C-156/97

COMMISSION V VAN BALKOM

4. Under the terms of the contract, the 6. Under Clause 13 of the contract, juris- three companies are jointly and severally diction to rule on any dispute between the liable vis-à-vis the Community. The Com- parties concerning the validity, interpreta- munity's financial support for the execution tion or application of the contract is of the project is fixed at 17% of the actual conferred on the Court of Justice, but cost, excluding VAT, up to a maximum of under Clause 14, the contract is governed ECU 987 343. by German law. Annex I to the contract contains a programme of work which is divided into five phases: 'Engineering', 'Production and Delivery', 'Installation', 'Demonstration' and 'Final Report and Documentation', and is scheduled for com- 5. Clause 8 of the contract provides the pletion by 30 June 1993, and which the Commission with the option of withdraw- Community's partners undertake to comply ing from it in the event of the contracting with under Clause 2. undertakings' failing to fulfil their obliga- tions, whilst the first paragraph of Clause 9 stipulates that:

7. Performance of the contract encountered various problems which led the Commis- sion, on 16 August 1994, to exercise the 'The present contract may be terminated by termination option open to it under Clause any of the signatories, giving two months' 9, cited above, and, on 29 November 1994, notice, where the programme of work set to claim from Balkom the reimbursement out in Annex I becomes inoperative by of a sum of ECU 334 481, including reason, in particular, of a foreseeable interest. To that end, on 8 February 1995, technical or economic failure or an exces- it drew up a recovery order. sive overrun on the costs of the project in relation to the estimates',

10. On 26 August 1991, VBS informed the Commission of DF's withdrawal and told it that the technology which DF was to provide now came under another company 14. So far as this point is relevant, it had in the same group, Deutsche Engineering taken steps to obtain another site, this time der Voest-Alpine Industrieanlagenbau in Thüringen. GmbH, Essen (hereinafter 'DE'), with which VBS had been in contact, so that continuation of the project appeared to it to be fully assured. 15. On 7 October 1991, VBS sent to the Commission the first technical and finan- cial reports, as stipulated in the contract, again referring to the difficulties it was 11. In that same letter, VBS gave assurances encountering in obtaining the necessary that negotiations had begun with DF and administrative permission to construct the that other company in order to draw up the technical facilities. In the light of that necessary contractual provisions, and that report, the Commission made a further the Commission would be kept fully advance payment of ECU 39 169 to VBS. informed of how the negotiations were progressing.

16. On 29 October 1992, VBS sent to the Commission the second technical and 12. Also in that letter, VBS stated that it financial reports, informing it, first, that, would continue to honour its own commit- since the parent company of DF and DE ments ('Selbstverständlich wird sich an der had withdrawn from the high-temperature Einhaltung unserer Verpflichtungen gegen- gasification sector, it had found a new über der EG-Kommission im Rahmen des partner, Veba Oel Technologie GmbH, and Demonstrationsvorhabens nichts ändern') it hoped that the Commission would agree and that, in view of the negotiations which to the latter's involvement and, second, that were under way, it should be assumed that the project required a number of technical

20. On 9 March 1993, the Commission sent a letter to Mr Van Balkom, in his capacity as director of Balkom, following a Lastly, the Commission reserved the right, meeting in which he had taken part on if the time-limit set was not complied with, 3 March, in order to establish the project's to terminate the contract under Clause 9 progress. thereof.

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A copy of that letter was sent to the person discussion', the Commission planned that responsible for the project within VBS. the reimbursement which it was entitled to claim under Clause 9 of the contract could be calculated on the basis of expenditure incurred by the other contracting parties amounting to DM 1 127 800, in so far as 22. On 27 September 1993, Mr Van the corresponding documentary evidence Balkoni, in his capacity as liquidator of was available. VBS, wrote to the Commission in order to inform it of a series of events. It was a matter, first, of the judicial decision refus- ing to allow VBS, by reason of its lack of assets, to initiate bankruptcy proceedings and, second, of Balkom's serious difficulties 26. On 14 April 1994, VBS informed the as a result of the difficulties of the group to Commission of the existence of a buyer, which it belonged. who would be very interested in pursuing the project. By fax of 8 June 1994, the Commission granted to VBS an extension of the time-limit until 30 June 1994.

23. Since Balkom was in a state of insol- vency, it owed its salvation entirely to an agreement between its creditors and its bank and to the arrival of a new investor, who was subsequently to withdraw. In 27. On 29 June 1994, again by fax, VBS's those circumstances, Balkom was not in a lawyer requested the Commission not to state either to continue with the project bring the contract to an end in view of the alone or to meet its commitments in the talks still in progress with a possible buyer. event of termination of its contract with the Commission.

which had been given to it by VBS, which 33. This summary of the events which took had always dealt with all financial matters. place between the time the contract was signed and the time the case was brought before the Court, as it emerges from the documents produced by the parties, may seem a little long, but I think it will prove useful when it comes to assessing the merits of the arguments between the parties, 30. On 29 November 1994, the Commis- which I shall now set out. sion sent a letter to Balkoni and VBS, telling them that it would not set any further time-limits and that, on the basis of accepted expenditure amounting to DM 34. In the view of the Commission, the 943 662.74, that is to say ECU 492 489, it reason for its action being brought solely was claiming from the debtors, who were against Balkom is that, by March 1993 at jointly and severally liable, reimbursement the latest, DF and VBS were no longer of a sum of ECU 251 649, to which would parties to the contract. Moreover, even if be added ECU 82 832 in interest, due as that withdrawal were not valid, Balkom from 16 October 1994, that is to say a total could, by virtue of the joint and several of ECU 334 480. liability agreed between the Community's three contracting parties, still be in receipt of a claim for the whole amount in respect of which the Commission is entitled to seek reimbursement under Clause 9 of the contract. 31. On 8 February 1995, the Commission issued a recovery order for that amount against Balkom and VBS. 35. As regards the termination of the contract, the Commission claims that, since a precise timetable for performance had been agreed from the outset, it is not a contract of unspecified duration within the meaning of German law, which can be 32. Another three letters followed, the first terminated only vis-à-vis all the parties. For from the Commission, dated 30 May 1995, that reason, the termination of the contract proposing to Balkom that it pay off its debt would still have been valid, although it was in instalments, the second from Balkom's not notified to DF, even if, quod non, DF adviser, dated 15 June 1995, rejecting that had still been a party to the contract on the proposal, and the third, also from Balkom's date it was terminated. adviser, dated 28 June 1995, challenging the validity of the recovery order sent to Balkom and complaining that it was unrea- sonable to make it, Balkom, responsible for 36. As regards the merits of the termina- the entire reimbursement, but proposing, tion, the Commission considers that the none the less, that a compromise be sought. conditions of Clause 9, namely a foresee- Finally, the Commission brought the pre- able economic failure, were clearly satisfied sent action on 23 April 1997. in 1994, in view of the various problems

4 1 . Balkom points out in this connection that DF's withdrawal must be regarded as 38. As regards the amount claimed, the assignment of the contract, which may be Commission explains that it has deducted effected only by an agreement between all from the total of the money paid to VBS, the parties, an agreement which, under for which Balkom is jointly and severally Clause 7 of the contract, would have liable, the amount corresponding to 1 7 % needed to be in writing. of the cost excluding VAT of the sums expended, as they appear from the first financial report, which it audited and approved, and points out that, by its letter of 9 March 1993, it had stated that it would make no further payments if admin- istrative permission to construct the facil- 42. The Commission has failed to produce ities were not obtained by 31 December any such document by which the Commis- 1993 at the latest. sion itself, VBS and Balkom agreed with DF the conditions under which DF would withdraw and the transfer of its rights and obligations to its two partners.

39. The Commission adds that it cannot therefore be accused of not having taken action on the second financial report. It claims, moreover, that under the third paragraph of Clause 9 of the contract, on 4 3 . However, even if the termination had the basis of which it terminated the con- been carried out in accordance with formal tract, interest is due as from 1 July 1991, requirements, it would not have been at all since it was on that date that the first phase justified since, according to Balkom, it is of the project, the only one to have been impossible to claim that there was a actually carried out, was completed. foreseeable economic failure.

48. Lastly, as regards the date as from which interest becomes payable, Balkom disputes the date of 1 July 1991 since, in its view, the date of 30 June 1991 cannot be regarded as the end of the first phase of 45. At the stage reached in the execution of execution of the project, which actually the project, there were no grounds for continued well beyond that dale. stating that the cost of investment would ultimately exceed that amount. Admittedly, the execution of the project had encoun- tered difficulties leading to delays in rela- tion to a schedule based purely on esti- mates, but that by no means supports the Assessment conclusion that there was a foreseeable economic failure within the meaning of the contract. 49. How can one decide between these totally conflicting arguments? I think that, in order to proceed methodically towards a solution, it is necessary to isolate the various issues. In order to ascertain whe- ther the Commission is indeed entitled to 46. Taking its argument a step further, the amount which it is claiming from Balkom contends that the Commission Balkom, it is necessary to examine, first was not able to rely on the third paragraph of all, the validity of its decision to bring of Clause 9 in order to claim repayment of the contract to an end. That validity an overpayment because, since the work depends, in turn, on two conditions: did had not been completed, it was not possible the Commission comply with the formal to calculate the amount of any overpay- requirements laid clown for that termina- ment, and seeks to exercise a right to tion, and was the Commission entitled, in retention over part of the sums claimed by view of the state of the execution of the the Commission, on the ground that the project at the time when it adopted its Commission has not yet adopted a position decision, to exercise the option available to on the second financial report submitted to it under Clause 9 of the contract? The it by VBS, which sets out expenditure for assessment I shall have to make as to the period from 1 July 1991 to 30 June whether the formal requirements for termi- 1992 which is additional to that contained nating the contract were complied with will in the first report, which means an addi- itself depend on whether, contrary to what, tional payment by the Commission. by the Commission's own admission, was

54. It seems to me that Balkom is now The validity of the termination of the badly placed to dispute it. The Commis- contract sion's agreement is not in doubt, although it is perhaps surprising that the Commission so readily accepted the defection of a partner who possessed the technology to 51. Let us begin by examining whether the be implemented in the project. It seems to Commission, when it terminated the con- me that VBS's agreement can be inferred tract by its letter of 16 August 1994, from its letter to the Commission of complied with the contract or German 26 August 1991. law, in so far as German law applies in the absence of a different stipulation in the contract. No-one disputes the fact that that letter was sent to VBS and Balkom, but not to DF. Should it have been? 55. Admittedly, in that letter VBS men- tioned the talks intended to resolve the contractual problems associated with DE's involvement in the project, which means that those problems had not been resolved 52. Certainly not, if we must accept as by that date, but it should be pointed out proven that, on that date, of the Commis- that VBS did not at any time impose sion's three original contracting partners, conditions on DF's withdrawal; on the there remained only one, Balkom, even if contrary, it regarded that withdrawal as the termination was also notified to VBS. an established fact, whereas it could have Can we consider that on that date DF no expressed reservations and made its agree- longer had any contractual link with the ment to that withdrawal subject to certain Commission? For my part, I should be requirements being met. I-1104

57. Admittedly, one might be justified in thinking that, if Balkom had had any objections to that withdrawal, of which it cannot have been unaware because it was 60. However, even if, as Balkom claims, on headed by Mr Van Balkom, who was also the basis of German legal literature, the director of VBS, it would have expressed conditions for DF's withdrawal remain them. However, there is no need at all to debatable in view of the nature of the embark on that line of reasoning, which contract, I do not think that it can be would imply that shared management pre- inferred from failure to notify DF of the vailed over the existence of two separate Commission's decision to terminate the legal persons, since we have the letter, contract that that termination was invalid which could not be more explicit, from vis-à-vis Balkom. the Commission to Balkom, dated 9 March 1993, in which withdrawal by DF, and also by VBS, is presented as an established fact, a letter which followed discussions in which Mr Van Balkom took part, on behalf of Balkom, and which provoked no nega- 61. In order for Balkom to be able to rely tive reaction from Balkom. on failure to comply with a formal require- ment, it would be necessary for it to be able to show that its rights and interests have been prejudiced. However, the only com- pany which could, if the lawfulness of its 58. One may assume that, at that time, withdrawal were challenged, rely on such when execution of the project appeared to prejudice, in view of the joint and several be in jeopardy, Balkom would have reacted liability provided for in the contract, would strongly to a letter stating that it agreed to be DF. the withdrawal of two partners if that agreement had not been given.

67. Next, once this objection by Balkom has been dismissed, I think there is no need Justification for termination of the contract to go into long explanations as to how we might legitimately consider, contrary to Balkom's arguments, which seem to me to be lacking in good faith, that the following 64. Was that termination justified, how- constituted foreseeable economic failure: a ever? I think, once again, that Balkom's project which was due to be completed in objections carry little weight. Balkom states 1993 was still, in 1994, at a stage where that the concept of economic failure refer- very little had been done; of the three red to in Clause 9 of the contract must be undertakings initially associated, there understood in relation to an annex to the remained only one which, despite its contract relating to economic and technical efforts, had not been able to find new risks. partners and which itself stated that it was unable to continue providing the funding required to carry on with the project; and, in addition, the administrative permission on which progress to the second phase depended had still not been obtained in 65. It turns out, however, that the provision spite of legal action. in question, Point 4.1 of Annex I, is essentially descriptive. It refers to the amount of investment required for the execution of the project and states the limit of the financial commitment entered into 68. It is difficult to envisage more patent by the three undertakings contracting with failure. It is all the more reason to be the Commission. It could not in any way be amazed, yet again, that the Commission regarded as providing a definition of fore- did not terminate the contract sooner or seeable economic failure within the mean- exercise sooner its option to withdraw ing of Clause 9 of the contract. under Clause 8 of the contract, with much

71. After the first hearing, it had seemed to 74. At the second hearing, the Commission me that it must be possible for the parties to stated, however, that none of the expendi- reach an agreement on whether certain of ture referred to in the second financial the expenditure detailed in the second report could be acknowledged for the financial report, which was sent by VBS following reasons.

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75. In so far as that second report men- Of course my client would be willing to tioned — which was not, however, true — assist you in whatever way you require, and expenditure relating to the second phase of to forward to you copies of the financial the programme, entitled 'Production and statements you requested. For reasons Delivery', such work could have been made clear to you in the abovementioned, commenced only at the defendant's own you can understand, however, that this risk because, under Point 2.2 of Annex I to would present considerable problems for the contract, that phase could be com- my client, as my client has never been in ... menced only after completion of the appli- possession of these documents.' cation procedure for permission relating to the construction in question. It appeared expressly from the second progress report that that procedure was held up.

76. Second, the Commission told us during the second hearing that, contrary to the obligation under Clause 4.3.2 of the con- tract, no documentary evidence was inclu- 78. Since, at the hearing of 21 October ded in the second financial report, nor was 1999, the defendant was not able to prove such evidence sent subsequently, although that the documents in question had been the Commission, in its letter of termination sent, and it merely denied that they had of 16 August 1994, stated that it wished to been requested, it may be concluded that obtain documentary evidence correspond- the Commission was not given an oppor- ing to the expenditure which might be tunity properly to take action on the acknowledged ('The Commission ... would subject of expenditure incurred after the like to receive the corresponding state- first financial report. ments').

87. According to the Commission, Balkom 83. Consequently, I can only propose that finished the first phase of the project, as the Court, in order to fix the principal stipulated in the contract, on 30 June 1991. amount owed by Balkom, accept the sum Consequently, it is as from that date, of EUR 251 649 claimed by the Commis- namely 1 July 1991, that interest should sion. be calculated.

84. That solution makes superfluous any 88. Balkom contends that the first phase of discussion on a possible right to retention the project, the engineering, was by no which Balkom might claim. means completed on 30 June 1991. At

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Conclusion

9 1 . For all those reasons, I propose that the Court should:

(1) order Van Balkom Non-Ferro Scheiding to pay to the Commission of the European Communities the sum of EUR 251 649, plus interest on that sum as from 1 October 1993 at the percentage rates, published on the first working I-1110

COMMISSION V VAN HALKOM

day of each month, which the European Monetary Cooperation Fund charges in respect of its euro transactions;

(2) dismiss the application as to the remainder;