JUDGMENT OF THE GENERAL COURT (Fifth Chamber)
17 October 2012 (*)
(Arbitration clause – Contract concluded in the framework of the specific programme for research, technological development and demonstration on a ‘User-friendly information society’ – Withdrawal from the project – Reimbursement of part of the amount advanced by the Commission – Default interest – Procedure by default)
In Case T‑220/10,
European Commission, represented by N. Bambara and A.‑M. Rouchaud-Joët, acting as Agents, assisted by C. Erkelens, lawyer,
applicant,
v
EU Research Projects Ltd, established in Hungerford (United Kingdom),
defendant,
ACTION under Article 272 TFEU seeking an order that the defendant reimburse part of the amount advanced by the Commission, together with default interest, under contract IST‑2001‑34850,
THE GENERAL COURT (Fifth Chamber),
composed of S. Papasavvas, President, V. Vadapalas, and K. O’Higgins (Rapporteur), Judges,
Registrar: E. Coulon,
having regard to the written procedure,
gives the following
Judgment
Background to the dispute
1 On 29 April 2002, the European Community, represented by the Commission of the European Communities, concluded with five contractors, including Spectrolab Analytical Ltd, which became, on 22 November 2005, EU Research Projects Ltd (‘the defendant’), the contract IST‑2001‑34850 (‘the contract’) concerning a project called ‘Portable Optical Spectrum Analyser for Dense Wavelength Division Multiplexing (DWDM) Systems’ (‘the project’), started under the specific programme for research, technological development and demonstration on a ‘User-friendly information society’ (1998-2002) (‘the programme’).
2 That programme formed part of the more general fifth framework programme of the Community for research, technological development and demonstration activities (1998-2002).
3 The contract, drafted in English, is governed by Belgian law pursuant to Article 5(1) thereof. According to Article 8(1) of the contract, it has three annexes, which form an integral part thereof. Annex I contains a description of the work to be carried out, Annex II states the general conditions governing the contract and Annex III sets out the specific conditions of the programme.
4 Article 5(2) of the contract contains an arbitration clause, within the meaning of Article 272 TFEU, worded as follows:
‘The Court of First Instance of the European Communities [now the General Court of the European Union] and, in the case of an appeal, the Court of Justice of the European Communities [now the Court of Justice of the European Union] shall have sole jurisdiction to hear any dispute between the Community, on the one hand, and the contractors, on the other hand, as regards the validity, the application or any interpretation of this contract.’
5 So far as concerns the Community’s financial contribution, Article 3 of Annex II states:
‘1. The Community’s financial contribution shall be paid in accordance with the following principles:
(a) An initial advance shall be paid to the coordinator within a maximum period of 60 days running from the date of the last signature of the contracting parties. The coordinator allocates the advance in accordance with the table of indicative breakdown of estimated eligible costs following the signatures on this contract.
…
3. Subject to Article 26 of this Annex, all payments shall be treated as advances until the last project deliverable is approved.
4. …
In the event of non-reimbursement by the contractor within the time‑limit set by the Commission, the latter shall add interest to the sums due at the rate applied by the European Central Bank for its main refinancing operations on the first day of the month during which the time-limit set by the Commission has expired, plus one and a half percentage points, unless interest is due pursuant to another provision of this contract. The [interest] shall cover the period running from the day after the expiry of the time-limit until the date of receipt of the funds to be reimbursed.’
6 Article 7(2) of Annex II to the contract, which is entitled ‘Termination of the contract or of the participation of a contractor’, provides:
‘The Commission shall not object
…
(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.
The termination of the contract or the withdrawal of the contractor shall be effective:
– on the date of the letter of acceptance by the Commission notified by registered letter with acknowledgment of receipt,
…’
7 The third subparagraph of Article 7(6) states:
‘In the event of termination of the contract or of the participation of a contractor:
(a) … 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,
…’
8 Under Article 25 of Annex II to the contract:
‘Eligible costs shall be reimbursed where they are justified by the contractor.
To this end, the contractor shall maintain, on a regular basis and in accordance with the normal accounting conventions of the State in which he is established, the accounts for the project and appropriate documentation to support and justify in particular the costs and time reported in his cost statements.
This documentation must be precise, complete and effective.’
9 Article 6, point 6.10, of the contract is worded as follows:
‘The first subparagraph of Article 3(4) of Annex II to the contract shall be replaced by the following:
“Where the total financial contribution due from the Community, taking into account any adjustments, including as a result of a financial audit as referred to in Article 26 of this Annex or as a result of the absence of an audit certificate or as a result of an audit certificate incorporating qualifications non acceptable to the Commission as referred to in Articles 4 and 22 of this Annex, is less than the total amount of the payments referred to in paragraph 1, first subparagraph, of this Article, the contractors concerned shall reimburse the difference, in euro, within the time-limit set by the Commission in its request sent by registered letter with acknowledgement of receipt.”’
10 Pursuant to Article 3 of the contract, the total eligible costs of the project were fixed at EUR 2 176 699 and the maximum financial contribution of the Community at EUR 1 289 983. The Commission was required to pay an initial advance in the amount of EUR 515 993 into the coordinator’s bank account and make the coordinator responsible for allocating the advance to the different contractors in accordance with the table of the indicative breakdown of estimated eligible costs annexed to the contract.
11 It is clear from the table of the indicative breakdown that the defendant was to be allocated an advance payment in the amount of EUR 115 433 and that the Commission was to cover only 50% of the estimated eligible costs. The coordinator transferred that sum into the defendant’s bank account on 26 July 2002.
12 By letter of 1 March 2004, the defendant notified the Commission of its withdrawal from the project. In a letter of 17 May 2004, the Commission, in accordance with Article 7(2) of Annex II to the contract, acknowledged receipt of the defendant’s withdrawal from the project and confirmed its agreement. The Commission, in that letter, also requested that the defendant submit its final report and its statement of final costs within two months from the date of receipt of that letter.
13 By letter of 23 July 2004, the defendant submitted a statement of final costs to the Commission for the period running from 1 May 2003 to 30 April 2004.
14 By letter of 19 July 2005, Anaspec Group IOM Ltd, which claimed to be the legal owner of the defendant, described the fraudulent and illegal activities alleged to have been committed by other contractors during the course of the project.
15 In its reply of 21 September 2005, the Commission indicated to Anaspec Group IOM that it could not take its letter into account since, in the absence of a document proving that the defendant’s rights had been transferred to Anaspec Group IOM, the latter had to be regarded as a third party in relation to the contract.
16 By letter of 29 September 2005, the Commission informed the defendant of its intention to recover the sum of EUR 102 042.82 from it on the ground that the total financial contribution payable by the Community was less than the total amount of payments already made. It is clear from the table attached to the letter that, out of the defendant’s claim for eligible costs in the amount of EUR 230 873, the Commission accepted only EUR 26 787.35. Next, by applying the 50% rate to its financial contribution, the Commission determined the defendant’s total eligible costs to be EUR 13 393.68. The Commission deducted that amount from the advance payment made to the defendant in order to determine the sum to be recovered from the defendant.
17 The Commission also stated in its letter that, in the absence of any comments submitted by the defendant within one month from the date thereof, the defendant would receive a debit note in the amount of EUR 102 042.82.
18 In its reply of 2 November 2005, the defendant stated that it did not agree with the Commission’s calculations, while submitting that the Commission was its debtor in the amount of EUR 223 892.24. The statement of costs, it submitted, contained the relevant details. The defendant also described a number of wrongful and unlawful acts allegedly committed by the other contractors involved in the project.
19 By letter of 21 November 2005, the Commission responded to the allegations made by the defendant. So far as concerns the sum of EUR 223 892.24 claimed by the defendant, the Commission informed it that its claim was unfounded. The Commission also reminded the defendant that it had not submitted the documents necessary to prove its contribution to the project and that, consequently, the Commission intended to proceed with recovery of the sum of EUR 102 042.82.
20 By letter of 17 October 2006, the Commission stated that the defendant had failed to provide it with further clarification in response to its letter of 21 November 2005. The Commission also reiterated its intention to proceed with recovery of the sum previously claimed, reduced to EUR 102 039.32 after correction. It made clear that, in the absence of any further comments submitted by the defendant within 15 days from the date of the letter, it would then issue to the defendant a debit note.
21 In the absence of a reply from the defendant within the period set, the Commission issued to the defendant, on 13 November 2006, a debit note in the amount of EUR 102 039.32. The debit note stated that failure to make the payment before the date indicated, namely 28 December 2006, would result in the addition of default interest.
22 A first letter of reminder in respect of that debit note was sent on 18 January 2007.
23 A second letter of reminder was sent to the defendant on 12 March 2007.
Procedure and form of order sought by the Commission
24 By application lodged at the Registry of the General Court on 18 May 2010, the Commission brought the present action.
25 As the defendant had not lodged a defence within the period prescribed, the Commission, on 19 November 2010, applied to the Court for judgment by default, in accordance with Article 122(1) of the Court’s Rules of Procedure. The Court Registry served that application on the defendant.
26 In this regard, it must be held that, although the Commission’s application had been duly served on the defendant, the latter did not lodge a defence within the period prescribed, pursuant to Article 46 of the Rules of Procedure, even though that period was twice extended at the defendant’s request. The Court must therefore give judgment by default. Since there is no doubt as to the admissibility of the action, and as the formal steps have been properly followed, it is incumbent on the Court, in accordance with Article 122 of the Rules of Procedure, to consider whether the form of order sought by the Commission appears to be well founded.
27 The Commission claims that the Court should:
– order the defendant to repay to the Commission the sum of EUR 102 039.32, plus accrued default interest to be calculated at a rate of 4.80% from 28 December 2006 until the date of payment of the due amount;
– order the defendant to pay the costs.
Law
The application for reimbursement of part of the advance payment
28 It should be borne in mind at the outset that the Commission is bound, under Article 317 TFEU, by the obligation of sound financial management of European Union (EU) resources. Under the arrangements for the grant of EU financial aid, the use of such aid is subject to rules which may result in the partial or total repayment of aid that has already been granted. Thus, the beneficiary of financial assistance for which the application was approved by the Commission does not thereby acquire any definitive right to full payment of the assistance if he does not satisfy the conditions to which the support was subject (Case T‑500/04 Commission v IIC [2007] ECR II‑1443, paragraph 93, and judgment of 16 December 2010 in Case T‑259/09 Commission v Arci Nuova associazione comitato di Cagliari and Gessa, not published in the ECR, paragraph 61).
29 According to a fundamental principle of EU financial aid, the EU can subsidise only expenses which have actually been incurred. Accordingly, in order for the Commission to be able to carry out checks, the beneficiaries of such aid must show that the costs attributed to subsidised projects are genuine, as the provision by those beneficiaries of reliable information is indispensable for the successful operation of the system of control and evidence established in order to check whether the conditions for the grant of aid are satisfied. It is not sufficient, therefore, to show that a project has been carried out for the allocation of a specific subsidy to be justified. The beneficiary of the aid must, in addition, produce evidence that he has incurred the expenses declared in accordance with the conditions laid down for the grant of the aid concerned, with only those expenses which are properly justified being capable of being regarded as eligible. His obligation to satisfy the prescribed financial conditions is even one of his essential commitments and accordingly is a condition to the allocation of EU financial aid (Commission v Arci Nuova associazione comitato di Cagliari and Gessa, paragraph 62; see also Commission v IIC, paragraph 94 and the case-law cited).
30 It should also be borne in mind that disputes arising from the performance of a contract must be resolved, in general, on the basis of the contractual provisions (see, to that effect, Case T‑68/99 Toditec v Commission [2001] ECR II‑1443, paragraph 77, and Case T‑29/02 GEF v Commission [2005] ECR II‑835, paragraph 108).
31 In the present case, it is clear from the documents before the Court that, on 26 July 2002, the coordinator paid, as an advance, the sum of EUR 115 433 into the defendant’s bank account.
32 In this regard, it must be noted that, in accordance with Article 3(3) of Annex II to the contract, all payments are to be treated as advances until the last project deliverable is approved.
33 It is also clear from the documents before the Court that the defendant withdrew from the project in accordance with the conditions set out in Article 7(2) of Annex II to the contract.
34 In those circumstances, the Commission requested, on the basis of the statement of final costs submitted to it by the defendant, that the defendant repay EUR 102 042.82 pursuant to Article 6, point 6.10, of the contract. That sum, reduced to EUR 102 039.32 after correction, corresponded to the advance payment made to the defendant less the defendant’s total eligible costs accepted by the Commission, as detailed in paragraph 16 above.
35 In that regard, it follows from the third subparagraph of Article 7(6) of Annex II to the contract that the Commission may, in the event of the withdrawal of a contractor, 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. According to information supplied by the Commission, the defendant made no contribution to the project. Moreover, the defendant has not adduced evidence to show that it carried out any actual work on the project.
36 In addition, there is nothing in the documents before the Court to suggest that the Commission made an error of assessment in calculating the defendant’s eligible costs.
37 It is apparent from the documents before the Court that the defendant disputed, during its exchanges with the Commission, the calculations made by the Commission. Further, it must be held that that challenge was formulated in very general terms and that the defendant did not adduce any evidence to substantiate its claim, even though the Commission had requested it, on several occasions, to clarify and to document its objections concerning the calculation of the sum claimed. It is clear from the letters provided by the Commission that the defendant merely referred to the documents that it had submitted to the Commission in connection with the statement of final costs, without making clear the extent to which those documents were capable of calling into question the Commission’s calculations.
38 In that regard, it should be noted that the defendant was required, pursuant to Article 25 of Annex II to the contract, to maintain precise and well-documented accounts for the costs relating to its participation in the project. The defendant ought therefore to have been in a position to adduce the necessary documentation in support of its claims.
39 Likewise, the sum claimed from the Commission by the defendant is not substantiated by any evidence to show what that sum relates to.
40 As regards the unlawful conduct and irregularities alleged by the defendant in its correspondence with the Commission, it must be stated that the documents before the Court do not contain any evidence of the possible financial impact of those alleged acts on the amount of the sum claimed by the Commission.
41 It follows from the foregoing that neither the claims made by the defendant in its correspondence with the Commission before the present action was brought nor the documents before the Court are capable of casting doubt on the soundness of the Commission’s request for reimbursement.
42 Accordingly, the form of order sought by the Commission should be granted as regards the reimbursement of the advance payment less the defendant’s eligible costs.
43 It follows that the Commission is entitled to claim repayment in the amount of EUR 102 039.32.
The payment of default interest
44 The Commission sent the debit note for an amount of EUR 102 039.32 on 16 November 2006 by express delivery. The debit note indicated that the amount had to be paid by 28 December 2006 at the latest and that, in the event of non-payment, default interest would be applied. Two reminders were subsequently sent to the defendant on 18 January and 12 March 2007 respectively.
45 Under the second subparagraph of Article 3(4) of Annex II to the contract, default interest is to be added to the sums due at the rate applied by the European Central Bank for its main refinancing operations on the first day of the month during which the time-limit set by the Commission has expired, plus one and a half percentage points. As the Commission set that time-limit for 28 December 2006, the rate in force on 1 December 2006 must be taken into account. It is apparent from the Official Journal of the European Union (OJ 2006 C 296, p. 1) that the rate applied by the European Central Bank for its main refinancing operations was set, on 1 December 2006, at 3.30%. In those circumstances, the rate to be applied in the present case must be set at 4.80% per annum.
46 The second subparagraph of Article 3(4) of Annex II to the contract also states that the interest is to cover the period running from the day after the expiry of the time-limit until the date of receipt of the funds to be reimbursed. As the period set by the Commission expired on 28 December 2006, the default interest must cover the period running from 29 December 2006 to the date of full payment of the amount due.
47 It follows from all of the foregoing that the defendant must be ordered to repay to the Commission the sum of EUR 102 039.32, plus accrued default interest at the rate of 4.80% per annum from 29 December 2006 until the date of full payment of the amount due.
Costs
48 Under Article 87(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 defendant has been unsuccessful, it must be ordered to pay the costs, in accordance with the form of order sought by the Commission.
On those grounds,
THE GENERAL COURT (Fifth Chamber)
hereby:
1. Orders EU Research Projects Ltd to repay to the Commission the sum of EUR 102 039.32, plus accrued default interest calculated at the rate of 4.80% per annum from 29 December 2006 until the date of full payment of the amount due;
2. Orders EU Research Projects Ltd to pay the costs.
Papasavvas | Vadapalas | O’Higgins |
Delivered in open court in Luxembourg on 17 October 2012.
[Signatures]