JUDGMENT OF THE COURT OF FIRST INSTANCE (First Chamber)
8 July 2009 (*)
(Arbitration clause – Contract for financial assistance concluded under a specific programme in the field of non‑nuclear energy – Failure to comply with the contract – Reimbursement of sums advanced – Statutory set-off – Procedure for judgment by default)
In Case T‑182/08,
Commission of the European Communities, represented initially by A.‑M. Rouchaud-Joët and S. Lejeune, and subsequently by A.-M. Rouchaud-Joët and F. Mirza, acting as Agents, and by M. Jarvis, Barrister,
applicant,
v
Atlantic Energy Ltd, established in Truro, Cornwall (United Kingdom),
defendant,
ACTION brought by the Commission under Article 238 EC for reimbursement of an advance paid by the European Community, together with interest, under contract BU 183/95 UK/AT,
THE COURT OF FIRST INSTANCE OF THE EUROPEAN COMMUNITIES (First Chamber),
composed of V. Tiili, President, F. Dehousse (Rapporteur) and I. Wiszniewska‑Białecka, Judges,
Registrar: E. Coulon,
having regard to the written procedure,
gives the following
Judgment
Contractual framework
Contract BU 183/95 UK/AT
1 On 29 March 1996, the European Community, represented by the Commission of the European Communities, entered into contract BU 183/95 UK/AT (‘the contract’) with Sidney C. Banks plc and Jenbacher Energiesysteme AG.
2 The contract provided for implementation of the project ‘Advanced automated gasifier with CHP using waste wood as fuel’, which fell within the scope of Council Decision 94/806/EC of 23 November 1994 adopting a specific programme for research and technological development, including demonstration, in the field of non-nuclear energy (1994 to 1998) (OJ 1994 L 334, p. 87).
3 Sidney C. Banks was designated as ‘coordinator’ of the parties contracting with the Community.
4 The contract, drafted in English, was governed by English law, pursuant to Article 10 thereof. Annex I provided details of the work programme (‘the work programme’), while Annex II set out the general conditions of the contract (‘the general conditions’).
5 Under Article 2 of the contract, the project was to commence on 1 July 1996 and end on 30 April 1999.
6 Under Article 3.1 of the contract, the estimated allowable costs of the project were ECU 1 883 416.
7 Article 3.2 of the contract stipulated that the Commission was to contribute to the financing of the project up to and including 40% of the allowable costs and up to a maximum of ECU 753 365.
8 Under Article 4 of the contract, the Commission’s contribution was to be paid as follows:
– an initial advance of ECU 226 010 within two months after the last signature of the contracting parties;
– by instalments, each paid within two months after the approval of the various periodic progress reports and corresponding cost statements. The advance and instalments were not cumulatively to exceed 80% of the maximum Commission contribution for the project;
– the balance of the total contribution due, to be paid within two months after the approval of the last report, document or other project deliverable specified in the work programme and of the cost statement for the final period, referred to in Article 5.2 of the contract.
9 As a result of the entry into force 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), and the effect of Article 2(1) thereof, every reference to the ECU was replaced by a reference to the euro at a rate of one euro to one ECU.
10 Articles 5 and 6 of the contract stipulated that cost statements and periodic progress reports were to be submitted, through the coordinator, to the Commission, every six months from the date of commencement.
11 Under Article 2.1(b) of the general conditions, the payments due from the Commission were to be made to the project coordinator, who was immediately to transfer the appropriate amount to each contractor.
12 Under Article 5.3 of the general conditions, the Commission was entitled to terminate the contract by written notice, inter alia where remedial action to rectify non-performance within a period of not less than one month, specified in writing, had been requested but not satisfactorily taken.
13 Article 23.1 of the general conditions stipulated that, where the project had not effectively commenced within three months of the payment of the advance, the Commission was entitled to:
– determine to add interest on the advance from its payment until the effective commencement date at the monthly rate applied by the European Monetary Institute for its refinancing operations in ECU;
– require the reimbursement of the advance together with such interest.
14 Under Article 23.2 of the general conditions, all payments made by the Commission were to be treated as advances until acceptance of the project deliverables, or, if none were specified, until acceptance of the final report.
15 Under Article 23.3 of the general conditions, where the total financial contribution due from the Commission for the project was less than the total amount of the payments made by it, the contractors undertook to reimburse the difference to the Commission immediately.
16 Article 7 of the general conditions contained an arbitration clause within the meaning of Article 238 EC, worded as follows:
‘The Court of First Instance of the European Communities and, in the case of appeal, the Court of Justice of the European Communities shall have exclusive jurisdiction in any dispute between the Commission and the Contractors concerning the validity, application and interpretation of this contract.’
Addendum to the contract
17 On 25 September 1996, Sidney C. Banks informed the Commission that it had decided to withdraw from the project.
18 On 7 July 1997, Atlantic Energy Ltd informed the Commission that it wished to take over the contract as contractor and coordinator, assuming all the relevant responsibilities under the contract.
19 On 17 April 1998, the Community, represented by the Commission, agreed an addendum No 1 to the contract (‘the addendum’), with Sidney C. Banks, Jenbacher Energiesysteme and Atlantic Energy.
20 Under clause 1 of the addendum, Sidney C. Banks was replaced by Atlantic Energy which took over all rights and obligations under the contract and was to act as the coordinator.
21 Under clause 2 of the addendum, Sidney C. Banks undertook to transfer to Atlantic Energy the amount of GBP 195 109.05, which represented the advance already paid by the Commission together with the interest it had produced.
22 Under clause 3 of the addendum, the duration of the project was modified, in accordance with a new timetable attached. In particular, the commencement date of the project was set at 1 September 1996 with a completion date of 31 December 1999.
Background to the dispute
23 In May 1996, the Commission ordered payment of the advance of EUR 226 010 to Sidney C. Banks, as stipulated in Article 4 of the contract.
24 On 30 April 1998, after the addendum to the contract had been agreed, Sidney C. Banks duly paid the amount of GBP 195 109.05 to Atlantic Energy.
25 On 16 November 1998, the Commission drew Atlantic Energy’s attention to the obligations under Article 6 of the contract and pointed out that the reports required under that provision had not been submitted after the addendum had been agreed. The Commission called on Atlantic Energy to remedy that situation before 15 December 1998.
26 On 23 December 1998, Atlantic Energy submitted a five-page report to the Commission. In that report, Atlantic Energy proposed that a new partner (TransEn Ltd) replace the partner initially chosen to provide the technology for the project (Waste Gas Technology).
27 On 27 May 1999, TransEn informed the Commission that Atlantic Energy had asked it to take part in the project, stated that it wished to be added as a project partner, and asked the Commission, if it agreed, for that to be recorded, if necessary in an addendum to the contract.
28 On 7 September 1999, Atlantic Energy asked the Commission to confirm to it that TransEn was an acceptable partner for the project.
29 On 24 November 1999, the Commission drew Atlantic Energy’s attention to the obligations under Articles 5 and 6 of the contract and noted that the reports required under those provisions had not been submitted, with the exception of one interim technical report which it regarded as insufficient. The Commission also noted the request to have TransEn take part in the project. However, the Commission stated that it could not take a position in that regard without first receiving the abovementioned reports and also details, inter alia, of TransEn’s structure and its planned role in the contract.
30 On 15 March 2002, the Commission informed Atlantic Energy that, as at that date, with the exception of the first report, it had still not received the reports (including the final reports) required under the contract. The Commission made clear that if it did not receive the reports within one month following the receipt of that letter, it would terminate the contract pursuant to Article 5.3 of the general conditions. The Commission stated that, in that event, it might require the reimbursement of all or part of the sums paid under the contract.
31 On 28 March 2002, Atlantic Energy informed the Commission that it had been trying since early 1999 to receive an answer from it regarding a new partner, but without success, with the result that the intended partner had withdrawn from the project. Atlantic Energy therefore asked the Commission for additional time to complete the contract.
32 On 17 May 2002, the Commission informed Atlantic Energy that it had started the procedure for recovery of the full amount of the advance paid under the contract, namely EUR 226 010, together with interest, that is to say a total of EUR 302 243.61.
33 On 29 May 2002, the Commission sent a debit note to Atlantic Energy for the amount of EUR 302 243.61.
34 On 6 November 2002, the Commission sent Atlantic Energy a reminder.
35 On 28 January 2003, Atlantic Energy informed the Commission that it was preparing a case in order to request an extension of time to complete the contract. In the meantime, Atlantic Energy asked for recovery to be suspended.
36 On 30 January and 25 March 2003, the Commission sent Atlantic Energy reminders.
37 On 24 June 2003, Atlantic Energy sent the Commission a file for the purpose of requesting an extension of time to complete the project.
38 On 26 September 2003, the Commission refused to grant Atlantic Energy’s request.
39 On 10 January 2008, through its lawyers, the Commission served notice on Atlantic Energy to pay by 7 February 2008 an amount of EUR 378 321.89, which represents the total amount of the advance paid under the contract together with interest, less an amount of EUR 3 610.53 due to Atlantic Energy and deducted by the Commission by way of statutory set-off.
40 On 5 February 2008, Atlantic Energy replied, in essence, that the problems encountered with that contract were largely attributable to the Commission. Atlantic Energy also stated that it did not have sufficient financial resources to pay the sums claimed. Lastly, Atlantic Energy requested payment of the amount of EUR 3 610.53 offset by the Commission.
Procedure and form of order sought by the Commission
41 The Commission brought the present action by application lodged at the Court Registry on 16 May 2008.
42 Since Atlantic Energy had not lodged a defence within the time prescribed, on 28 November 2008 the Commission applied to the Court for judgment by default, in accordance with Article 122(1) of the Rules of Procedure of the Court.
43 In that connection, although the application initiating proceedings and the Commission’s application for judgment by default were duly served on it, Atlantic Energy did not submit a defence. The Court must therefore give judgment by default. As the admissibility of the action is not in doubt and the appropriate formalities have been complied with, the Court must consider whether the application initiating proceedings appears well founded, in accordance with Article 122(2) of the Rules of Procedure.
44 The Commission claims that the Court should:
– order Atlantic Energy to reimburse to it the principal amount of EUR 226 010, together with EUR 160 681.72 as late-payment interest as at 31 May 2008, less a set-off of EUR 3 610.53;
– order Atlantic Energy to pay an amount of EUR 39.33 per day by way of interest from 31 May 2008 until the date on which the debt is repaid in full;
– order Atlantic Energy to pay the costs.
Law
Arguments of the Commission
45 First, the Commission submits that the project in question never effectively commenced. The first and only report, submitted by Atlantic Energy on 23 December 1998, states that the contractors had agreed a ‘new project timetable with a formal start date of 1st October 1998’. Since there were no further progress or financial reports, the Commission infers that the project never effectively commenced. Therefore, Article 23.1 of the general conditions entitles it to demand reimbursement of the advance, which it did on 17 May 2002.
46 Second, if it were to be held that the project effectively commenced within three months of payment of the advance, the Commission submits that it exercised its right to terminate the contract pursuant to Article 5.3 of the general conditions. When viewed in the context of the preceding letters of 24 November 1999 and 15 March 2002, there is no doubt that by its letter of 17 May 2002 the Commission was giving Atlantic Energy notice that it was invoking Article 5.3 of the general conditions. The Commission also states that it was entitled to terminate the contract and therefore claim reimbursement of the advance.
47 On that basis, the Commission claims reimbursement of the principal amount of EUR 226 010 corresponding to the advance paid initially.
48 The Commission further claims late-payment interest as at 31 May 2008, that is to say EUR 160 681.72. It states that it calculated the interest, first, on the basis of the European Central Bank (ECB) rate, plus two points, for the period from 1 June 1996 to 28 February 2002 (in accordance with Article 5.4 of the general conditions and the letter to Atlantic Energy of 17 May 2002) and, second, on the basis of the ECB rate, plus one and a half points, for the period from 16 July 2002 (expiry date of the debit note) to 31 May 2008. The Commission also claims payment of EUR 39.33 per day in interest from 31 May 2008 to the date on which the debt is repaid in full.
49 In addition, the Commission submits that, pursuant to the second subparagraph of Article 73(1) of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (OJ 2002 L 248, p. 1), it is obliged to offset payments and recovery orders. By payment request of 17 October 2007, Atlantic Energy claimed expenses in the amount of EUR 3 610.53 in connection with the Community’s evaluation in the area of biofuel use in transport. By letter of 28 November 2007, the Commission informed Atlantic Energy that it had offset that amount against the sum due under the contract. Consequently, the Commission reduces its claim in the present case by EUR 3 610.53.
Findings of the Court
The Commission’s right to claim reimbursement of the advance
50 It must be recalled that disputes arising during the performance of a contract must generally be resolved 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).
51 Under Article 23.1 of the general conditions, where the project has not effectively commenced within three months of the payment of the advance, the Commission may, inter alia, require reimbursement of the advance.
52 It is not apparent from the case-file that the project effectively commenced within three months of the payment of the advance to Sidney C. Banks.
53 Moreover, in the case of Atlantic Energy, even if Article 23.1 of the general conditions applies from the transfer of the advance initially received by Sidney C. Banks (namely 30 April 1998), it is not apparent from the case-file that the project effectively commenced within three months of that date, or indeed at any stage thereafter.
54 In particular, Articles 5 and 6 of the contract stipulate that cost statements and periodic progress reports must be submitted, through the coordinator, to the Commission, every six months from the date of commencement.
55 It should be recalled, in that connection, that the requirement to produce the statements in question, in the prescribed form, has as its specific objective to enable the Commission to have the information necessary for checking whether the Community funds were used in accordance with the terms of the contract (see, to that effect, the judgment of 26 January 2006 in Case C‑279/03 OP Implants, not published in the ECR, paragraph 37).
56 In the present case, it is apparent from the case-file that on 23 December 1998 Atlantic Energy submitted only a single five-page document entitled ‘First half yearly technical and financial progress report’ (‘the 1998 report’).
57 First, it should be pointed out that the 1998 report was sumbitted by Atlantic Energy more than six months after the Commission signed the addendum and following an express request from it to do so. It should also be noted that the 1998 report was submitted more than 30 months after the date on which the contract was initially signed, while the 1998 report states that Atlantic Energy unofficially held the role of project coordinator from September 1997.
58 Second, the addendum, signed inter alia by Atlantic Energy, included a precise timetable for the project’s progress. In particular, by 17 April 1998, that is to say the date on which the Commission signed the addendum, the project was supposed to be at the manufacturing stage. Even if account is taken of the date on which Atlantic Energy signed the addendum, namely 6 November 1997, the design work of the project ought to have been almost completed, with the manufacturing work set to commence on 1 December 1997.
59 Third, in spite of the title of the 1998 report, no cost statements were submitted to the Commission. The part on the project financial report sought in actual fact merely to point out that the estimated cost of the project would have to be higher than that initially projected.
60 Fourth, as regards the technical part of the project, from the 1998 report it is not possible to ascertain whether the project effectively commenced. In particular, it is stated in point 1.1 of the report, entitled ‘Project predevelopment’, that Atlantic Energy worked out a new location for the project, without providing any further details as to the location chosen. In that connection, Atlantic Energy makes reference to technical discussions that took place with the owners of the location, without referring to anything definite in that respect. Next it is stated at point 1.2 of the report, entitled ‘Project design’, that, as regards the gasifier system, Waste Gas Technology prepared an outline initial design so that Jenbacher Energiesysteme could prepare its initial design work, which necessarily implies, in the absence of evidence to the contrary, that the design work still had not effectively commenced. General information, without any documentary evidence, is also given about the engine, the cleanup and heat recovery systems and the project installation. It should be noted that both the contract and the addendum already contained a number of technical details about the project in question. The restatement of a number of general considerations in that regard cannot constitute effective commencement of the project. In addition, according to the timetable annexed to the addendum, the design work for the project was to last 15 months and be completed at the end of November 1997. Apart from the fact that the timetable was manifestly not adhered to in that respect, it cannot be concluded on the basis of the part of the 1998 report entitled ‘Project design’, which contains only one page of brief comments, that that important design work effectively commenced.
61 Fifth and above all, in the part entitled ‘Project timetable’, Atlantic Energy states that the first meeting between the project partners resulted in a new timetable being proposed with a commencement date of 1 October 1998, even though the addendum set the project commencement date at 1 September 1996. In addition, Atlantic Energy states that the project partners were still unable to reach agreement on that new timetable. It is clear that the project cannot be regarded as having effectively commenced, while its commencement date was still being discussed by the various participants. Moreover, if the project had effectively commenced, it would have been in Atlantic Energy’s interest to submit a cost statement to the Commission, which it manifestly failed to do, in the light of the information in the case-file.
62 Sixth, in the part of the 1998 report entitled ‘Project financial report’, it is stated that the amount received by Sidney C. Banks, that is to say the advance paid by the Commission, is being held by Atlantic Energy pending agreement on the new partners. The 1998 report states that that is a precautionary measure in case the project does not re‑start and the amount received has to be repaid to the Commission.
63 In the light of all those factors, there is nothing in the case-file to support the finding that the project in question effectively commenced. On the contrary, the 1998 report leads to the conclusion that Atlantic Energy was seeking to obtain from the Commission a renegotiation of the timetable, partners and estimated costs of the project. Those requests cannot be regarded as ordinarily forming part of a progress report, since they seek to amend the fundamental terms of the contact (see, to that effect, the judgment of 12 December 2006 in Case T-7/05 Commission v Parthenon, not published in the ECR, paragraph 75). The same is true of the document sent by Atlantic Energy on 24 June 2003, which was, moreover, produced after the Commission had requested reimbursement and more than five years after the Commission had signed the addendum.
64 In those circumstances, and in the light of the information in the file, the Commission is entitled, on the basis of Article 23.1 of the general conditions, to claim reimbursement from Atlantic Energy of the advance initially paid. It must also be pointed out that Atlantic Energy expressed the readiness, if necessary, to reimburse the advance received, in a letter of 7 September 1999 in which it stated that if the Commission did not accept the proposed partnership with TransEn, it would abandon the project and return the first tranche of monies.
65 Since the Commission’s application is granted on the basis of Article 23.1 of the general conditions, it is not necessary to adjudicate on the alternative legal basis put forward by the Commission, that is to say the termination of the contract. The Commission puts forward that alternative legal basis in case it were held that the project effectively commenced within three months of the payment of the advance.
The amount that must be reimbursed by Atlantic Energy
66 As regards the principal amount which must be reimbursed by Atlantic Energy, it is apparent from the case-file that the amount of the advance is EUR 226 010 and that Atlantic Energy received an equivalent amount through Sidney C. Banks.
67 As regards the interest claimed by the Commission, that was calculated, first, on the basis of the ECB rate, plus two points, for the period from 1 June 1996 to 28 February 2002 (in accordance with Article 5.4 of the general conditions and the letter to Atlantic Energy of 17 May 2002), and, second, on the basis of the ECB rate, plus one and a half points, for the period from 16 July 2002 to 31 May 2008. The Commission also claims payment of EUR 39.33 per day in interest from 31 May 2008 to the date on which the debt is repaid in full.
68 However, since the Commission’s application is granted on the basis of Article 23.1 of the general conditions, it is necessary to apply the interest provided for thereunder (see paragraph 13 above), which is, moreover, less than that claimed by the Commission. Interest is merely incidental to the principal sum due, which in the present case is the result of applying Article 23.1 of the general conditions (see, to that effect, the judgment of 12 September 2007 in Case T‑448/04 Commission v Trends, not published in the ECR, paragraph 186). Consequently, the Commission is entitled to claim the interest provided for under Article 23.1 as from the payment of the advance, that is to say May 1996.
69 In addition, it must be pointed out that the Commission does not claim interest for the period from 1 March to 15 July 2002. The Commission also claims interest only as from 1 June 1996. The form of order sought by the Commission must therefore be granted in that respect.
70 Lastly, it should be noted that the Commission reduces its claim for reimbursement of the principal amount plus interest as at 31 May 2008, that is to say the end of the month in which this action was commenced, setting off the amount of EUR 3 610.53, which is the sum claimed by Atlantic Energy in the context of a programme unrelated to the present proceedings. In that connection, it should be pointed out that an act by which the Commission effects out‑of‑court set-off between debts and claims resulting from different legal relationships with the same person is a challengeable act for the purposes of Article 230 EC (judgment of 8 October 2008 in Case T‑122/06 Helkon Media v Commission, not published in the ECR, paragraph 46; see, to that effect, Case C‑87/01 P Commission v CEMR [2003] ECR I‑7617, paragraph 45). It is in the context of such an action for annulment that it is for the Court to examine the legality of a set-off decision in the light of its effects relating to the failure actually to pay the contested sums to an applicant. Therefore, it is not for the Court to assess the legality of an act of offsetting in the context of an action under Article 238 EC, which concerns contractual disputes (Helkon Media v Commission, paragraphs 44 and 46). Nevertheless, since the Commission reduces its claim for reimbursement by the amount of EUR 3 610.53, that sum must be deducted from the principal amount plus interest claimed by the Commission as at 31 May 2008.
Costs
71 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 Atlantic Energy 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 COURT OF FIRST INSTANCE (First Chamber)
hereby:
1. Orders Atlantic Energy Ltd to reimburse to the Commission of the European Communities the principal sum of EUR 226 010, together with the interest provided for under Article 23.1 of the general conditions of contract BU 183/95 UK/AT in respect of the periods between 1 June 1996 and 28 February 2002 and between 16 July 2002 and 31 May 2008, less the sum of EUR 3 610.53, the final sum being increased by the interest provided for under the abovementioned Article 23.1 of the general conditions as from 1 June 2008 until the debt is discharged in full;
2. Orders Atlantic Energy to pay the costs.
Tiili | Dehousse | Wiszniewska-Białecka |
Delivered in open court in Luxembourg on 8 July 2009.
[Signatures]