C-274/97

I I — The Contract 'Subject as herein provided the Borrower [Coal Products] shall be entitled to receive a total interest rebate (the "rebate") from 2. The Commission concluded a contract the Lender [the Commission] in pounds of (hereinafter 'the Contract') on 28 M a y an amount equal to the sterling equivalent 1992 with Coal Products Ltd (hereinafter of 1 875 420 European Currency Units. 'Coal Products'), a subsidiary of British The rebate shall be paid to the Borrower Coal C o r p o r a t i o n (hereinafter 'British twice-yearly during the first five years of Coal'), which stipulated that the Commis- the Loan in two equal amounts of 187 542 sion would lend the company GBP 10 mil- European Currency Units on or about lion to assist it in consuming ECSC coal in 28 May and 28 November in each year its briquette-making and methane-energy commencing on or about 28 November 1992 and ending on or about 28 May 1997, subject to the Borrower having duly * Original language: English. complied with its obligations under this 1 — OJ 1993 L 144, p. 21. Agreement to pay interest and any other

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COMMISSION V COM. PRODUCTS

amounts due in respect of the Loan on any variation of the level of rebate in the light such date and subject always to the provi- of Actual ECSC Coal Burn: sions of Article 11

'The Loan is made on the basis that, and the interest rebate referred to in Arti- cle 5(4) is calculated on the assumption that, the Actual ECSC Coal Burn in each Consumption Year will at least equal the Estimated ECSC Coal Burn. Accordingly, the following provisions shall apply:

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OPINION OF MR FENNELLY — CASE C-274/97

(b) In addition to the rights under sub- provisions of this sub-para- paragraph (a) above and without pre- graph (b). judice to any other rights the Lender may have under this agreement, if:

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(i) the Actual ECSC Coal Burn in any of the Consumption Years ended on the respective subsequent Report Dates is less than the amount of the ECSC Coal Burn 4. As a result of the one-year gap between on which the interest rebate applic- disbursement of the loan, on the one hand, able to the Loan is then based and the beginning of monitoring of con- (whether that be the Estimated sumption, on the other, the final Consump- ECSC Coal Burn or a lower tion Year (1997-98) was envisaged to come amount as a result of the applica- after both the payment of the last rebate tion of the provisions of sub-para- and the repayment of the loan and a report graph (a) above or the previous comparing Actual and Estimated ECSC application of the provisions of this Coal Burn during that year was not pro- sub-paragraph (b)); and vided for.

'After repayment, the coal consumption figures will be reviewed and there may be a revision of interest rebate due. Consequently, we would be grateful if CPL would provide us with full details of the coal consumption in the three years imme- diately preceding the date of transfer to the MEBO [management and employee buy- out]. We propose that the details should be provided within 60 clays and should follow the format required by the contract as if the report were being produced at Assessment.'

In addition, ECSC [the Commission] requests that CPL [Coal Products] confirms ¡sic] in writing that ... CPL accepts that, although the rights and obligations con- The Commission also required that the cerning rebate entitlement cease with the British Coal guarantee remain in place until repayment of the loan, there may be an it had received all amounts due. adjustment to be made to rebate already paid out, as explained below, following revision of the coal consumption figures.

7. By letter of 30 January 1995, Coal Products accepted the terms for repayment set out in the Commission's letter of 23 January 1995:

With the repayment of the loan, ECSC will be in a position to review the coal con- sumption which was the basis of the ECSC financial contribution to the project. As the 'We refer to your letter dated 23rd January Assessment Date will not have been 1995 addressed to our parent company, reached by the date of early repayment, BCC [British Coal] (reference 0893), toge- we propose that the rebate entitlement be ther with BCC's reply. Thank you for

CPL accepts that, although rights and obligations concerning rebate entitlement due to be paid after the repayment of the loan cease on repayment, there may be an adjustment to be paid to the rebate already paid out and that calculation of this rebate will be based on a monitoring period 9. Coal Products argued for a different ending on the date of repayment of the approach. Although it acknowledged in loan.' one letter (of 20 March 1995) that any c l a w b a c k w o u l d be c a l c u l a t e d from 28 May 1993, it has otherwise argued that this aspect of the 1992 agreement was changed by the Commission's letter of 23 January 1995, either by variation or by the conclusion of a distinct new agree- ment governing early repayment. 4Invok- I I I— Arguments of the parties ing the Commission's agreement to early repayment, contrary to the terms of the 1992 agreement, its statement that obliga- tions under that contract would cease with repayment, its reference to proportional 8. The Commission calculated that the calculation of the rebate actually due and, ECSC coal consumption target for the 20 in particular, its request for 3-year con- months from 28 May 1993 to 29 January sumption figures, Coal Products contended 1995 should be reduced proportionally to that the Commission had varied the assess- 583 333 tonnes, that is, 5/6 (20/24) of the ment period, pushing back its starting date Estimated ECSC Coal Burn to 28 May 1992. However, it still main- (700 000 tonnes) for the two Consumption Years leading to the Assessment Date on 28 May 1995. It transpired that Coal 2 — ECU 1 875 420/3 = ECU 625 140 x. 796 = ECU 497 610. Products had consumed 464 332 tonnes 3 — This sum represents two years' rebate payments (four payments). The rebate payment due on 28 November of ECSC coal during that 20-month period, 1994 was not made, apparently because the Commission was already aware of the plans for a management and 79.6% of the revised target. The Commis- employee buy-out, which would have constituted a breach sion concluded that Coal Products was of Article 10(3) of the Contract if undertaken without the Commission's permission. entitled to 79.6% of the rebate for that 4 — Letter of 30 July 1996.

tained that it was only consumption after the starting date for assessment of con- 28 May 1993 which needed to be taken sumption and the choice of law and into account. Thus, it acknowledged that in jurisdiction. Coal Products submits, princi- the 20-month consumption period, its pally, that the Contract was implicitly ECSC coal consumption reached only rescinded by a new agreement, arising from 79.6% of the adjusted contractual level. the exchange of letters on 23 and 30 Jan- However, it considered that it should use uary 1995, which, in fundamental respects, this figure to assess the proportion of rebate contradicts (through the reference to three- it was entitled to over the 32-month period year consumption figures) or deprives of since the payment of the loan and the substance (through repayment of the loan) commencement of rebate payments. This and, therefore, ousts the earlier agreement. r e s u l t e d in an e n t i t l e m e n t t o It relies, in particular, on the statement that ECU 796 178. s As only ECU 750 168 obligations under the 1992 agreement had been advanced, Coal Products submit- would cease with repayment. It first raises ted a claim for a further rebate payment of the rescission point in order to contest the ECU 46 010. admissibility of the Commission's action — if the Commission letter of 23 January 1995 constituted an offer of a new con- tract, subsequently accepted by Coal Pro- ducts, that contract contains no arbitration clause attributing jurisdiction to the Court, so that the Court, which has no inherent jurisdiction in such matters, cannot be seised of the case. It argues further, in a series of alternatives, that the parties agreed in that correspondence a 32-month rebate period; that the Commission, in so far as it has a contractual right to the sums it claims under the 1992 agreement, has waived, or 10. After extensive correspondence in is estopped from raising, that right; that no which both sides adhered to their respective agreement exists between the parties as to calculations, the Commission commenced the method of calculating the rebate, so proceedings on 31 July 1997 for recovery that there is nothing for the Court to of the sum of ECU 252 558, plus interest at enforce; and (a point accepted by the 8% from 3 February 1995 and costs. Its Commission) that interest should run on essential argument is that, with the excep- any sum owing to the Commission only tion of the concession by which it permitted from 1 November 1995, a reasonable per- early repayment and calculated the con- iod after the Commission actually specified tractual consumption targets and the rebate (in its letter of 24 October 1995) the sum it due on the basis of the proportion of the actually considered to be due. On the basis total contractual consumption period of the calculations outlined above, Coal which had actually transpired at the date of repayment, all aspects of the question are governed by the Contract — including

In the same case, Lord Atkinson observed that, with the exception of the price of the goods concerned, the terms of the earlier jurisdiction and later agreements were in conflict 'in all those material and fundamental provisions which go to the root of each of them', 9 with the result that it was impossible to arrive at any rational conclusion other than that it was the clear intention of both 11. I shall first address the issue of the parties to treat the original agreement as Court's jurisdiction, which turns on the abandoned or non-existent. In British and question whether the exchange of corre- Benningtons, he stated, in a similar vein, spondence in January 1995 varied or that rescission would be presumed when rescinded the Contract. Both parties rely, the parties entered into an agreement which correctly in my view, upon dicta in Morris v was entirely inconsistent with the old or, if Baron & Co. 6 and in British and Benning- not entirely inconsistent with it, was incon- tons Ltd v North Western Cachar Tea Co. sistent with it to an extent that went to the Ltd7 as stating of the law in this regard. In very root of it. 10 Morris v Baron, Lord Dunedin distin- guished as follows between variation and rescission:

12. It is clear that the correspondence 'In the first case [variation] there are no between the parties and British Coal in such executory clauses in the second January 1995 altered the terms of the arrangement as would enable you to sue Contract, principally because Article 7 of upon that alone if the first did not exist; in

the Contract precluded early repayment of Substance the loan. However, I do not accept that this change, accompanied by stipulations regarding the interest rebate, was funda- mentally inconsistent with the continued application of those terms of the Contract which were still potentially relevant after 14. I turn now to the Commission's claim such repayment. In particular, the position for the repayment of ECU 252 558. In my adopted in the correspondence regarding view, the Commission's claim should be the proportional calculation of the interest rejected. Its argument, as summarised at rebate is incomprehensible without refer- paragraph 8 above, is based upon a premiss ence to the original terms of the Contract which is not borne out either by the terms governing the amount of that rebate, the of the Contract or by those of the corre- period during which it was payable, the spondence which varied it, viz. that there definition of Estimated and Actual ECSC was a direct and organic link between Coal Burn and the monitoring mechanism payment of interest rebate over the five- through the submission of reports for year period of the loan, from 1992 to 1997, Consumption Years. It would, as a result, and the achievement of the Estimated be impossible to execute a contract based ECSC Coal Burn targets over the five exclusively on that correspondence. In the Consumption Years from 1993 to 1998. circumstances, the repayment of the loan In consequence, it has submitted that the cannot be said to have been entirely proportional calculation of the interest inconsistent with the Contract, or to have rebate referred to in its letter of 23 January gone to its root, as the Commission's 1995 entailed not only a proportional collateral obligation to pay interest rebate reduction in the Estimated ECSC Coal was expressly stated to survive, subject to Burn target applicable to the 20-month conditions which, although amended in the period from May 1993 to January 1995, light of that repayment, were impossible to from 700 000 tonnes to 583 333 tonnes, apply other than in conjunction with the but also a reduction in the amount of Contract. interest rebate to which Coal Products could be entitled upon fulfilment of that target based on the proportion of those 20 months of consumption to the five years (60 months) over which interest rebate was payable. The Commission described the interest rebate on numerous occasions at the oral hearing as an advance, subject to recovery in the event of failure to satisfy the consumption targets indicated in the Con- tract. In construing the Contract, the Court is required to apply the principle of English law that the intention of the parties is to be gathered from the entire instrument, but in 13. As a result, I conclude that the Con- the light of the meaning of the words they tract continued to apply in a varied form have used. At no point docs the Contract and that the provisions of Article 19 of the require the interest rebate payments to be Contract regarding the jurisdiction of the treated as a simple advance in respect of the Court continue to apply. following year's consumption. The rebate is

16. This contractual scheme does not pro- vide either expressly or by implication for a 15. My view that the interest rebate cannot direct correspondence between the five- be characterised as a simple advance is year period over which the rebate was bolstered by the manner in which such payable and the five-year period, commen- subsequent revisions of the rebate are cing a year later, in respect of which the calculated. While it is true that the rebate, Contract specified consumption targets. or part thereof, could be recovered by the Thus, it cannot be supposed that the Commission in the case of deficient con- subsequent agreement on premature repay- sumption of ECSC coal by Coal Products, ment of the loan entailed, by necessary the Contract did not provide for an auto- implication, that such a correspondence matic linkage between one year's rebate should be established between the 20- payments and the following year's con- month period of consumption actually sumption. Nor did it link the total amount accomplished and Coal Products' rebate of rebate payable to the total consumption entitlement. The reference to a propor- of ECSC coal. Article 5(4) of the Contract tional calculation of the rebate in these subjected the bi-annual payment of the changed circumstances cannot be under- interest rebate from November 1992 to the stood, without more, as establishing such a provisions of Article 11. Article 11(2)(a) of correspondence. It would be much more in the Contract permitted the Commission to keeping with the contractual scheme and, vary the first three years' rebate in line with in particular, with the provisions governing lower than estimated Actual ECSC Coal the first three years of its application, for Burn in the first two Consumption Years up this statement to be interpreted as merely to the Assessment Date. Furthermore, it is advancing the Assessment Date to the end clear that such a variation in the amount of of January 1995, so that rebate payments rebate payable every six months would also over the 32-month period 11 from the have applied to subsequent Consumption conclusion of the Contract could be reas- Years, even if Coal Products had later sessed in the light of 20 months of coal succeeded in reaching or even exceeding consumption. The reason given in the the initial Estimated ECSC Coal Burn target of 350 000 tonnes per annum. Article 11(2)(b) only provides for a further 11 — See paragraph 18 below for a slightly different approach, proportional reduction in the interest based on provision in Article 5(4) of the Contract for the payment of the rebate at six-month intervals.

17. It would be possible to argue, in the light of the alternative interpretation of the variation agreement of January 1995 sug- gested immediately above, that Coal Pro- ducts' counter-claim should succeed. How- ever, this is not the case made by Coal Products in support of its counter-claim for ECU 46 010. It submitted in its written 18. At the oral hearing, counsel for Coal pleadings that the Commission's request for Products adopted a different approach to three years' consumption data implied that the interpretation of the Contract, as var- the assessment period for proportionally ied, which was broadly consistent with the calculating its rebate entitlement, as pro- alternative approach which I briefly out- vided for in the exchange of letters, was 32 lined in paragraph 16 above. However, he months. I cannot agree that a mere request took the view that the division of the total for information amounts to a proposal for rebate entitlement under Article 5(4) of the a new term of the Contract. Coal Products' Contract into tranches payable at six- proposition for an assessment period of month intervals meant that the propor- three years is, in any event, impossible to tional calculation of the rebate provided for realise, since only 32 months had run. in the variation agreement could be applied Furthermore, I am unable to comprehend only to tranches paid or payable in respect how, even if this were the case, this could of complete six-month periods, that is, up support Coal Products' counter-claim. Coal to 28 November 1994. This would have

— Reject Coal Products Limited's counter-claim;

— Order each of the parties to bear its own costs.

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