JUDGMENT OF THE GENERAL COURT (Eighth Chamber)
19 May 2010 (*)
(Arbitration clause – Fifth framework programme for research, technological development and demonstration activities – Macro‑Economic and Urban Trends in Europe’s Information Society (MUTEIS) Project – Loss caused by amending a contract in relation to the system for reimbursing costs incurred by a participant in the project)
In Case T‑424/08,
Nexus Europe (Ireland) Ltd, established in Dublin (Ireland), represented by M. Noonan, Barrister,
applicant,
v
European Commission, represented by R. Lyal and A. Sauka, acting as Agents,
defendant,
APPLICATION for compensation for the loss allegedly suffered by the applicant as a consequence of the Commission obtaining certain amendments to the contract MUTEIS IST-2000-30117, concluded on 31 October 2001,
THE GENERAL COURT (Eighth Chamber),
composed of M.E. Martins Ribeiro, President, S. Papasavvas (Rapporteur) and A. Dittrich, Judges,
Registrar: C. Kantza, Administrator,
having regard to the written procedure and further to the hearing on 11 January 2010,
gives the following
Judgment
Legal context
Contracts
1 On 31 October 2001, the European Community, represented by the Commission of the European Communities, and a consortium of a number of organisations, including the applicant, Nexus Europe (Ireland) Ltd, represented by the University of Maastricht (Netherlands), entered into a shared-cost contract (‘the 2001 contract’) for the purpose of Annex IV of Decision No 182/1999/EC of the European Parliament and of the Council of 22 December 1998 concerning the fifth framework programme of the European Community for research, technological development and demonstration activities (1998 to 2002) (OJ 1999 L 26, p. 1).
2 The 2001 contract was for completion of a project called ‘Macro‑Economic and Urban Trends in Europe’s Information Society’.
3 Under Article 2 of the 2001 contract, the duration of the project was 30 months from the first day of the month after the signature of the contract, while Article 3 of that contract provides that the total eligible costs are EUR 2 224 621. Pursuant to that article, those costs are to be shared in accordance with a table on the final page of the contract containing an indicative breakdown for each of the Community’s co‑contractors, the Community’s financial contribution being limited to a maximum of EUR 2 071 000.
4 In accordance with that table, the total eligible costs of the applicant are EUR 307 494 and the cost reimbursement model chosen for it was the ‘additional cost’ model.
5 Under Article 4(2) of the 2001 contract and Article 4(3) of Annex II thereto entitled ‘General Conditions’, the co-contractors were obliged to submit to the Commission cost statements, each covering a six-month period of the progress of the project.
6 Under Article 3(2) of the General Conditions, the Commission may, in case of suspected fraud or serious financial irregularity on the part of a co-contractor, suspend payments and/or instruct the coordinator not to make any payment to that co-contractor.
7 In accordance with Article 5 of the 2001 contract, the latter is governed by the law of Belgium. That article contains an arbitration clause, conferring jurisdiction on the Court of First Instance (now ‘the General Court’) to hear any disputes between the Community and its co-contractors as to the application or interpretation of the contract.
8 On 13 April 2004, the applicant and the Commission concluded a contract amending the 2001 contract in relation to the cost reimbursement model (‘the 2004 contract’), which would thereafter be the ‘full cost/flat-rate’ model in accordance with the table on the final page of the contract. That table states that the total eligible costs of the applicant are now EUR 451 851 and the Community’s rate of participation is 50% of that amount.
Community and Belgian legislation
9 Paragraph 3 of Annex IV to Decision 182/1999 provides that the Community’s rate of participation in research and technological development programmes is to be 50% of the total eligible costs, whereas in the special case of legal entities which do not keep analytical accounts, the additional eligible costs generated as a result of the research are to be financed at the rate of 100%.
10 Article 11(3) and (5) of Council Decision 1999/65/EC of 22 December 1998 concerning the rules for the participation of undertakings, research centres and universities and for the dissemination of research results for the implementation of the fifth framework programme of the European Community (1998-2002) (OJ 1999 L 26, p. 46) states:
‘3. In the case of the research and technological development projects, demonstration projects and combined [research and technological development]/demonstration projects, recourse shall be had to additional eligible costs where, in the view of the Commission, the system of accounting used by the participant in an indirect [research and technological development] action does not enable the full costs of carrying out the indirect ... action to be established with sufficient precision. …
5. Additional eligible costs, as referred to in Annex IV to the fifth framework programme, shall comprise the following:
– the additional eligible costs generated simply by taking part in the indirect [research and technological development] action,
– a flat-rate contribution to general expenses.’
11 The second subparagraph of Article 11(1) of Commission Regulation (EC) No 996/1999 of 11 May 1999 on the implementation of Council Decision 1999/65 (OJ 1999 L 122, p. 9) provides:
‘Participants in indirect [research and technological development] actions shall, in compliance with Annex IV to the fifth framework programme, charge additional eligible costs to the Commission where, in the Commission’s view, the participants do not have an accounting system that allows the share of their direct and indirect costs relating to the project to be distinguished’.
12 The third subparagraph of Article 13(2) of Regulation No 996/1999 provides that ‘[f]or a participant charging additional eligible costs within the meaning of Article 11(1), second subparagraph, except in specific cases provided for in the specific programme, personnel costs shall comprise the costs generated by the sole participation in the indirect [research and technological development] action, and shall not include costs which have to be borne irrespective of whether the participant takes part’.
13 Article 1134 of the Belgian Civil Code (‘the Civil Code’) provides:
‘Agreements legally entered into operate as law for those who entered into them. They may be rescinded only by common consent, or as provided for by law. They must be executed in good faith.’
14 Article 1111 of the Civil Code states:
‘Duress exerted against the person who has contracted the obligation is a ground for rescission even where it was exerted by a party other than that for whose benefit the agreement was made.’
15 The first paragraph of Article 1112 of the Civil Code states ‘[t]here is duress where it is of such a kind as to influence a reasonable person and cause him to apprehend considerable and present harm to himself or his property’.
Background to the dispute
16 In the context of the performance of the 2001 contract, the applicant submitted its first three cost statements to the Commission in respect of the periods 1 November 2001 to 30 April 2002, 1 May to 31 October 2002, and 1 November 2002 to 30 April 2003 respectively.
17 By letter of 17 September 2003, the Commission informed the University of Maastricht, the coordinator and representative of the Community’s co-contractors, that after considering the documents submitted relating to the applicant, the personnel costs and overheads could not be accepted under the additional cost model. Therefore, the Commission rejected all the personnel costs and overheads in the cost statements submitted up to that date.
18 By letter of 10 October 2003 to the University of Maastricht, a copy of which was sent to the applicant, the Commission pointed out, in particular, that in accordance with the rules for participation in the fifth framework programme, the additional cost model is to be applied where a participant’s accounting system does not enable the identification of the project-related overheads or the identification of the direct costs, but does enable the identification of the project’s additional, non‑recurrent costs. In the Commission’s view, that reimbursement model cannot be applied to a private non-profit-making organisation, such as the applicant. The Commission informed the University of Maastricht that, in those circumstances, the personnel costs and overheads submitted hitherto by the applicant had been temporarily rejected. Moreover, the Commission stated that the applicant should reconsider its participation in the project either on the full cost model of reimbursement or by adopting the full cost/flat‑rate model. Thus, the applicant was invited to submit to the Commission a fresh budget/funding table. The Commission would in turn take the steps necessary so that the 2001 contract might be amended.
19 By letter of 24 October 2003 to the applicant, the Commission stated that, during the negotiations, the applicant had presented balance sheets showing that its accounting system enabled the identification of full costs. In addition, the Commission pointed out that the applicant was obliged to provide a bank guarantee for the payment of the initial advance. In those circumstances, the Commission announced that it had decided to apply Article 3(2) of the General Conditions (see paragraph 6 above) in order to safeguard the Community’s financial interests. Lastly, the Commission stated that it was awaiting certain data in order to begin amending the 2001 contract.
20 By letter of the same date to the coordinator of the project, the Commission repeated the argument that, in accordance with the provisions applicable, either the full cost model or the full cost/flat-rate model should be applied to the applicant, and stated that the hours of work invoiced had to be justified by reference to specific tasks. Lastly, the Commission stated that all funding transferred to the applicant hitherto would be reviewed in the light of the new reimbursement model provided for in the amended contract.
21 On 6 November 2003, a meeting concerning the applicant took place between the Commission and the project coordinator.
22 On 13 April 2004, the Commission and all the co-contractors, including the applicant, signed the 2004 contract.
23 On 5 July 2005, the applicant lodged a complaint with the European Ombudsman, claiming that it should be compensated for all the work it had carried out without receiving payment from the Commission and for the material and non-material damage suffered. In addition, the applicant requested that the Commission withdraw its suggestion of suspected fraud or serious financial irregularity.
24 After receiving the observations of the parties, the Ombudsman sent the Commission a letter dated 31 January 2008 proposing a friendly solution. In that letter, the Ombudsman noted, first, that it had taken the Commission two years to detect that the reimbursement model initially proposed by the applicant was not, in its view, the correct one. Second, the Ombudsman noted that the Commission had not identified any specific provision entitling it to request a change to the reimbursement model initially approved, in particular in view of the fact that the Commission has not suggested that the applicant failed to comply with its contractual obligations. Third, the Ombudsman stated that the Commission had failed to establish that there was a risk to the Community’s financial interests linked to the applicant’s conduct. Fourth, the Ombudsman noted that the change to the reimbursement model was made at a very advanced stage of the project and that the Commission had not envisaged any other solution, such as amending the 2001 contract without retroactive effect, that is to say without affecting the expenditure incurred before then. Fifth and lastly, the Ombudsman stated that, in that context, the fact that the Commission had rejected the cost statements submitted to it under the additional cost model without even explaining the reasons for its conclusions and that it had suspended payments constitutes considerable unfair pressure.
25 On that basis, the Ombudsman concluded that the Commission had failed to provide the applicant with a coherent and reasonable account of the legal basis for its actions. The Ombudsman therefore found that there had been maladministration and proposed, inter alia, that the Commission should make a fair and appropriate payment and withdraw in explicit terms any suggestion of fraud or serious financial irregularity.
26 By letter of 11 June 2008, the Commission submitted its comments on the Ombudsman’s letter and proposed paying the applicant the sum of EUR 5 000, while confirming that it had not suggested any fraud or serious financial irregularity on the part of the applicant.
27 By letter of 22 July 2008, the applicant submitted its comments and suggested that its compensation should be between EUR 60 000 and EUR 70 000.
Procedure and forms of order sought by the parties
28 The applicant brought the present action by an application lodged at the Registry of the General Court on 16 September 2008.
29 Upon hearing the report of the Judge-Rapporteur, the Court decided to open the oral procedure.
30 The parties presented oral argument and replied to the questions put by the Court at the hearing on 11 January 2010.
31 The applicant claims that the Court should:
– order the Commission to pay it damages in the sum of EUR 76 668.99 in respect of the loss arising from the amendment of the 2001 contract by the 2004 contract and the sum of EUR 18 750 in respect of its director’s remuneration for the time he spent resolving the issues raised by the Commission;
– order the Commission to pay the costs.
32 The Commission contends that the Court should:
– dismiss the application;
– order the applicant to pay the costs.
Law
Arguments of the parties
33 First of all, the applicant states that it makes its application pursuant to the second paragraph of Article 288 EC governing the non-contractual liability of the Community.
34 In that respect, the applicant alleges that the Commission has engaged in various forms of unlawful conduct causing the applicant loss on several heads.
35 The applicant submits that, by its conduct, the Commission infringed five rules of law. More specifically, first, the Commission infringed the rules governing competence in relation to the choice of cost reimbursement model and for establishing whether there was any fraud or serious financial irregularity. Second, the Commission breached its contractual obligations and, therefore, Article 1134 of the Civil Code. Third, the Commission infringed the principle of the protection of legitimate expectations and also the principle of legal certainty. Fourth, the Commission infringed the principle of sound administration and, fifth and lastly, the Commission infringed certain internal rules.
36 As regards the power to choose the cost reimbursement model, the applicant submits that, under the guidelines laid down by the Commission in the field, entitled ‘Participant’s choice of the cost reimbursement system for research, demonstration and combined contracts’ (‘the guidelines’), that choice is the responsibility of the Community’s co-contractor and that no change is permitted during the performance of the contract. Therefore, even though the Commission may refuse to accept the model proposed by its future co-contractor, it has no power to change it with retroactive effect after the contract has been signed. It follows that the Commission has no discretion in the matter and that the mere infringement of the relevant rules constitutes unlawful conduct that may give rise to liability on the part of the Community.
37 In addition, the guidelines require the Commission to conduct an audit before making any request for a change to the cost reimbursement model, with any such change to take effect only in respect of future contracts. However, the Commission did not conduct any audit in the present case.
38 Moreover, the applicant submits that the Commission had no cause to invoke Article 3(2) of the General Conditions (see paragraph 6 above), since no evidence of fraud or serious financial irregularity had been adduced. The recourse to Article 3(2) of the General Conditions served in this case to deprive the applicant of the rights provided for in the 2001 contract, by forcing it to amend that contract. However, the purpose of that clause is to prevent fraud and financial irregularities and not to correct errors by the Commission at the time a contract is signed.
39 In addition, at no point before this action was brought did the Commission justify invoking Article 3(2) of the General Conditions on the basis that the applicant sought to obtain the total reimbursement of its expenditure in breach of the cost‑sharing principle. In any event, any suggestion of fraud or serious financial irregularity was formally withdrawn by the Commission, which seeks to return to the subject in the context of its written pleadings before the Court.
40 The applicant also points out that the Commission did not explain, either before the present action was brought or before the General Court, what specific findings as to its compatibility led the Commission to conclude that the reimbursement model chosen when the 2001 contract was signed was not appropriate. However, the Commission stated on numerous occasions that it had adopted that view after analysing the applicant’s balance sheet, but did not provide further details in that respect.
41 The applicant rejects the Commission’s contention that it sought recovery of the full cost of its participation in the project, in breach of the cost-sharing principle. The Commission’s conclusion is based on the assertion that the expenditure on salaries, declared by the applicant, was for five permanent members of staff and was not therefore eligible for reimbursement, since the additional cost model had been adopted. However, the applicant explained to the Commission that those staff were not permanent but engaged specifically in order to carry out the project. In addition, at no stage did the applicant understand or expect that it was entitled to the total reimbursement of the resources that it had expended on the project. That fact was acknowledged by the Commission itself, which, in its letter of 11 June 2008 to the Ombudsman, stated that the applicant had chosen the additional cost model in good faith.
42 Lastly, the applicant did not attempt to increase artificially the number of hours invoiced in order to achieve the same financial outcome that it would have obtained under the additional cost model. That suggestion was developed by the project coordinator in the course of the negotiations with the Commission.
43 As regards the breach of the 2001 contract and, consequently, of Article 1134 of the Civil Code, the applicant submits that that contract does not contain a clause enabling the Commission to change its position on the cost reimbursement model with retroactive effect. On the contrary, point 7 of the guidelines states that the reimbursement model chosen when the contract is signed is to remain valid throughout the performance of the contract, and the Commission may not change that model unilaterally.
44 The applicant makes clear, in that context, that its claim must not be understood as based on the contractual liability of the Community, but as based on its non‑contractual liability incurred as a result of the existence of pressure exerted on the applicant and amounting to a case of maladministration by the Commission.
45 Since the amendment of the 2001 contract was procured in breach of contract, the Commission is not entitled to rely on that amendment in order to challenge the applicant’s rights under the 2001 contract, or to deny the non-contractual liability it incurred as a result of its conduct. In addition, the Commission exerted considerable pressure for the 2001 contract to be amended, by invoking the powers conferred on it where it suspects cases of fraud or serious financial irregularity, whereas it knew that no such case existed here.
46 Any refusal to accede to the Commission’s demand would have caused not only a delay in completion, if not the early termination, of the project, but also the applicant’s liquidation, had the Commission withheld the payments under the 2001 contract. In addition, the Commission threatened to demand the return of the monies already paid if the applicant did not agree to the amendment of the 2001 contract. Even though the applicant did not argue that the Commission’s conduct constituted duress within the meaning of Articles 1109 and 1111 to 1115 of the Civil Code, because of the difficulty in proving the degree of coercion required, it maintains that the Commission’s conduct is an abuse of power.
47 As regards the infringement of the principle of the protection of legitimate expectations and of the principle of legal certainty, the applicant states that the Commission expressly accepted the reimbursement model proposed when the 2001 contract was signed, and even reimbursed the costs under that model over a period of two years. The applicant provided the services set out in the contract and calculated the cost of its participation in the project on the basis of the model accepted. In those circumstances, changing the cost reimbursement model with retroactive effect is contrary to the principle of the protection of legitimate expectations and the principle of legal certainty.
48 In addition, Article 11 of Regulation No 996/1999 does not permit the reimbursement model to be changed unilaterally during the performance of a contract, which is reflected in point 7 of the guidelines. Similarly, there is no provision enabling the Commission to demand the applicant’s consent to such an amendment.
49 The applicant submits that the Commission failed to have regard to the principle of sound administration by refusing to exercise its discretion regarding the choice of the reimbursement model before the contract was signed, by taking two years to identify the alleged inconsistency, without even giving the reasons for its new assessment, and by threatening to use certain powers even though the conditions for doing so were not fulfilled.
50 The applicant repeats that the Commission had no power to impose a change to the cost reimbursement model during the performance of the contract and that the sole purpose of invoking Article 3(2) of the General Conditions was to force the applicant to accept a change to that model.
51 Lastly, the applicant submits that the breach of the guidelines by the Commission (see paragraphs 36 and 37 above) is an infringement of the internal rules which gives good grounds for ordering the Commission to pay compensation for the resulting loss. Those rules prevent the cost reimbursement model being changed with retroactive effect shortly before completion of the project.
52 The Commission contests the applicant’s arguments.
Findings of the Court
53 It should be recalled that in October 2001 the applicant, represented by the University of Maastricht, and the Community, represented by the Commission, entered into a contract in the context of the fifth framework programme for research, technological development and demonstration activities. That contract provided that the applicant, which participated in a consortium formed in order to complete a project on macro-economic and urban trends in Europe’s information society, was to be reimbursed the expenditure incurred under the additional cost model.
54 As regards that reimbursement model, it should be noted that, in accordance with paragraph 3 of Annex IV to Decision 182/1999 (see paragraph 9 above), the financial contribution of the Community is 100% of eligible costs. In addition, it follows from Article 11 of Decision 1999/65 (see paragraph 10 above) that recourse is to be had to the additional cost model where the system of accounting used by the participant in an indirect research and technological development action does not enable the full costs of carrying out the indirect action to be established with sufficient precision. In that situation, the concept of additional eligible costs is to include the additional costs generated simply by taking part in the indirect research and technological development action, in addition to a flat‑rate contribution to general expenses.
55 Under Article 13(2) of Regulation No 996/1999 (see paragraph 12 above), the additional costs generated by the sole participation in the indirect research and technological development action are defined in opposition to the costs which have to be borne irrespective of whether the participant takes part.
56 Notwithstanding the fact that at the time the 2001 contract was signed, and after examining certain information supplied by the applicant at that stage, the Commission accepted the choice of applying the additional cost model, it reopened that issue in its letters of 17 September and 10 and 24 October 2003 (see paragraphs 17 to 19 above). In those letters, the Commission maintained that the application of the additional cost model in the applicant’s case did not accord with the applicable legislation, and requested the amendment of the 2001 contract with regard to the cost reimbursement model.
57 The Commission has argued before the Court that it had requested the amendment of the contract in order to safeguard the Community’s financial interests as against the applicant, which sought recovery of the full cost of its participation in the project, in breach of the cost-sharing principle, and used an accounting system that enabled the direct and indirect costs relating to the project to be distinguished. In addition, the Commission maintains that the argument that the applicant sought recovery of the full expenditure incurred in the context of the project stems from the fact that none of its permanent staff worked on the project. Although the applicant had employed on the project only staff specifically recruited for that purpose, the reimbursement of all the personnel costs and related overheads would mean reimbursing all the expenditure incurred by the applicant.
58 In the light of the foregoing considerations, it is necessary, first of all, to define the nature of the present dispute.
59 In that connection, the applicant makes clear that its application for compensation for the loss allegedly suffered by it is based exclusively on the rules governing the non-contractual liability of the Community.
60 Nevertheless, it must be observed that the applicant’s argument as to the existence of a right to be compensated for its loss, and the scope of that right, is based on the provisions of the 2001 contract concerning the cost reimbursement model. It follows that the subject-matter of the action consists in actual fact in a claim for contractual damages. Indeed, the mere reference to legal rules or principles which do not stem from the contract between the parties, but which are binding on them, cannot have the effect of changing the contractual nature of a dispute (see, to that effect, the judgment of 20 May 2009 in Case C-214/08 P Guigard v Commission, not published in the ECR, paragraphs 37, 38, 42 and 43).
61 In the present case, the finding that the dispute is contractual in nature does not have the effect of excluding it from the jurisdiction of the General Court, for both the 2001 contract and the 2004 contract contain an arbitration clause within the meaning of Article 238 EC.
62 Next, it must be pointed out that, in the context of a contractual relationship, each co-contractor is entitled to request amendment of the contract governing the relations between the parties, irrespective of whether the reasons put forward in support of the request for amendment are valid. Accordingly, a co-contractor of the Commission is in the same terms entitled to refuse the amendment requested.
63 As long as the other party to the contract accepts its amendment and expresses its intention in accordance with the requirements of the applicable law, it is the contract as amended that governs the relations between the parties, in accordance in the present case with Article 1134 of the Civil Code.
64 That assessment is, however, valid only in so far as the amendment of the contract was not procured in a manner likely to vitiate the consent of the party acceding to the request for amendment, by recourse to fraud, duress or other means likely to invalidate that consent. However, the applicant makes clear, in the reply, that its arguments concerning the pressure exerted by the Commission are not intended to establish that there was duress within the meaning of Articles 1109 et seq. of the Civil Code (see paragraph 46 above). Therefore, contrary to the applicant’s claims, it cannot be found that the amendment of the 2001 contract was procured unilaterally by the Commission.
65 Nor, in those circumstances, can it be accepted that the Commission is not entitled to request that the cost reimbursement model be amended with retroactive effect during the performance of a project, all the more so since Decision 1999/65 and Regulation No 996/1999 set out the conditions in which the additional cost model may be used. Thus, the guidelines cannot be interpreted as ruling out any change to the reimbursement model during the performance of a project, even when the model initially chosen does not accord with the forecasts contained in Decision 1999/65 or Regulation No 996/1999. While it is not necessary to decide whether that is the case here, such an interpretation would justify perpetuating the effects of a choice at variance with the applicable rules, which would be impermissible.
66 The question whether the conduct of the Commission infringes the principle of sound administration is also irrelevant. Even if, by failing to provide a coherent explanation as to the reasons justifying the request for the amendment of the 2001 contract and by threatening at the same time to exercise powers such as the suspension of future payments, the Commission had, as the applicant argues, breached its duty of sound administration, that fact alone cannot invalidate the 2004 contract, which from the moment it was concluded has governed with retroactive effect the rights and obligations of the parties.
67 The same is true of the alleged infringement of the principle of the protection of legitimate expectations and of the principle of legal certainty. Since the applicant does not argue that its consent to the signing of the 2004 contract was vitiated, it cannot effectively claim that it had a legitimate expectation that the initial reimbursement model would be maintained or that the principle of legal certainty was infringed, since the new model was introduced with its agreement.
68 It follows from the foregoing that, since the 2004 contract was validly concluded, the rights and obligations of the parties are governed by the terms of that contract, and the reasons for that amendment are irrelevant in that respect. Thus, the applicant’s arguments concerning infringement of the rules on the choice of the reimbursement model, the existence of fraud or serious financial irregularity and infringement by the Commission of its contractual obligations, or of the principles of sound administration, the protection of legitimate expectations and legal certainty, cannot succeed.
69 The action must therefore be dismissed.
Costs
70 Under Article 87(2) of the Rules of Procedure of the General Court, 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 applicant 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 (Eighth Chamber)
hereby:
1. Dismisses the action;
2. Orders Nexus Europe (Ireland) Ltd to pay the costs.
Martins Ribeiro | Papasavvas | Dittrich |
Delivered in open court in Luxembourg on 19 May 2010.
[Signatures]