan agreement in so far as concerns payment of the principal amounts, contractual interest and default interest on each of the instalments due and unpaid between 15 December 2017 and 15 December 2020, and, consequently, order the Syrian Arab Republic to pay the European Union, which it represents, first, the sum of EUR 28 777 508.71 by way of the amounts disbursed by the European Union and default interest for the period from 9 August 2017 to 30 June 2022, and, secondly, additional default interest at the relevant interbank rate plus 2% or at the rate payable under Article 3.01 of the loan agreement, plus 0.25%, with the higher rate being applied for each relevant period, from 30 June 2022 up to the time that payment is made;
– order the Syrian Arab Republic to pay the costs.
Law
16 Under Article 123(1) of the Rules of Procedure, where the Court finds that a defendant on whom an application initiating proceedings has been duly served has failed to respond to the application within the prescribed time limit, the applicant may apply to the Court for judgment by default.
17 In the present case, it must be noted that the application, which, in accordance with Article 10.03 of the loan agreement, was to be addressed to the ambassador of the Syrian Arab Republic to the European Union in Brussels, was duly served at the address of the embassy, where the premises of the mission of that State are located.
18 However, as is apparent from paragraph 14 above, although the EIB’s application was duly served on the Syrian Arab Republic, the latter did not lodge a defence within the time limit prescribed in Article 81 of the Rules of Procedure.
19 Since the applicant has applied to the Court for judgment by default, it is appropriate to apply Article 123(3) of the Rules of Procedure, under which the Court is to give judgment in favour of the applicant, unless it is clear that the Court has no jurisdiction to hear and determine the action or that the action is manifestly inadmissible or manifestly lacking any foundation in law.
The jurisdiction of the General Court
20 In accordance with Article 272 TFEU, the Court of Justice of the European Union is to have jurisdiction to give judgment pursuant to any arbitration clause contained in a contract concluded by or on behalf of the European Union, whether that contract be governed by public or private law.
21 It should be noted that the loan agreement was concluded, inter alia, following the Cooperation Agreement between the European Economic Community and the Syrian Arab Republic of 18 January 1977, with the result that it must be regarded as having been concluded on behalf of the European Union.
22 Article 10.02 of the loan agreement contains an arbitration clause under which any disputes concerning that agreement are to be submitted to the Court of Justice of the European Union.
23 In accordance with Article 256(1) TFEU, the General Court is to have jurisdiction to hear and determine at first instance actions brought on the basis of an arbitration clause, as referred to in Article 272 TFEU.
24 In the light of the foregoing, it must be held that the General Court does not manifestly lack jurisdiction to hear and determine the present action.
Admissibility of the action
25 As regards the first head of claim, it is apparent from paragraph 11 above that, following the failure of the Syrian Arab Republic to fulfil its contractual obligations under the loan agreement, the EIB recovered the amounts paid by the European Union under the guarantee agreements.
26 It follows that, in accordance with Article 6.01 of the guarantee agreement of 10 November 1978, the European Union is subrogated to the rights that the EIB has against the borrower under the loan agreement as regards the sums referred to in the first head of claim.
27 It must be noted that the effects of that subrogation with regard to the Syrian Arab Republic are not governed by the loan agreement and that the guarantee agreement of 10 November 1978, under which subrogation took place, does not contain any provisions regarding the applicable law.
28 In that regard, first of all, it should be borne in mind that Article 13(1) of the Convention on the law applicable to contractual obligations opened for signature in Rome on 19 June 1980 (OJ 1980 L 266, p. 1) provides as follows:
‘Where a person (‘the creditor’) has a contractual claim upon another (‘the debtor’), and a third person has a duty to satisfy the creditor, or has in fact satisfied the creditor in discharge of that duty, the law which governs the third person’s duty to satisfy the creditor shall determine whether the third person is entitled to exercise against the debtor the rights which the creditor had against the debtor under the law governing their relationship and, if so, whether he may do so in full or only to a limited extent.’
29 In the present case, since the guarantee agreements were concluded by the European Union and the EIB, it is appropriate to refer to the national provisions governing subrogation as set out in the Civil Codes of the States in which the guarantee agreements were signed, respectively, by the Commission, on behalf of the European Union, and the EIB, namely the Belgian and Luxembourg Civil Codes.
30 Under those national laws, which do not require the debtor to have consented to subrogation, subrogation may be effective against third parties provided that the party performing the obligation to repay a loan that is due, which has a legitimate interest in the performance, is subrogated to the rights of the creditor. As a consequence of subrogation, the contractual right of the EIB to reimbursement of the sums due under the loan agreement is transferred to the European Union, which is accordingly entitled to make a contractual claim against the Syrian Arab Republic (judgment of 6 June 2019, EIB v Syria, T‑540/17, not published, EU:T:2019:392, paragraph 23).
31 Next, it should be noted that, under Article 6.03 of the guarantee agreement of 10 November 1978, after subrogating the European Union to its rights and actions, the EIB, at the request of the European Union, must agree on the arrangements for administering and servicing the loan.
32 In that regard, it is apparent from Article 3.1 of the recovery agreement referred to in paragraph 6 above that, whenever the European Union makes a payment under a guarantee agreement and is subrogated to the rights and remedies of the EIB under and pursuant to, inter alia, a loan agreement, the EIB is to initiate recovery proceedings without undue delay on behalf and in the name of the European Union.
33 In those circumstances, it should be held that the first head of claim, brought by the EIB on behalf of the European Union, is not manifestly inadmissible.
34 Furthermore, the present action does not raise any other difficulties which would be such as to give reason to consider it manifestly inadmissible.
35 Consequently, it must be held that the present action is not manifestly inadmissible.
Substance of the action
36 In the first place, it is apparent from the documents before the Court that, on the basis of the loan agreement, the EIB granted the Syrian Arab Republic a loan repayable on the due dates referred to in paragraph 9 above.
37 In addition, it is apparent from the information provided by the EIB that the Syrian Arab Republic failed to make repayments on those due dates, in breach of Article 4.01 of the loan agreement.
38 Consequently, the claim that the Syrian Arab Republic be ordered to repay the sum of EUR 27 388 963.40 in respect of the principal amount that was borrowed by the Syrian Arab Republic and that should have been repaid between 15 December 2017 and 15 December 2020 inclusive is not manifestly lacking any foundation in law.
39 In the second place, it is apparent from Article 3.02 of the loan agreement that default interest is to accrue on any sum that has fallen due at the relevant interbank rate plus 2% or at the rate payable under Article 3.01 of that agreement, plus 0.25%, with the higher rate being applied for each relevant period.
40 Consequently, the claims that the Syrian Arab Republic be ordered to pay, first, the sum of EUR 1 388 545.31 in respect of the contractual and default interest for the period from 9 August 2017 to 30 June 2022, and, secondly, the default interest due on the sum of EUR 27 388 963.40 from 30 June 2022 until the date that payment is made, are also not manifestly lacking any foundation in law. Default interest is to be calculated in accordance with the method laid down in Article 3.02 of the loan agreement.
41 Accordingly, it is necessary to uphold the form of order sought by the EIB, and to give a judgment by default against the Syrian Arab Republic, in accordance with Article 123 of the Rules of Procedure.
Costs
42 Under Article 134(1) 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 Syrian Arab Republic has been unsuccessful, it must be ordered to pay the costs, in accordance with the form of order sought by the EIB.
On those grounds,
THE GENERAL COURT (Ninth Chamber)
hereby:
1. Orders the Syrian Arab Republic to repay the European Union, represented by the European Investment Bank (EIB), the sum of EUR 28 777 508.71 representing the principal amounts and the contractual and default interest due on 30 June 2022;
2. Declares that the sum of EUR 27 388 963.40 comprising the principal amounts is to bear default interest, calculated in accordance with the method laid down in Article 3.02 of Loan Agreement No 20948 concerning a project for the reinforcement of the electricity distribution system in Syria, entered into by the EIB and the Syrian Arab Republic on 5 February 2001 and amended by letters of 3 October 2003, 28 February 2006, 9 May and 8 October 2007, from 30 June 2022 until the date that payment is made;
3. Orders the Syrian Arab Republic to pay the costs.
Truchot | Frendo | Sampol Pucurull |
Delivered in open court in Luxembourg on 18 October 2023.
V. Di Bucci | | M. van der Woude |