C-358/90

COMPAGNIA ITALIANA ALCOOL v COMMISSION

OPINION OF ADVOCATE GENERAL JACOBS delivered on 16 January 1992 *

My Lords, wine (OJ 1987 L 84, p. 1) states (at p. 2) that 'the situation of the wine market with its large surpluses is deteriorating very rapidly'. This required action to be taken to reduce the Community's wine-growing 1. In this case, the applicant, Compagnia potential and to absorb surpluses. The Italiana Alcool SaS di Mario preamble explains (at p. 4) that 'compulsory Mariano & Co., seeks the annulment under distillation appears to be the most effective Article 173 of the EEC Treaty of two measure to absorb surpluses of table wine decisions of the Commission not to take on the market'. However (p. 5), 'in order to action in respect of special tender avoid disturbance on the market in alcohol procedures Nos 5/90 and 6/90, which were and spirituous beverages, rules should be opened pursuant to Commission Regu- laid down for the disposal of alcohol lations Nos 2575/90 (OJ 1990 L 243, obtained from distillation in the context of p. 22) and 2576/90 (OJ 1990 L 243, p. 24) intervention on the market in wine'. respectively. Those regulations made provision for the special sale by tender, for use as motor fuel within the Community, of vinous alcohol held by intervention agencies. The applicant also seeks compen- sation under Article 178 of the EEC Treaty 3. Accordingly, Articles 35 and 36 make and the second paragraph of Article 215 for provision for the distillation of by-products the damage it claims it will suffer as a result of winemaking and of certain wines. By of the contested decisions. virtue of Article 37(1),

Article 39 of Regulation No 822/87 makes provision for the compulsory distillation of table wine where, 'in respect of a given 5. First, the normal market for alcohol and year, the market in table wine and wine spirituous beverages is extremely sensitive suitable for yielding table wine is in a state and can be disturbed by the entry of of serious imbalance'. The products quantities of alcohol which may appear obtained from these distillation operations small in absolute terms. According to the are taken over by the intervention agencies. Commission, leading manufacturers According to Article 40(3) of Regulation normally market only a few thousand hecto- No 822/87, litres a year for human consumption. By comparison, the quantities of alcohol held in storage are huge, so that a small fraction of it could, if released, cause massive 'Products taken over by the intervention disturbance to the normal market. As I shall agency or products derived from their explain, the special sales at issue in these processing shall be disposed of either by proceedings together concerned 4.8 million public auction or by a tendering procedure. hectolitres. They shall be disposed of in a manner which ensures that:

6. The fifth recital of Regulation — the alcohol can be sold on the market in No 3877/88 therefore recalls the the normal way for the various uses, requirement of Article 40(3) of Regulation No 822/87 that disturbance of the markets in alcohol and spirituous beverages produced in the Community should be — any disturbance of the markets in avoided. According to the following recital, alcohol and spirituous beverages is 'the possibility of such alcohol creating avoided, additional difficulties . . . in other sectors of utilization or for certain destinations should also be avoided'. The same recital adds that 'such difficulties seem slighter in the fuel — equality of access to the merchandise sector' and that 'a preferential outlet must and equality of treatment of prospective be sought in that sector without however purchasers is guaranteed.' excluding any other opportunities of sale'.

concerned would take place in lots. This 10. Detailed rules for the disposal of gave rise to the danger that changes in alcohol obtained from the distillation market conditions might induce purchasers operations referred to in Articles 35, 36 and not to take up second or subsequent lots. 39 of Regulation No 822/87 and held by intervention agencies are laid down by Commission Regulation No 1780/89 (OJ 1989 L 178, p. 1). That regulation has subsequently been amended and I shall refei- to the relevant amendments where relevant. For the present, I shall confine myself to the 8. In order to counter these risks, the original version. Community legislature laid down a number of conditions designed to ensure that alcohol obtained from distillation which is disposed of from Community stocks is only used for specific purposes and that 11. According to Article 1(1) of Regulation purchasers take up the entire quantity they No 1780/89, disposal may be effected by a agree to purchase. standing invitation to tender, by individual invitations to tender or by special invitations to tender. Article 1(2) provides that the expression 'invitation to tender'shall mean 'the organization of a competition among interested parties in the form of a call for bids, the contract being awarded to the 9. The rules laid down in Regulation party submitting the most advantageous bid No 3877/88 provide for the alcohol to be complying with the rules laid down in this sold by the tendering procedure, which is Regulation'. The fifth recital explains that said by the third recital of the preamble to 'since the objective of invitations to tender is offer 'the advantage of being generally more to obtain the most favourable price, the accessible to operators in the alcohol sector' contract must be awarded to the tenderer than sale by auction. According to Article offering the highest price where the 1(2) of that regulation, 'The conditions Commission decides to take action in governing invitations to tender must ensure respect of tenders . . . '. However, the sixth equality of treatment for all interested recital makes it clear that 'in order not to parties wherever they are established in the affect competition with products which the Community.' However, Article 1(4) states alcohol may replace, the Commission that 'Admission to the tendering should be given the possibility of taking no procedures . . . shall be limited to interested action in respect of tenders received'. parties who have guaranteed compliance with their obligations by putting up a security.' Moreover, by virtue of Article 2 of Regulation No 3877/88, each tendering procedure may be subject to special 12. The tenders with which these conditions, 'particularly to avoid market proceedings arc concerned were special invi- disruptions'. The Commission may, in tations to tender, the rules relating to which accordance with the Management are laid down in Title III of Regulation Committee procedure laid down in Article No 1780/89. Under those rules, which arc 83 of Regulation No 822/87, 'either take designed for sales of large quantities of action on the tenders received or take no alcohol, special invitations to tender may action'. stipulate that the alcohol involved is to be

'Before the second lot is removed, successful 'and within 15 working days of the last date tenderers shall provide proof that a for the submission of tenders, may decide in performance guarantee has been lodged the light of the tenders submitted: with each intervention agency concerned to ensure that the alcohol constituting the second lot is in fact used for the purposes specified in the notice of invitation to — either to award a contract, tender.'

— or to make no award'. The amendments to Regulation No 1780/89

If a contract is awarded, the Commission is required by Article 23(2) to accept the 16. Regulation No 1780/89 was amended highest tender. By virtue of Article 23(3), by Commission Regulation No 2568/90 the Commission must notify tenderers (OJ 1990 L 243, p. 11). The third recital of immediately and in writing of the decision the latter regulation states that 'certain of taken on their tender. It must also notify the the conditions governing special sales by intervention agencies holding the alcohol. tender for the use of vinous alcohol in the

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without accompanying documentation 26. In mid-1990, a fresh round of tenders establishing its origin. The applicant also was prepared. On 5 September 1990, the takes issue with the Commission's assertion Commission adopted two regulations that it is more difficult to monitor the use of opening special sales by tender of vinous alcohol when it is blended with petrol than alcohol held by intervention agencies for use when it is used in the production of as motor fuel within the Community. Regu- additives. The applicant challenges that lation No 2575/90 made provision for a assertion on the ground that, in the course special sale by tender No 5/90 to be held. of blending alcohol with petrol, no chemical The total quantity involved was 3 200 000 reaction occurs. The blend therefore hectolitres, expressed in terms of hectolitres contains exactly the same quantity of of alcohol at 100 per cent volume, alcohol that has been added and this can consisting of five lots of 640 000 hectolitres. easily be checked. When alcohol is used to The alcohol in question was held by the produce the additive ETBE, however, a Spanish, French and Italian intervention chemical reaction occurs which is said to agencies. Commission Regulation make it difficult to determine how much No 2576/90 made provision for a special alcohol has been used to produce it. The sale by tender No 6/90 to be held. The applicant maintains that, in practice, the total quantity involved this time was cost of processing alcohol into petrol 1 600 000 hectolitres, expressed in terms of additives is too high for it to be of serious hectolitres of alcohol at 100 per cent interest to undertakings contemplating the volume, consisting of five lots of 320 000 purchase of alcohol from intervention. hectolitres. The alcohol involved was held by the French and Italian intervention agencies.

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removal guarantees of ECU 40 per 30. On 26 November 1990, the hectolitre of alcohol at 100 per cent volume Commission also adopted Regulation for the removal of the alcohol constituting No 3391/90 (OJ 1990 L 327, p. 23) the first lot. amending once again Regulation No 1780/89. One of the effects of the new regulation was to alter the system of guar- antees. Its first recital states:

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No 1780/89 to enable the price paid for the The issues before the Court alcohol involved to ‘follow more closely the fluctuation of fuel prices on international markets’ (second recital).

34. Before I turn to the substance of the parties' claims, there are two preliminary matters which need to be addressed. First, it appears from the application that the applicant seeks the annulment of the Commission decisions of 18 October 1990 not to take action in respect of special sales 32. The notices of invitation to tender in Nos 5/90 and 6/90 and it seems to be in respect of special sales Nos 7/90 and 8/90 this sense that the application was both stated (see their third introductory understood by the Commission. Although paragraphs) that tenderers had to comply not addressed to the applicant, those inter alia with the provisions of Regulation decisions were clearly of direct and indi- No 1780/89, as last amended by Regu- vidual concern to it, thus giving it standing lation No 3391/90. The applicant points under Article 173 of the Treaty, and the out, however, that the regulations opening Commission does not contest the admissi- those special sales, Regulations Nos bility of the application. 3389/90 and 3390/90, both stated (see their first recitals) that Regulation No 1780/89 was last amended by Regulation No 2568/90. The Commission says that the reference to the latter regulation was an 35. However, the applicant suggests in its error and that all the tenderers acted on the reply that the application is in fact directed basis that special sales Nos 7/90 and 8/90 at the letters sent by the Commission to the were subject to the amendments to the applicant on 21 November 1990, which the guarantee system introduced by Regulation applicant considers embody decisions No 3391/90. In my view, nothing turns on addressed to it. If those letters were really this discrepancy. the subject of the application, the action would in my view be inadmissible, for they merely informed the applicant of the contents of decisions which had already been adopted. The letters did not in them- selves produce any legal effects on the applicant and are not therefore susceptible to review under Article 173.

37. Secondly, the Commission contends in its defence that the tender submitted by the 39. The applicant made an application to applicant in respect of special sale No 6/90 the Court for interim measures suspending was invalid, on the ground that it was not the application of the regulations opening accompanied by proof that a tendering special sales Nos 7/90 and 8/90 until security had been lodged with one of the judgment had been given in the main action. intervention agencies involved, as required That application was rejected by order of by the notice of invitation to tender. In its the President dated 19 December 1990. reply, the applicant accepts the Commission's contention and withdraws its claim in respect of the decision relating to special sale No 6/90. The only issue with which the Court is concerned is therefore the legality of the decision relating to special sale No 5/90 and the consequences 40. The essence of the Commission's case is should that decision be quashed. that it took the steps it considered necessary in good faith in the light of the conditions prevailing on the relevant markets. It claims that it is in some circumstances entitled not to take action on bids received even where the conditions laid down in the notices of invitation to tender are satisfied. It argues 38. The essence of the applicant's case is that it must sometimes err on the side of that the Commission was obliged to award caution. In this case, it maintains that it was special sale No 5/90 to the highest bidder. objectively justified in taking no action in It alleges that the reason the Commission respect of special sale No 5/90 and in declined to do so was that it wanted to subjecting special sale No 7/90 to more award the contract to another company. stringent conditions. According to the applicant, the Commission therefore rejected the applicant's tender and then set conditions which the applicant was unable to satisfy and which excluded it from being able to submit a tender for special sale No 7/90. The applicant argues that, once the tender conditions have been set, the 41. The applicant is a joint venture whose Commission is obliged to award the main shareholders are Palfin SpA, of contract to the highest bidder complying Naples, Italy, parent company of the Palma with those conditions. Furthermore, the group, and Distilleria del Salento SpA, of applicant maintains that the Commission's Gallipoli, Italy, a company belonging to the unlawful refusal to award a contract to the Marrone group. Companies from both highest tenderer under special procedure groups are active in the alcohol business and No 5/90 means that it could not legally participate regularly, and sometimes proceed to organize a second round of successfully, in tenders for the sale of

alcohol from the Community's intervention tenders turned out to have been submitted stocks. The applicant was set up because by the applicant. The Commission is said to neither the Palma group nor the Marrone have displayed some reluctance to award group had sufficient resources to participate the contracts to the applicant. Accordingly, independently in the large special sales by in late September 1990 a director of the tender which are the subject of these applicant travelled to Brussels to provide the proceedings. The applicant entered into an Commission with further information about agreement with a United States firm called the applicant and to dispel any doubts the Tropicana Investments, which is based in Commission may have had about the Irving, Texas, in order to assist it in applicant's credentials. Notwithstanding the processing and disposing of the alcohol applicant's endeavours, the Commission involved. decided not to take any action on the tenders submitted, but instead to open a second round of tenders under stricter guarantee conditions. The applicant claims that the purpose of the new guarantee conditions was to make it more difficult for smaller companies like itself to submit tenders and thereby to leave the way clear for larger companies like Union Carbide. 42. The applicant says that it became aware in the course of 1990 that the Commission had come to an arrangement with Union Carbide, a large chemical company, under which Union Carbide would build a plant for the processing of alcohol for use in the fuel sector if the Commission agreed to supply it on an exclusive basis with all the alcohol sold out of intervention for that use over a five year period. According to the applicant, it was to give effect to that 44. The applicant argues that the arrangement that special sales Nos 5/90 and Commission's decision of 18 October 1990 6/90 were opened. Indeed, the applicant is unlawful for two reasons. First, the alleges that, after it had submitted its Commission is alleged to have acted in tenders, it was told by the competent breach of the requirements of Regulations Commission official that those special sales Nos 822/87 and 3877/88, and in particular had been specifically designed to give effect the provisions of those regulations requiring to the arrangement with Union Carbide. equality of access to the merchandise and equality of treatment of prospective purchasers to be guaranteed (sec Article 40(3) of Regulation No 822/87 and Article 1(2) of Regulation No 3877/88). According to the applicant, the approach taken by the Commission can only be explained by a desire to exclude smaller companies like the applicant from access to the quantities of 43. The applicant alleges that the alcohol involved. Secondly, it is said that the Commission expected the tenders submitted reasoning of the contested decision is inad- by Union Carbide to be the highest and was equate to satisfy the requirements of Article somewhat taken aback when the highest 190 of the Treaty.

48. The applicant points out that any expectation the Commission might have had that a second round of tenders would produce higher prices proved unfounded. The highest bid received for special sale No 5/90 was the applicant's bid of ECU 4.52 per hectolitre. The successful tenderer for special sale No 7/90 bid only ECU 3 per hectolitre. The applicant adds that the Gulf crisis cannot in any event have played 46. Moreover, the Commission contends a part in the Commission's thinking, since that the context in which decisions on the crisis had already started when the special sales Nos 5/90 and 6/90 had to be notice in respect of special sale No 5/90 taken was altered by the intervention of the was published and had been going on for Gulf crisis. The Commission claims that the some time by the time the contested resulting uncertainty over fuel stocks made decision was adopted. Moreover, the fuel prices extremely volatile and created a applicant points out that the Commission real possibility that prices might increase was prepared to accept bids of ECU 3 per dramatically. As a result, it claims that hectolitre in January 1991, when the Gulf alcohol fuel substitutes became much more war had just started and the climate was, if marketable. Thus, the Commission took the anything, even more uncertain than it had view that, in the short term at least, prices been the previous October. In any event, for fuel substitutes might continue to rise according to the applicant, any short-term and that a second round of bids might effect which events in the Gulf might have produce better offers. had on fuel prices could not reasonably

49. The Commission maintains that it was entitled to take account of factors which were not specifically mentioned in the tender conditions, particularly changes in The responsibilities of the Commission market conditions. It insists that it had a reasonable expectation that a second round of tenders would produce better offers and that it was not able to predict the future course of events, in particular that the 51. Before I consider these arguments, there oil-exporting countries would succeed in are certain factual matters which should in making good the shortfall due to the with- my view be emphasized. First, although the drawal of Iraqi and Kuwaiti oil from the applicant claims that special sales Nos 5/90 market. In any event, the Commission and 6/90 were opened to enable the points out that, although the tender which quantities of alcohol involved to be sold to was ultimately accepted was lower than the Union Carbide, the applicant acknowledges applicant's tender for special sale No 5/90, in its reply that Union Carbide did not it was accompanied by stricter guarantee actually submit a valid tender for either conditions and a more detailed automatic special sale. I shall return to this aspect of price increase mechanism. the case below. Secondly, members of both the Palma and the Marrone groups of companies submitted tenders for special sale No 8/90 and the contract was in fact awarded to a member of the former group. This suggests that the Commission had no particular objection to awarding contracts to either group under appropriate 50. The Commission adds that it was not conditions. convinced that the contract for special sale No 5/90 could safely be awarded to the applicant, which had been specially set up to submit tenders for special sales Nos 5/90 and 6/90. The Commission maintains that, in view of the large amounts at stake, the 52. The Commission goes further and financial standing of the applicant might argues that the fact that both groups have proved inadequate, given the limited submitted tenders for special sale No 8/90 liability of its shareholders, if the contract shows that they could have submitted a joint was not properly performed. The new tender for special sale No 7/90, which was investment envisaged by the applicant was for twice the quantity of alcohol. However, considered modest, so that the threshold at the applicant has made it clear that

55. In my view, it follows that the Commission is only required to make an award where it is satisfied that to do so would not disturb the markets, particularly 53. The essential question is therefore those in alcohol and spirituous beverages whether, having validly submitted the produced in the Community, and that, at highest tender for special sale No 5/90, the the time it takes its decision, the price applicant had a right to be awarded the offered by the highest bidder is the highest contract, or whether the Commission was that can reasonably be expected. In this entitled, having regard to all the circum- case, neither of those conditions was stances, to take no action on the sale and to satisfied. The Commission took the view launch a new sale under stricter conditions. that the amount of investment in new plant The answer to that question must be sought which was to be made by the applicant in the first instance in the legislation relating offered insufficient certainty that it would to the disposal of alcohol obtained from the complete the contract if it was awarded to it distillation operations referred to in Regu- and that the use to which the applicant lation No 822/87. intended to put the quantity of alcohol involved would be difficult to monitor. It also took the view that the situation in the Gulf at the time it took its decision was such that a second round of tenders might produce higher bids.

obtained from distillation allows the Commission's alleged arrangement with Commission a margin of discretion. In order Union Carbide. Although Union Carbide to establish that the Commission abused that submitted tenders in respect of both special discretion, it is not enough to show that it sale No 5/90 and special sale No 6/90, made errors of judgment. I am not in any those tenders were inadmissible since they event convinced that any such error was were out of time. Thus, even if the applicant made in the present case. The only factor had not submitted a tender, the contract that might be so described is the could not have been awarded to Union Commission's decision not to accept a Carbide. This is not in itself inconsistent tender which, at ECU 4.52 per hectolitre, with the applicant's version of events. was substantially higher than the tender of However, it is significant that Union ECU 3 per hectolitre it subsequently Carbide did not take part in the second accepted. It will be observed, however, that round of tenders. Moreover, the suggestion the successful tender was accompanied by that the Commission was unwilling to stricter guarantee conditions offering contemplate the award of a contract to the greater safeguards that the contract would applicant is undermined by the applicant's be properly performed. As I have already own admission that sister companies of the pointed out, under the relevant legislation applicant's main shareholders regularly the need to ensure proper performance obtain contracts for the sale of alcohol from takes priority over the need to achieve the the Community's intervention stocks. best price. Moreover, the lower price can be Indeed, as I have pointed out, one of those partly explained by the higher cost of companies was awarded the contract in meeting the stricter guarantee requirements. respect of tender No 8/90. Seen in this light, it is by no means self- evident that an award to the applicant under special sale No 5/90 would have served the interests of the Community better than the awards made under special sales Nos 7/90 58. I would therefore reject the applicant's and 8/90. complaint that, by deciding to take no action in respect of special sale No 5/90, the Commission acted in breach of the legis- lation relating to the disposal of alcohol obi ained from distillation and that it mi.'used the powers conferred on it.

60. The preamble to the contested decision, C-269/90 Hauptzollamt München-Mitte v which the Commission describes as 'tele- Technische Universität München [1991] ECR graphic', states: 'au vu des offres reçues I-5469, paragraph 26. Nevertheless, the pour le premier lot et compte tenu de la Court accepted in Case C-350/88 Delacre situation actuelle du marché mondial des and Others v Commission [1990] ECR 1-395, carburants, il y a lieu de ne pas donner suite at paragraph 16, that: aux offres concernant l'adjudication parti- culière no. 5/90 CE' [In the light of the tenders submitted for the first lot and having regard to the present situation in the world fuel market, no action should be 'It is not necessary, however, for details of taken in respect of the tenders submitted for all relevant factual and legal aspects to be special sale No 5/90]. The letter sent to the given. The Court has consistently held that applicant by the Commission on 21 the question whether the statement of the November 1990 was in substantially the grounds for a decision meets the same terms, stating that the Commission requirements of Article 190 of the Treaty had decided not to accept the applicant's must be assessed with regard not only to its tender 'au vu des offres reçues et compte wording but also to its context and to all the tenu de la situation du marché mondial des legal rules governing the matter in carburants'. question. . . Moreover, the degree of precision of the statement of the reasons for a decision must be weighed against practical realities and the time and technical facilities available for making the decision.'

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discussions which lead up to the adoption of if the measure is challenged. It is for this a measure and is therefore aware of the reason that 'the statement of reasons must main reasons on which that measure is in principle be notified to the person based, a brief statement of those reasons concerned at the same time as the decision may be acceptable: see Joined Cases 172/83 adversely affecting him': Case 195/80 and 226/83 Hoogovens Groep v Commission Michel v Parliament [1981] ECR 2861, [1985] ECR 2831, paragraph 27. Moreover, paragraph 22. Only where this is imprac- the applicant's main shareholders are ticable does the Court permit a full specialist undertakings with considerable statement of reasons to be communicated to experience of the fuel market and the interested parties at a later stage: see Case disposal of distilled alcohol. As the 16/65 Schwarze v Einfuhr- und Vorratsstelle Commission points out, their knowledge of Getreide [1965] ECR 877, at p. 888. the context in which the contested decision was adopted cannot be compared with that of a lay person.

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the Gulf crisis on the price it thought could statement of reasons may be given where be obtained and on the adequacy of the those affected by a measure have been guarantee arrangements. However, the Gulf involved in the discussions preceding its crisis is not mentioned in the preamble to adoption. The statement of reasons the contested decision. contained in the act contested in that case, however, was a good deal more detailed than that contained in the decision at issue in these proceedings. In my view, the preamble to that decision is inadequate to satisfy even the more relaxed test laid down in Hoogovens.

69. I conclude that the statement of reasons contained in the preamble to the contested decision is inadequate to satisfy Article 190 67. It is true, as I have mentioned, that the of the Treaty and that that decision should Court accepted in Hoogovens that a brief therefore be declared void. In the circum-

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stances of the present case, however, the option which the Commission could nullity of the contested decision does not in lawfully choose. There is no causal link my view have any practical consequences. In between any such loss and the inadequacy particular, it would be futile to require the of the statement of reasons, since the Commission to adopt a new decision having applicant was well aware of the reasons the same effect, but setting out in more behind the contested decision. In any event, detail the reasons, since I consider that these it may be doubted whether there can ever be were in any event already known to the such a link between a failure to give applicant. Since the Commission was in my adequate reasons and loss attributable to a view entitled not to take any action in measure which is otherwise lawful. This respect of special sale No 5/90, the may have been one of the reasons for the invalidity of the contested decision has no Court's decision in Case 106/81 Kind v bearing on the legality of the second round EEC [1982] ECR 2885, to the effect that an of tenders, which the Commission was free inadequacy in the statement of the reasons to organize under conditions it considered on which a measure is based is not sufficient appropriate. to make the Community liable under the second paragraph of Article 215. 70. I consider that the applicant's claim for damages should be dismissed. Any loss which the applicant may have suffered 71. Since the applicant has succeeded in an results from the Commission's failure to important part of its claim, I consider that take action in respect of special sale the Commission should be ordered to pay No 5/90, yet on the view I take that was an the costs.