C-172/89

My Lords, to guarantee performance of the obligations laid down in the regulation and the relevant invitation to tender. Thus provision is made for a tenderer to lodge a tendering security (Articles 7(4)(a) and 8) and a successful tenderer must, within five days of the award of the contract, furnish evidence to the 1. This dispute arises from the late delivery Commission that a delivery security has of a consignment of rape seed oil supplied been lodged (Article 12(2)). A further as Community food aid to Bangladesh. security must be lodged where payment is made in advance by the Commission: in the case of supply free-at-port-of-landing, an advance payment not exceeding 90% of the amount of the tender is to be made at the request of the successful tenderer, upon presentation of supporting documents and 2. Under Article 5 of Council Regulation of evidence that the successful tenderer has (EEC) No 3972/86 on food-aid policy and lodged a security in favour of the food-aid management (Official Journal Commission for an amount equal to the 1986 L 370, p. 1), the Commission is advance, plus 10% (Article 18(5)). required to lay down rules for the supply of products as food aid. Commission Regu- lation (EEC) No 2200/87 ('the regulation') accordingly lays down general rules for the mobilization in the Community of products to be supplied as Community food aid 4. Article 22 deals with the conditions (Official Journal 1987 L 204, p. 1). Under under which securities are to be released or that regulation, the supply of food aid is as forfeited. The delivery security must be a general rule determined by a tendering released in full inter alia where the procedure (Article 3) and when it is decided successful tenderer has carried out the to hold such a procedure, a detailed invi- supply in accordance with his obligations or tation to tender is published in the Official has lodged the security on the advance Journal. (Article 22(2)(a)). Under Article 22(2)(b), the delivery security is to be withheld on a cumulative basis inter alia in proportion to the percentage of the quantities not delivered, or on the basis of one-thousandth of the total value of the tender for each day's delay in arrival at the port of landing 3. For the detailed provisions of the regu- in the case of supply free-at-port- lation, reference may be made to the repon of-landing. (The English text of the regu- for the hearing. For present purposes, it is lation refers, not to one-thousandth, but to sufficient to note that the regulation 0.001%, i.e. one-thousandth of one per provides for a series of securities designed cent. However, it is plain from the other

7. Before turning to the substance, I must consider briefly a preliminary question, namely, whether the Court's jurisdiction in 5. By Commission Regulation (EEC) this case arises under Article 173 of the No 941/88 the Commission issued an invi­ Treaty (as is implicitly assumed in the tation to tender for the supply of 2 000 pleadings) or under Article 181 by virtue of tonnes of refined rape seed oil to what is described in Article 181 as an arbi­ Bangladesh (Official Journal 1988 L 92, tration clause, that is, a choice of court p. 26). Under the conditions laid down in clause contained in a contract. The point is the annex to that regulation, the oil important because, if the Court's juris­ was to be delivered free-at-port- diction properly arises under Article 181, of-landing — landed to Chittagong by 31 then the case must be decided in accordance July 1988. with the applicable rules of contract, whereas if jurisdiction arises under Article 173, the question will be whether the Commission acted lawfully in terms of the legislation and of any relevant general prin­ ciples of law. 6. Vandemoortele NV was the successful tenderer and duly lodged a delivery security of 10% as required under the conditions of tender. However, the ship chosen for the delivery was delayed by engine trouble on its way to Antwerp, the port of shipment, 8. In favour of Article 181, it might be and the cargo did not reach Chittagong argued that the relationship between the until 28 September 1988, 59 days after the Community (represented by the Com­ deadline. The Commission released the mission) and the successful tenderer is delivery security in full on 23 September essentially a contractual one and that Article 1988, after Vandemoortele had lodged a 23 of Regulation No 2200/87, which security on the advance and requested an declares the Court competent to judge any advance payment. On 27 October 1988 the dispute arising out of supply operations in Commission made an advance payment of accordance with that regulation, is worded 90% of the tender amount to Vande­ like an arbitration clause. However, the moortele and on 30 January 1989 it released entire relationship between the Community the security on the advance in full. When and the successful tenderer is governed making the final payment of the amount exclusively by Community legislation. outstanding under the contract, however, Indeed, Article 23 is contained in a regu­ the Commission deducted ECU 56 463 in lation, not in a contract. Moreover, if it respect of the delayed delivery, representing were an arbitration clause, one would one-thousandth of the total value of the expect it to specify 'the law applicable to the

11. In that regard, it should be noted that Article 12(1) of Regulation No 2200/87 provides that the successful tenderer shall meet his obligations in accordance with the 9. Vandemoortele argues that under the conditions laid down in the regulation regulation the Commission has no power to opening the invitation to tender and shall deduct a penalty in respect of late delivery comply with the undertakings referred to in from the final amount due under the tender, Regulation No 2200/87. The obligations since the regulation provides expressly for referred to would be ineffective unless the deduction of a penalty from the delivery enforced by appropriate means. To that security only. In its defence, the end, Article 12(2) provides that 'in order to Commission states that it is its established ensure that he meets his obligations practice to make deductions in respect of regarding the supply operation', including, late delivery at the time of final settlement. it can be assumed, the delivery deadline, the It argues that that practice is supported by successful tenderer is to lodge a delivery arguments of effectiveness and that making security, and Article 22(2)(b) provides a any deduction at that stage is administra­ sanction for late delivery in the form of a tively convenient and presents certain deduction from the delivery security. advantages to the successful tenderer. However, the supplier's obligation to respect the supply deadline, and the need for a sanction to ensure effective observance of that obligation, do not disappear in a case where, because a security on the advance has been lodged, the delivery 10. Essentially, the dispute arises from the security has had to be released before unsatisfactory drafting of the regulation. delivery takes place. There must therefore Article 22(2)(b) provides that the delivery be an implied power to impose a penalty at security may be withheld for late delivery, a later stage. Otherwise, as the Commission on the basis of one-thousandth of the total points out, the successful tenderer could value of the tender for each day's delay, but always avoid a late delivery penalty, or no express provision is made for a indeed a penalty for incomplete or defective deduction at a later stage in a case where delivery, by claiming an advance payment. the delivery security has to be released prior Moreover, as the Commission again points to delivery. It will be recalled that the Court out, in the absence of a possibility of a stated in Case 117/83 Könecke v BALM deduction at a later stage, the regulation [1984] ECR 3291, that a penalty, even of a would provide no sanction whatsoever in non-criminal nature, cannot be imposed respect of a delay of less than 60 days. unless it rests on a clear and unambiguous Article 20, which makes the successful legal basis (paragraph 11). It is therefore tenderer responsible for all the financial necessary to consider whether, in the consequences of a total or partial failure to

supply the goods where the failure is attrib- 13. Once the conditions of Article 22(3) utable to him, only comes into play where have been fulfilled, and the security on the the goods have not been supplied within 60 advance has been released, it would again days of the deadline. be unreasonable to argue that there can be no sanction for late delivery: the only remaining possibility in such a case is a deduction from the final amount due. I therefore conclude that, in making a deduction at the time of final settlement in this case, the Commission did not infringe Regulation No 2200/87. 12. The only argument on which the applicant can then rely is that the deduction should have been made from the security on the advance and not from the final payment. In that context, Vandemoortele argues that, although the regulation makes no provision for deduction for late delivery from the Breach of general principles of law security on the advance, that security might none the less, as regards its economic function, be regarded as taking the place of the delivery security, so that Article 22(2)(b) could be applied by analogy. At first sight, that argument appears attractive: since, in terms of the scheme of the regulation, the security on the advance does indeed replace 14. Vandemoortele argues that once the the delivery security, and since the security delivery security had been released, it could on the advance must cover not only the reasonably expect that there would be no amount advanced, but also an additional subsequent deduction in respect of late 10% of that amount (i.e. a maximum total delivery: the deduction which the of 99 % of the tender amount), it might Commission made from the final amount plausibly be seen as subsuming the delivery due was therefore in breach of the principle security. However, the fatal flaw in that of legitimate expectations. argument is the fact that Article 22(3) expressly provides that the security on the advance shall be released where definitive entitlement to the amount advanced has been established, and that of course is what occurred in the present case. Indeed, if the security on the advance had not been 15. As already indicated above, where, as in released, on the ground that a deduction the present case, the Commission has had to was to be made for late delivery, then the release the delivery security because an applicant could legitimately have com- advance payment has been requested, there plained that there was no provision in the must be the possibility of a deduction at a regulation for such a deduction to be made later stage where the delivery is delayed, from the security on the advance and that and the applicant could not therefore since he was definitively entitled to the reasonably have supposed that no such amount of the advance, the security on the power existed. In addition, as the advance should be released in full, with any Commission has pointed out, Vande- deduction in respect of delay to be made, if moortele was aware, from its previous at all, from the final payment. experience in this field, of the Commission's

17. Accordingly, I would dismiss the application and order the applicant to pay the costs.

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