Commission of the European Communities v Manuel Pereira Roldão & Filhos Ldª, Instituto Superior Técnico and King, Taudevin & Gregson (Holdings) Ltd (C-59/99)

Contents

Judgment of the Court (Third Chamber)13 November 2001^noteIn Case C-59/99,Commission of the European Communities, represented initially by F. de Sousa Fialho and O. Couvert-Castéra, acting as agents, and subsequently by H. van Lier and A. Caeiros, acting as agents, assisted by E. Braga, advogado, with an address for service in Luxembourg,vManuel Pereira Roldão & Filhos Ld.^a, established in Marinha Grande (Portugal),Instituto Superior Técnico, established in Lisbon (Portugal), represented by J.L. da Cruz Vilaça and T. Aragão Morais, advogados,andKing, Taudevin & Gregson (Holdings) Ltd,THE COURT (Third Chamber),composed of: F. Macken, President of the Chamber, C. Gulmann and J.N. Cunha Rodrigues (Rapporteur), Judges,Advocate General: L.A. Geelhoed,Registrar: L. Hewlett, Administrator,having regard to the Report for the Hearing,after hearing oral argument from the parties at the hearing on 15 March 2001, at which the Commission was represented by A. Caeiros and E. Braga, and the Instituto Superior Técnico by L. Pais Antunes and P. Farinha Alves, advogados,after hearing the Opinion of the Advocate General at the sitting on 12 June 2001,gives the following

Judgment

1By application lodged at the Court Registry on 19 February 1999, the Commission of the European Communities brought an action, pursuant to an arbitration clause founded on Article 181 of the EC Treaty (now Article 238 EC), against Manuel Pereira Roldão & Filhos Ld.^a (‘MPR’), the Instituto Superior Técnico (‘IST’) and King, Taudevin & Gregson (Holdings) Ltd (‘KTG’) for repayment of the sum of EUR 357813 advanced by the Commission under Contract No IN 90/91 PO/UK (‘the contract’), together with EUR 185833.78 in interest due as at 1 January 1999 and the interest which would accrue until full repayment.

Facts and legal framework

2The contract was concluded between the European Economic Community, represented by the Commission, of the first part, and MPR, 1ST and KTG (‘the contractors’), of the second part, in connection with a project concerning the promotion of energy technology in Europe (Thermie programme).

3The contract, as provided in Article 9.1 thereof, is governed by Portuguese law. The Court of Justice has sole jurisdiction in respect of any dispute concerning the contract, given the arbitration clause in Article 12 of Annex II.

4The works under the contract were to commence on 1 January 1993 and end on 31 December 1995. The Commission undertook to bear 40% of the cost of the project. It also undertook to pay in advance 30% of that sum, that is to say ECU 357813, and did so on 22 February 1993.

5As project coordinator, MPR received the advance payment. In that capacity, it was also required to inform the Commission of any delay in the commencement of the works and to submit to it the first six-monthly technical report, the first six-monthly financial report and the first ‘data base sheet’ during the seventh month following the contract commencement date.

6Under Article 8.2(f) of Annex II to the contract, the Commission could terminate the contract if a contractor did not commence the works on the date specified and the Commission rejected the new date proposed by that contractor.

7Article 2 of Annex II to the contract provided that the contractors were in principle jointly and severally liable to the Commission. However, Article 2(c) of that annex stated that they were not to assume the obligations of the defaulting contractor concerning reimbursement of the advance payment if they could show to the reasonable satisfaction of the Commission that they had not contributed to the default of the contractor in question and had complied with the information obligations laid down in Article 1.4 of Annex II.

8Under Article 1.4 of Annex II, the contractors were required to notify the Commission, through the project coordinator, of the commencement of the works and to inform it without delay of their completion or cessation and of any event or circumstance liable to affect significantly the performance of the contract.

9After a technical visit to MPR's premises on 20 September 1993 had shown that the works had not begun there, on 20 October 1993 the Commission sent a letter to MPR, copied to 1ST and KTG, pointing out that MPR had not informed it of the delay in starting the project and that the advance payment had been spent for purposes other than those for which it was intended. The Commission accordingly demanded reimbursement of the advance payment within two months, failing which it would terminate the contract without further formality on the basis of Article 8 thereof.

10In response to that letter, MPR informed the Commission, in an undated letter received on 7 December 1993, that it did not agree that the works had not begun, because some work had already been carried out by 1ST and KTG. MPR also stated that it was prepared to consider any alternative possibilities which would allow continuation of performance of the contract.

11In a letter of 11 January 1994 to MPR, which was copied to 1ST and KTG, the Commission stated that it was prepared to discuss issues raised by MPR once it received proof that the amount advanced was available in the account to which it had been transferred.

12It is apparent from a letter of 16 May 1994 sent to each of the contractors that as at that date the Commission had not yet received any bank certificate confirming that the amount advanced was available. In that letter, the Commission allowed a final period of one month for production of the certificate, failing which Article 8 of the contract would be applied with immediate effect.

13By letter of 14 June 1994, MPR requested the Commission to postpone its decision, referring to the restructuring of Indústria Portuguesa de Cristais which was to take place during the following month and to the need to amend the project in view of KTG's bankruptcy.

14In a letter of 7 July 1994 sent only to MPR and 1ST, the Commission expressed its agreement to postpone until 31 December 1994 its decision to terminate the contract, in view of the reasons put forward by MPR in its letter of 14 June 1994.

15MPR did not comply with the new agreed time-limit and made no reimbursement.

16Accordingly, the Commission terminated the contract by letter of 7 June 1995 sent to MPR and 1ST. It also sent a payment demand note to MPR on 10 November 1995 seeking reimbursement of the advance payment.

17MPR did not act upon that demand for repayment.

Procedure before the Court

18MPR did not lodge a defence. Accordingly, the Commission applied for judgment by default against that defendant pursuant to Article 94(1) of the Rules of Procedure.

19The application could not be served on KTG because of a lack of information as to the current address of that company. The Commission then informed the Court, by letter of 26 April 1999, that the proceedings were to be pursued in relation to the other two defendants, thereby implicitly abandoning the proceedings so far as concerns KTG.

20IST contends that the Court should hold the action unfounded so far as it is concerned and order the Commission to pay all the costs.

Reimbursement of the advance payment

21Under the first subparagraph of Article 8.4 of Annex II to the contract, if the Commission terminates the contract because one or more contractors have failed to fulfil their obligations, it may require the reimbursement of all or part of the sums which it has paid by way of financial contribution.

22It is clear from the account of the facts that, on 22 February 1993, the Commission made an advance payment of ECU 357813 to MPR and that, on the basis of MPR's failure to comply with some of its contractual obligations, the Commission terminated the contract pursuant to Article 8 of Annex II thereto.

23The Commission submits in that regard, first, that MPR did not commence the works within the period stipulated, second, that MPR failed to inform it, under Article 2.2 of the contract, of the delays in implementing the project and, finally, that, in breach of Article 17.2(a) of Annex II to the contract, MPR used the sum advanced for purposes other than those for which it was intended.

24Since those allegations have all been proved, the Commission's claims must be upheld so far as concerns reimbursement by MPR of the advance payment received.

25IST likewise does not deny the failure to fulfil the contract. However, pleading the exception to joint and several liability provided for in Article 2(c) of Annex II to the contract, it contends that it is unconnected with the breach of contract by MPR since it took every possible step to get MPR to start the works and that it informed the Commission in accordance with Article 1.4 of Annex II. It also maintains that, since the Commission has instituted legal proceedings against all the contractors, it can no longer invoke their joint and several liability.

26It must be stated first of all that IST did not contribute to MPR's breach.

27Not only has the Commission not disputed IST's good faith and its interest in the project being implemented, but it has been proved that 1ST regularly urged MPR to progress implementation of the project and to comply with the obligations stipulated in the contract.

28However, 1ST did not comply with the obligation to inform the Commission without delay of any event or circumstance liable to affect significantly the performance of the contract in accordance with Article 1.4 of Annex II to the contract.

29It was not until 17 July 1995, that is to say more than two years after becoming aware of the difficulties encountered by MPR in starting the project and more than a year and a half after receiving a copy of the Commission's letter dated 20 October 1993 demanding reimbursement of the advance payment within two months, that 1ST wrote to the Commission for the first time, informing it that it had received no contribution to the costs from MPR and that MPR alone was responsible for the break in the project.

30It cannot in any event be inferred from other forms of communication such as contact with third parties or telephone calls whose dates have not been specified by 1ST that the Commission was informed without delay in accordance with Article 1.4 of Annex II to the contract.

31It must therefore be found that IST did not immediately inform the Commission of the existence of circumstances, of which it was nevertheless fully aware, liable to affect significantly the performance of the contract.

32Furthermore, 1ST is wrong in asserting that the liability of the contractors is no longer joint and several since the Commission has instituted legal proceedings against them together.

33The system of joint and several liability resulting from Article 517, in conjunction with Article 519(1), of the Portuguese Civil Code (‘the Civil Code’) allows the party entitled to performance of an obligation to seek its performance either from a single party owing that obligation or from all such parties. In that very option lies the rationale for joint and several liability which is designed to protect the first party from the risk of insolvency of one of those other parties.

34Thus, by an action such as the present proceedings, the party entitled to performance will be able, initially, to obtain judgment for payment of the debt against all the other parties jointly and severally. Subsequently, in proceedings for enforcement to be brought before the national courts, he will be able to demand the entire sum from the party chosen by him.

35Consequently, given that, first, 1ST did not comply with the requirements in Article 2(c) of Annex II to the contract and, second, it is jointly and severally liable to the Commission, the claim seeking judgment against 1ST for reimbursement of the advance payment of ECU 357813 jointly and severally with MPR must be upheld.

Interest

36Under the second subparagraph of Article 8.4 of Annex II to the contract, interest is payable from the date of receipt of the advance payment, at the rate applied by the European Monetary Cooperation Fund for its operations in ecus and published on the first working day of each month, increased by two percentage points.

37According to the Commission, as at 1 January 1999 the interest due amounted to ECU 185833.78, to which should be added the interest which will accrue until full reimbursement of the advance payment.

38Since MPR did not put forward any objection in this regard in the correspondence prior to the commencement of the present action and there is no material in the file capable of casting doubt on the validity of the Commission's claim, MPR must be ordered to pay to the Commission contractual interest on the sum advanced from 22 February 1993, the date on which it is not disputed that MPR received the advance payment of ECU 357813, until full reimbursement of that payment.

39So far as concerns 1ST, it is not possible, in IST's submission, to demand payment of the interest from it because, under Article 520 of the Civil Code, only the party liable to perform an obligation who causes performance to be impossible is liable for damages exceeding the value of that obligation.

401ST contends that, since it was impossible to perform the obligation exclusively because of MPR's breach, MPR is the only contractor from which the Commission may demand payment of the interest.

41In that regard, it is to be observed that, by reason of the termination of the contract, the obligation in kind which initially arose from the contract was converted into a pecuniary obligation concerning reimbursement of the advance payment.

42A liquidated debt payable by the contractors to the Commission is thus at issue; it is subject, in consequence, to Article 520 of the Civil Code according to which, ‘if performance becomes impossible for a reason attributable to one of the obligors, they are all jointly and severally liable for its value; however, only the defaulting obligor shall be liable to compensate for damage which exceeds that amount and, if there is more than one, their liability shall be joint and several’.

43That set of legal rules applies not only in circumstances where performance of the obligation is physically impossible but also to cases of late performance. Interest resulting from that delay is payable solely by the party owing the obligation who is responsible for its non-performance.

44It is clear that MPR's breach is not attributable to IST.

45First of all, in a letter of 9 June 1994 1ST put direct pressure on MPR to reimburse the advance payment to the Commission. At the hearing, the Commission itself stated that it did not know whether or not IST's conduct had contributed to the end result.

46Nor did 1ST ever receive any sum from the Commission, and it was only when it received a copy of the letter sent to MPR by the Commission on 20 October 1993 that it became aware of the payment made by the Commission to MPR.

47Finally, as stated in paragraph 27 of this judgment, the Commission has not disputed either IST's good faith or its interest in the project being implemented.

48It follows that 1ST not only did not contribute to MPR's breach but also made efforts to prevent it by putting pressure on MPR to perform the obligation to reimburse the advance payment to the Commission.

49Having regard to the foregoing considerations and in the light of Article 520 of the Civil Code, it must be found that 1ST is not required to pay to the Commission the interest resulting from the advance payment not being reimbursed.

50Pursuant to Article 2(1) 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), reference to the ecu must be replaced by reference to the euro at a rate of one euro to one ecu.

Costs

51Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. Since the Commission has applied for costs against MPR and 1ST and the latter have been largely unsuccessful, they must be ordered to pay the costs.

Operative part

On those grounds,THE COURT (Third Chamber)hereby:

1.Orders Manuel Pereira Roldão & Filhos Ld.^a and the Instituto Superior Técnico jointly and severally to pay to the Commission of the European Communities the sum of EUR 357 813;

2.Orders Manuel Pereira Roldão & Filhos Ld.^a to pay to the Commission of the European Communities the sum of EUR 185833.78 in interest due as at 1 January 1999 and contractual interest from that date until full payment of the principal sum due;

3.Orders Manuel Pereira Roldão & Filhos Ld.^a and the Instituto Superior Técnico to pay the costs.

Delivered in open court in Luxembourg on 13 November 2001.