T-451/93

Commission of the European Communities, represented by Hans Peter Hartvig, Legal Adviser, and Claire Bury, a national official seconded to the Commission, acting as Agents, with an address for service in Luxembourg at the office of G. Kremlis, of the Commission's Legal Service, Wagner Centre, Kirchberg,

defendant,

A P P L I C A T I O N for compensation under Article 178 and the second paragraph of Article 215 of the EEC Treaty for damage suffered in connection with a public

* Language of the case: English.

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SAN MARCO v COMMISSION

Judgment

Summary of the facts

1 O n 3 March 1987, the Commission, acting on behalf of the Community, concluded a financing agreement with the Somali Democratic Republic by which it agreed to finance a project put forward by the Somali Government for the design and con- struction of five bridges across the Shebelli River and one bridge across the Juba River, together with the construction of associated access roads. This agreement

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was concluded under the second A C P - E E C Convention, signed at Lomé on 31 October 1979, (OJ 1980 L 347, p. 1 hereafter 'the Second Lomé Convention') and the funds were made available from the Fifth European Development Fund ('the EDF').

4 The contract stipulated that payments were to be made both in local and foreign currency with a percentage division of 12/88 respectively. All local currency pay-

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ments were to be authorized by the National Authorizing Officer, endorsed by the Commission delegate and paid through banks locally. Foreign currency payments were to be authorized by the National Authorizing Officer, endorsed by the Com- mission delegate but paid via the Commission in Brussels.

5 The works commenced in May 1988.

6 By letter of 6 November 1988, Consulint informed the Ministry of Public Works and Housing of the difficulties encountered in finding, sufficiently close to the sites, one of the sub-base materials for the access roads. In order to resolve the problem, Consulint suggested changing the composition of the sub-base materials for four of the six roads concerned, entailing an increase in the unit cost for them from E C U 4.5/m 3 to E C U 14.3/m 3 . It considered that that increase in the unit cost would give rise, for the four roads involved, to an extra cost of about E C U 200 000. For the two other roads, the letter stated that the engineer was studying 'another technical solution that will suit both requirements: technical and financial'. A copy of that letter was sent to the Commission delegation and received by it on the same day.

10 By letter of 25 April 1989, the Ministry of Public Works and Housing asked the National Authorizing Officer to authorize the Commission delegate to request additional financing of about E C U 1 615 000 for the project in order to take account, among other things, of the price increases of certain materials (cement, steel, diesel oil, labour) and the difficulties caused by the unsuitability of one of the sub-base materials for the access roads.

1 1 By letter of 8 May 1989, the National Authorizing Officer informed the Ministry of Public Works and Housing of his refusal to request additional funding on the ground, inter alia, that any price revision liable to increase the cost of the project should have been the subject of a prior request to the Commission delegate and the National Authorizing Officer. A copy of that letter was sent to the delegate.

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12 By note of 14 June 1989, the delegate asked the Commission Directorate-General for Development to take the necessary preparatory steps in the event of the National Authorizing Officer agreeing to lodge a request for increased funding. H e emphasized that he considered that the applicant's work was carried out to a high standard and that the extra cost appeared to be justified on purely technical grounds. He also stated that the additional costs derived in particular from a deci- sion to change the structure of the bridges, the increase in the unit cost of the sub- base materials, the need to change the location of certain bridges and changes made necessary by land erosion and an irrigation project.

i7 By letter of 6 February 1990, the Commission delegate informed the Department of Highways that he was not able to endorse the addendum submitted. H e sug- gested a modified version and submitted it for signature in the following terms: 'I enclose copies of the proposed addendum and, to settle this matter, I should be grateful to receive it signed as soon as possible and endorsed by the National Authorizing Officer of the E D F ' .

is The revised version of the addendum was signed by the applicant on 10 February 1990, by the Minister of Public Works on 7 February 1990 and by the National Authorizing Officer on 17 February 1990; it was then sent to the Commission del- egate, who received it on 1 March 1990.

i9 O n 1 March 1990, the Commission delegate wrote to the Ministry of Public Works informing it that he refused to endorse the addendum, essentially on the ground that the applicant was not entitled to a unit price revision for sub-base materials. In a further letter of the same date, also addressed to the Ministry of Public Works, the delegate emphasized that, in addition to the matter of the composition of sub- base materials, he still awaited from the applicant supporting details for the price revisions for cement (+50%) and steel (+60%). For that reason also, he was unable to endorse the addendum.

20 O n 6 June 1990, the delegate, after consulting the Commission Legal Service, informed the National Authorizing Office of the EDF's final position concerning the increase in the unit price for sub-base materials and the revision of prices for certain other materials. The EDF's view was that the increase in the unit price for sub-base materials was contractually prohibited by virtue of the fact that the ten-

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24 Article 60 of the Financial Regulation applicable to the Fifth E D F (OJ 1981 L 101, p. 12), to which reference is made in the first paragraph of this letter, provides:

'Where the chief authorizing officer of the E D F is aware of delays in the proce- dures relating to projects financed by the E D F he shall, in conjunction with the national authorizing officer, make all contacts necessary to remedy the situation.

If, for any reason whatsoever, services have been rendered but further delay in the clearance, authorization or payment gives rise to difficulties likely to call into ques- tion the full performance of the contract, the Chief Authorizing Officer may take all appropriate measures to resolve these difficulties, to remedy, where necessary, the financial consequences of the resultant situation and, more generally, to enable the project or projects to be completed under the best economic conditions. H e shall inform the national authorizing officer of such measures as soon as possible. If payments are thus made by the Commission to the beneficiary of the contract, the Community shall automatically acquire that beneficiary's right as creditor vis- à-vis the national authorities.'

25 Article 93(1) of the General Conditions, to which reference is also made in this let- ter, provides that where the administration unilaterally orders the definitive cessa- tion of performance of the contract, the latter shall be immediately terminated and that the contractor is entitled to compensation for any loss which such termina- tion, not attributable to him, may have caused him.

29 By letter of 15 April 1992, the Commission rejected the claim made by the appli- cant's lawyers on the grounds that, essentially, it was physically impossible to ver- ify the claim, that certain parts of it had been contested by the Somali Government, that the amount claimed far exceeded the funds available and that the Chief Autho- rizing Officer, acting for the National Authorizing Officer, had a limited mandate under Article 60 of the Financial Regulation.

Procedure and forms of order sought by the parties

30 By application lodged at the Registry of the Court of Justice on 7 July 1992, the applicant brought the present action for compensation. The written procedure

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before the Court of Justice was completed on 4 February 1993 upon lodgement of the rejoinder. Following the entry into force on 1 August 1993 of Council Deci- sion 93/350/ECSC, E E C , Euratom of 8 June 1993, amending Decision 88/591/ECSC, E E C , Euratom establishing the Court of First Instance of the Euro- pean Communities, the case was referred to the Court of First Instance by order of the Court of Justice of 27 September 1993.

(i) dismiss the application as unfounded;

(ii) order the applicant to pay the costs.

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SAN MARCO v COMMISSION

The first head of claim: non-payment of certain invoices

The parties' arguments

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that, by virtue of a principle common t o all the Member States, a creditor may seek from the debtors of its debtor the amounts which they owe to the latter. Respect of the principle of legal certainty implied an obligation on the Commission to take the steps necessary to remedy delays in payment.

36 The third fault is that the Commission acted in breach of the applicant's legitimate expectation. The applicant argues that, in the manner in which it granted additional funding to pay for the changes requested by the National Authorizing Officer and in the manner in which it amended Addendum N o 1 and sent it for signature, the applicant was entitled to expect the Commission to sign the addendum and to pay the invoices relating to it.

37 The fourth fault identified by the applicant is that the Commission's administra- tion is inadequately organized. The applicant argues that since the Chief Autho- rizing Officer had taken the decision t o grant additional funding and since all the other parties had signed Addendum N o 1 in the terms required by the Commis- sion, the latter was under an obligation to so arrange matters that it signed Adden- d u m N o 1 itself and also that the invoices in respect of the works in question were paid in accordance with the terms of that addendum. Its failure to do so amounts to an inadequate organisation of its services.

38 A s regards t h e first fault w h i c h the applicant alleges t h e delegate c o m m i t t e d , t h e Commission submits that its actions were consistent with the allocation of powers under the Convention and that its delegate was fully entitled to refuse to endorse the addendum since he considered that the conditions for Community funding were not met. If that were not the case, the Commission's ability to ensure the protection of E D F funds would be undermined.

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The Court's assessment

42 In its first head of claim, the applicant is seeking compensation for damage it alleges it suffered as a result of the delegate's refusal to endorse certain invoices. It is important to bear in mind that in assessing this claim the Court is not making any determination regarding the applicant's contractual entitlement to the amounts claimed in these invoices. This is an issue to be determined by arbitration, in accor- dance with Article 132 and Annex XIII of the Second Lomé Convention, and not by this Court, whose jurisdiction under Article 178 and the second paragraph of Article 215 of the E E C Treaty is limited to issues of non-contractual liability. In any event, it is clear from the papers before the Court that there is no contractual relationship between the applicant and the Commission and, indeed, this is wholly consistent with the view expressed by the Court of Justice according to which EDF-financed public works contracts are to be considered as national contracts involving only the A C P State and the contractor (Case 33/82 Murri Frères v Com- mission [1985] E C R 2759).

43 However, although there is no contractual relationship between the Commission and the applicant, it is clear from the case-law of the Court of Justice that the Commission may be liable under Article 215, second paragraph, of the EEC Treaty to make good damage suffered by third parties as a result of acts committed by the delegate in the performance of his duties (Case 118/83 CMC v Commission [1985] E C R 2325).

47 As regards, first of all, the question of whether delegates are ever entitled to refuse to endorse, the Court notes that Article 108(4)(f) of the Second Lomé Convention provides that 'the Community and the A C P States shall bear joint responsibility for ensuring that the projects and programmes financed by the Community are executed in accordance with the arrangements decided upon and with the provi- sions of the Convention'.

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48 To this end, Article 123(3) of the Second Lomé Convention provides:

'(a) The delegate shall make sure, on behalf of the Commission, that the projects and programmes financed from the Fund's resources administered by the Commission are properly implemented from the financial and technical angles.

(b) Accordingly, the delegate shall endorse contracts, riders thereto and estimates, as well as payment authorizations issued by the national authorizing officer.'

52 In these circumstances, the Court can only assess the applicant's claim to the extent that it is founded on an alleged wrongful refusal on the part of the delegate to endorse invoices incorporating price increases for cement, bitumen and steel, on the one hand, and an increase in the unit-price for the sub-base material for the access roads, on the other hand.

53 The price increases for cement, steel and bitumen were refused by the delegate because they were not supported by proof of an increase in the market price of these materials at point of origin or of their effective incorporation into the works.

54 In the Court's view, it is clear from Article 79(l)(iii) of the Special Conditions that increases in the costs of materials are to be allowed to the contractor only where there has been an increase in market price of these products between the date of tender and the date of purchase.

55 In these circumstances, the Court considers that the delegate was entitled to require the proofs in question and to refuse to endorse the invoices until these proofs were produced. This was particularly the case as research carried out by him tended to suggest that there had been no increase in the market price of the type of cement in question during the relevant period.

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6i Also, the evidence produced by both the Commission and the applicant itself shows that the additional costs to the project arising from the increased unit-price were incurred without obtaining prior approval from the appropriate national authority, the National Authorizing Officer.

62 In these circumstances, and taking account of the fact that the unit-price tendered was in fact less than one third of the unit-price ultimately charged, the Court con- siders that the delegate was entitled to refuse to endorse the relevant invoices.

63 In reaching this conclusion, the Court is also rejecting the argument put forward by the applicant according to which the Commission should bear responsibility for acts committed by Consulint who, the applicant claims, gave it no choice but to use the more expensive sub-base components. As is clear from the documents before the Court, Consulint was appointed to supervise the implementation of the works under a contract concluded with the Somali Government and can in no way be considered as having acted as an agent of the Commission.

64 For these reasons, the Court concludes that the delegate did not exceed his powers in refusing to endorse the relevant invoices.

68 In any event, even if it was established that the applicant is contractually entitled to claim payment of the contested invoices against the Somali Government, it would not necessarily follow that these amounts could then be claimed against E D F funds, since these funds can only be released for expenses which are justified having regard to the applicable legislative and contractual provisions.

69 For these reasons, the Court concludes that there was no breach of duty on the part of the delegate in refusing to endorse the invoices.

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The third fault: breach of the principle of legitimate expectation

70 The applicant considers that in view of the Commission's conduct it had a legiti- mate expectation that the delegate would endorse the contested invoices.

first of these, namely the invoice issued on 31 December 1989, the applicant has provided no proof whatsoever that it relates to expenditure incurred after the appli- cant was informed of the decision to grant additional funding. As regards the two invoices issued in May 1990, the applicant has provided no proof that they relate to expenses incurred before 1 March 1990, the date on which the delegate made clear beyond any doubt that he had no intention of endorsing invoices incorpo- rating the increased unit-price of the sub-base material or price revisions for mate- rials which were not justified by reference to market prices.

75 For these reasons, the applicant's argument founded on a breach of its legitimate expectation has to be rejected.

The fourth fault: inadequate organization of the Commission's services

76 As the Commission has correctly pointed out, the applicant's fourth argument pre- supposes a duty on the part of the Commission to endorse the invoices. Since the Court has established that no such duty existed, it follows that the fourth argument must be rejected.

77 In any event, the Court considers that where an applicant is seeking compensation for damage which it alleges was caused b y the inadequate organization of the defen- dant institution's administration, it must at least identify some malfunction of the administration giving rise to the damage in question. In this case, the applicant has not produced any argument or evidence from which the Court can deduce that the Commission's administration failed to operate correctly.

80 The applicant considers that the Commission's refusal to provide compensation for t he damage suffered as a result of cancellation of the contract must be regarded as a fault rendering it liable since it constitutes non-performance of an obligation, derives from inadequate organization of the Commission's administration and infringes the principles of legal certainty and of the protection of legitimate expec- tations.

81 The Commission argues that by terminating the contract it merely acted within the limits of Article 60 of the Financial Regulation, which forms an integral part of the

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Financing Agreement by virtue of Article 7 of the latter. It considers that its pow- ers under Article 60 relate only to its commitments and responsibilities as set out in the Financing Agreement and that, therefore, it could not be held liable in respect of all claims relating to the contractual relationship between the Somali Government and the applicant.

82 The Commission also argues that, even though it did not expressly say so in its let- ter of 1 March 1991, it intended to settle claims only to the extent to which they were justified and were covered by existing commitments (that is to say, up to E C U 5 million). However, the applicant submitted a consolidated statement in an amount far beyond the balance still available, containing a number of claims which were disputed by the Somali authorities. In those circumstances, and in view of the fact that physical verification of the works was impossible, the Commission decided to await a new stable Government in Somalia before making a final deci- sion.

As far as claims relating to your consultancy services (sic) incurred u p to 28 Feb- ruary are concerned, you are kindly requested to submit these claims to the Com- mission of the European Communities, Directorate-General for Development... .'

84 Counsel for the Commission accepted at the oral hearing that the reference to 'con- sultancy services' in this letter is a mistake. The letter, apparently, was in a standard form. Both parties have proceeded on the basis that the letter intended to refer t o contractual services.

85 It is clear from the applicant's pleadings that its second head of claim can be divided into two distinct sub-heads. The first sub-head concerns amounts arising under the works contract prior to its termination on 1 March 1991. These amounts were claimed in section 2 of the consolidated statement of account submitted on 7 Feb- ruary 1992 (annex 43 to the application) and relate to costs arising as a result of the disruption and prolongation of the contract. In the second sub-head, the applicant is claiming compensation for losses suffered by it as a result of the termination of the contract on 1 March 1991. These amounts were claimed in section 3 of the abovementioned consolidated statement of account and relate primarily, but not exclusively, to the alleged destruction and theft of plant and equipment and the repatriation of staff.

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86 In assessing these claims it is important, once again, to emphasise that the purpose of the present proceedings is only to determine whether the Commission commit- ted a fault which caused damage to the applicant and that it is not for this Court to determine any contractual rights which the applicant may have against the Somali Government arising out of the works contract.

90 In this regard, the Court notes, first, that it has not been argued by the applicant that the Commission is responsible for the disruption or delays which gave rise to the costs claimed in section 2 of the consolidated statement. N o r has any evidence been produced which could lead the Court to such a conclusion.

91 Secondly, it is clear that since the Commission was not a party to the works con- tract, there could be no contractual duty upon it to meet the claim. If the applicant considers that it is contractually entitled to the amounts claimed in section 2 of the consolidated statement, this is a matter to be determined by arbitration in accor- dance with Article 132 and Annex XIII of the Second Lomé Convention.

92 Finally, the Court does not consider that a duty to meet the claim could have arisen as a result of the Chief Authorizing Officer's decision to invoke Article 60 of the Financial Regulation applicable to the Fifth EDF. This provision, which forms the legal basis for the invitation issued by the Chief Authorizing Officer to submit claims, allows the Commission, inter alia, to transfer funds to contractors other than on foot of a payment authorization issued by the National Authorizing Officer. It is an exceptional measure which was invoked in this case because the National Authorizing Officer was unable to fulfil his functions following the out- break of civil war.

93 It is clear from its wording (see paragraph 24 above) that Article 60 allows but does not oblige the Commission to make payments to a contractor where delays in clear- ance or authorization occur at national level.

98 It follows that there was no breach of the applicant's legitimate expectations or of the principle of legal certainty.

99 Finally, the applicant argues that the refusal to compensate it derives from an inad- equate organization of the Commission's services and is therefore in breach of the principle of sound administration.

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îoo In the Court's view, this argument presupposes a duty on the part of the Commis- sion to meet the claim. Since the Court has established that no such duty exists, this argument must be dismissed as irrelevant.

101 In any event, as the Court pointed out in its assessment of the first head of claim, where an applicant seeking compensation under Articles 178 and 215 of the Treaty bases its argument on an alleged failure by an institution to organize properly its services, it must at least identify some particular malfunction of the defendant's administration. In this case, the applicant has not identified any particular malfunc- tion of the administration.

Conditions gave rise to a duty on the part of the Commission to compensate the applicant for the losses arising from the termination.

ios The Court notes that Article 93(1) of the General Conditions pursues two separate objectives. In the first place, it can be considered as providing a legal basis for the termination of EDF-financed contracts, prior to completion of the works, by the A C P State. Secondly, it also provides that where such termination occurs the con- tractor is entitled to be compensated for loss arising from the termination which is not attributable to him.

toe Since EDF-financed contracts are national contracts, Article 93(1) envisages that they be terminated by the A C P State and not by the Commission. However, in the present case, it was not the A C P State but the Director-General of the Commis- sion's Directorate-General for Development, acting in his capacity as Chief Autho- rizing Officer, who terminated the contract. H e took this initiative because it was clear to him that, as a result of the civil war, the National Authorizing Officer was no longer in a position to exercise his authority. The civil war in Somalia had bro- ken out in December 1990 and the Somali Government had been overthrown shortly afterwards so that by March 1991 there was no government to maintain law and order and no minister to exercise the powers of the National Authorising Officer.

io? In the Court's view, the fact that the Chief Authorizing Officer used Article 93(1) of the General Conditions as a legal basis for terminating the contract in these cir- cumstances does not imply that the Commission is liable to pay any compensation to which the applicant may be entitled under this provision. In any event, it has not been established that any damage alleged to have been suffered by the appli- cant resulted from the termination of the contract by the Chief Authorizing Officer.

1 1 2In the Court's opinion, it is clear from a reading of the letter of 1 March 1991 that it could not have given rise to a legitimate expectation on the part of the applicant that the Commission would compensate it for losses resulting from the termina- tion of the contract. The last paragraph of the letter, although it specifically invites the applicant to submit claims for work done up to the date preceding the termi- nation, makes no reference to claims arising as a result of the termination.

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Article 93(1) of the General Conditions was indeed mentioned in the second para- graph of the letter but this was because it forms the legal basis for terminations of EDF-financed contracts. The mere fact that it was mentioned in this context can- not be taken as constituting an undertaking by the Commission to pay compen- sation.

1 1 3It follows that there was no breach of the applicant's legitimate expectations or the principle of legal certainty.

114 The final question to be determined is whether, as the applicant argues, the refusal to compensate it derives from an inadequate organization of the Commission's ser- vices and is therefore in breach of the principle of sound administration.

119 Since the applicant has failed in both heads of claim, the application must be dis- missed.

Costs

120 Under Article 87(2) of the Rules of Procedure, an unsuccessful party is to be ordered to pay the costs if they are asked for in the opposite party's pleadings. Since the applicant nas failed in its submissions, it must be ordered to pay the costs as applied for by the Commission.

O n those grounds,

T H E C O U R T O F FIRST INSTANCE (Fifth Chamber)

hereby:

H.Jung A. Kalogeropoulos Registrar President

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