C-40/98

OPINION OF MR RUIZ-JARABO — CASE C-40/98

O P I N I O N OF ADVOCATE GENERAL RUIZ-JARABO C O L O M E R delivered on 15 June 2000 1

1. By application under Article 181 of the gramme's work in the field of applied EC Treaty (now Article 238 EC), the Com- metrology and chemical analysis. 3 The mission of the European Communities, contract was for research into measuring following a breach of contract 2which it systems and instruments for products man- alleges to have been committed by TVR- ufactured from composite materials, using Tecnologie Vetroresina SpA ('the defen- filament winding technology. dant' or 'TVR'), asks the Court to order the defendant to reimburse certain sums and to pay compensation for loss and damage. 3. The following clauses of the contract are directly relevant to the proceedings:

— The duration of the project was to be I — The contract 36 months from the month following signature of the contract (from 1 Sep- tember 1991 to 31 August 1994) and any delay was to be immediately noti- fied to the Commission (Article 2). TVR was required to submit a progress 2. On 13 August 1991, the Commission, of report every six months and, upon the one part, and the defendant and Brunei termination of the project, a final University ('Brunei'), of the other, signed report detailing the results obtained Contract No 3440/1/0/187/91/6-BCR-I(30) (Article 6.1). as part of the European Economic Com- munity's Research and Development Pro-

1 — Original language: Spanish. 2 — In Iván A. Goncharov's novel, Oblómov, two characters — The Commission's financial contribu- conspire to rob Ilyá Ilyich Oblómov of his wealth, remarking: tion (up to a ceiling of ECU 584 000) 'And the agreement, the agreement we drew up!' Tarantyev boasted. was divided into an initial advance of 'But the agreement is signed: they did not trip us up there, did they?' said Tarantyev. 'That, of course, is sacred....' (Goncharov, I.A., Oblómov, translated by David Magar- 3 —Council Decision 88/418/EEC of 29 June 1988 (OJ 1988 shack, Penguin, London, 1954, pp. 356 and 357). L 206, p. 29).

5. Under Article 12 of Annex II, the Court 9. Since Brunei had still not received the of Justice of the European Communities transfer, the Commission, by letter dated has sole jurisdiction to deal with any 31 January 1994, terminated the contract dispute concerning the contract. Article 11 under Article 8.2(d) of Annex II and of the contract stipulates that it is to be required TVR to reimburse the sum of governed by Italian law. ECU 165 000, together with interest calcu- lated in accordance with Article 8.4 of that annex.

I I — Facts In a further letter of the same date, the Commission rejected both the cost state- ment provided by TVR for the period 6. On 20 September 1991, the Commission 1 September 1992 to 26 May 1993 and transferred an advance payment of ECU the consolidated cost statement.

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At the same time, the Commission notified defendant rejected that calculation and Brunei of its decision to terminate the requested a review of the contract. contract.

13. On 13 August 1993, the Commission 10. On 24 February 1994, TVR sent the instructed Ernst & Young to carry out an Commission a new consolidated cost state- audit of the first contract year (the period ment, followed, at the Commission's from 1 September 1991 to 31 August request, by additional documentation 1992). which it submitted on 15 March 1994.

15. On 30 September 1994, the Commis- law is applicable, the duty to make restitu- sion transferred ECU 165 000 to Brunei, tion contained in Article 1458 4 of the Civil after verifying the accuracy of the costs it Code only takes effect where termination had claimed and the work it had carried of the contract, on the ground of a breach out under the contract. by one of the parties, has been declared by a court. Since the Commission has not requested the Court of Justice to terminate the contract for breach by the defendant, it cannot claim reimbursement of the sums paid under the contract. 16. By letter to the defendant dated 22 June 1995, the Commission made a formal demand for reimbursement of ECU 203 775, including the sum which should have been transferred to Brunei (ECU 165 000), together with interest, and also 19. In its reply, the Commission asserts, ECU 46 307 to cover the difference first, that it acted in accordance with the between the work actually carried out by procedure laid down in the contract for TVR under the contract and the advance terminating it on the grounds of non- paid to it by the Commission on 20 Sep- performance. Therefore, the contract has tember 1991. already been terminated automatically and there is no need to seek a declaration to that effect from the Court of Justice.

17. Since no response was forthcoming from TVR, the Commission brought the present action before the Court of Justice, The Commission goes on to refer to the seeking an order that the defendant repay case-law of the Corte Suprema di Cassa- the sum of ECU 211 307, plus interest, and zione (Supreme Court of Cassation) con- pay ECU 20 000 by way of compensation cerning Article 1453 of the Italian Civil for loss and damage, in addition to the Code on the termination of contracts. The costs of the proceedings. Commission claims that, according to that case-law, there is no requirement that the intention to terminate a contract for non- performance be expressly formulated in an action before the court, since such an intention may be inferred from other actions which, although having a different

For those reasons, and despite the fact that A. Validity of the contractual termination it considers it to be superfluous on the clause ground that the application for a declara- tion that the contract has been terminated is, in any event, implicit in its action for 22. Termination clauses are governed by reimbursement of the sums paid and for Article 1456 of the Italian Civil Code, 9 compensation for damage, the Commission which allows the contracting parties to requests the Court of Justice to declare that agree expressly that the contract will be the contract has in fact been terminated. automatically terminated should there be a breach of a specified obligation. According to the case-law of the Corte Suprema di Cassazione, two conditions must be satis- 20. In Commission v SNUA, 7to which I fied in order for one party to be entitled to shall refer later, the Court dismissed a terminate the contract unilaterally by rely- similar plea of inadmissibility after con- ing upon a termination clause: the clause in firming the validity of the Commission's question must be valid and responsibility unilateral termination of a contract. 8In the for the breach must be attributable to the light of that case-law, it is appropriate to other party. examine whether, in the present case, the contract between the Commission and TVR was automatically terminated on the ground of non-performance by the defen- dant. 23. With regard to the first requirement, the Corte Suprema di Cassazione has interpreted Article 1456 of the Italian Civil 5 —Judgment of the Corte Suprema di Cassazione of 15 July Code as meaning that, in order to be valid, 1980, No 4591. 6 — Judgements of the Corte Suprema di Cassazione of 4 Octo- a termination clause must refer to specified ber 1976, No 3217; 15 July 1980, No 4591; and 22 Feb- obligations arising under the contract, and ruary 1992, No 1908. 7 — Case C-69/97 Commission v SNUA [1999] ECR I-2363. 8 — That is not the only case in which the Court has adjudicated on a claim for reimbursement of sums paid and for compensation for damage brought by the Commission, 9 — Article 1456 provides: 'The parties to the contract may despite the fact that the latter had failed to seek a prior expressly agree that the contract will be terminated if a declaration that the contract had been terminated on the specified obligation has not been performed in accordance ground of non-performance by the other party: see Case with the rules set out. If such a situation arises, the contract C-334/97 Commission v Comune di Montorio al Vomano will be terminated automatically when the party concerned [1999] ECR I-3387 and Case C-65/97 Commission v notifies the other party that he intends to invoke the Cascina Laura and Gariboldi [19991 ECR I-1017. termination clause.'

28. The Court of Justice did not accept that contention and held that it could be 26. In Commission v SNUA, cited above, inferred from the termination clause in the the termination clause in the contract contract that the ability to terminate auto- between the Commission and the defen- matically was not conditional upon the dant, which was also governed by Italian existence of fault on the part of the contractor, but instead depended solely upon the non-performance of certain con- 10 — By way of example, see the judgements of the Corte tractual obligations, regardless of their Suprema di Cassazione of 23 May 1985, No 3119 (Rep. Giur. it., Obbligazioni e contratti, 393) and 2 June 1990, cause or origin. No 5169 (Rep. Giur. it., Obbligazioni e contratti, 447). The views of Italian civil lawyers appear to be in harmony on this point; see, for example, Mosco, L., La risoluzione del contratto per inadempimento, Casa editrice Dort. Eugenio Jovene, Naples, 1950, pp. 196-201, and Sacco, 11 — Emphasis added. Clause 4.3 of the contract dealt with the R. and De Nova, G., Trattato di diritto civile, Unione periodic reports which the contractor undertook to send to Tipografico — Editrice Torinese, Turin, p. 624. the Commission.

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It does not therefore preclude the parties to a contract from deciding to insert therein a termination clause which is not subject to 31. Therefore, it can be deemed that, by the condition that the contractor must be availing themselves of the principle of responsible for non-performance, by way freedom of contract recognised in Arti- of derogation from the usual format of cle 1322 of the Italian Civil Code, and contracts under Italian law.' 12 having regard to the particular nature of the relations between the Commission and the undertaking to which it makes a financial contribution, 13 the parties freely

In 30. To my mind, the same criteria used by fact, the contract between the Commission and TVR, and the Court of Justice in relation to the in particular Annexe II thereto, bears all the hallmarks of what is known in international commerce as a self- regulatory contract, in which the parties set out in detail the rules applying to performance and termination (termi- nation by default) of the contract (see Bianchi, M. and 12 — Commission v SNUA, cited in footnote 7 above, paragraph Saluzzo, D., I contratti internazionali, lì Sole 24 Ore,

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good faith to which the Commission refers B. The defendant's breach of the contract in its reply is taken into account. 14

The the arbitration clause. defendant adds that, on 31 October 1993, its relationship with the bank concerned broke down completely and it commenced 14 — In order to complete this analysis, I feel it is appropriate to litigation over the bank's disproportionate point out that, in my view, the Commission's unilateral interest charges. The defendant states that termination of the contract could also be deemed to be valid under Article 1454 of the Italian Civil Code. That it would be appropriate for the Commis- provision allows for one of the parties to the contract to give the other party, who is in default, written notice sion to request information from the Isti- requiring performance of its obligations within a reason- tuto Bancario San Paolo concerning the able period, and to warn that upon expiry of that time- limit the contract will be terminated automatically. For a whereabouts of the abovementioned pay- contract to be terminared unilaterally under Article 1454, the following conditions must be satisfied: performance ment and to demand reimbursement of that must be demanded in writing; the party making the sum which, it adds, 'the Istituto has prob- demand must stipulate a specific and reasonable time-limit to the other party, which in principle must not be less than 15 days; ana the intention to terminate the contract should ably retained by reason of the proceedings the party on notice fail to perform its obligations within between it and TVR.' the stipulated time-limit must be expressly stated. Under Italian law, the court confines itself in such cases to confirming whether the abovementioned conditions have been satisfied, whether the responsibility for non-perfor- mance is attributable to the defendant, and whether, as opposed to the procedure where termination is based on an express clause, the non-performance may be defined as significant for the purposes of Article 1455 of the Italian

Civil Code. Likewise, it must be deemed in the present case that the requirement that responsibility for non-perfor- from the Commission for that purpose, mance be attributable to the party in default is also satisfied. Finally, with regard to the significance that the there has clearly been a breach. In objective breach attributed to TVR held with regard to the general terms, it is a fact that the ECU 165 000 structure of the contract, there is no doubt whatsoever that the obligation to transfer the sum in question to the co- transferred by the Commission to TVR, contractor, representing Brunei University's remuneration for the work it had carried out under the contract, must be which TVR was required to transfer imme- regarded as an essential obligation, breach of which could diately to Brunei, was not transferred to give rise to unilateral termination of the contract by the

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the transfer and non-performance of that of Annex II thereto, which I shall discuss obligation cannot be excused by how well below, to my mind there is no doubt that or badly a third party (a bank), to which the Commission scrupulously complied TVR entrusted the transfer on its own with that procedure. The written notice initiative, carries out the task which it has was sent to the defendant by recorded been given. delivery on 15 April 1993. In it, the Commission requested TVR to remedy its non-performance of the contract within one month and warned that, should it fail to do so, the contract would be terminated under the termination clause. Since the 35. The person responsible for transferring defendant did not comply with the notice the sum of money, vis-à-vis both Brunei and within the stated time period, the contract the Commission, was TVR. If, for its part, was automatically terminated. Moreover, TVR used the professional services of a despite the fact that the termination clause bank in order to carry out the transfer and did not contain any such obligation, the was then, at the worst, defrauded by the Commission confirmed that it had termi- bank, it is not thereby relieved of its nated the contract in a subsequent letter obligation both to the Commission and to dated 31 January 1994. Brunei. TVR can claim compensation for damage from the bank, in such form as it considers appropriate, but it is not entitled to shelter behind non-performance by a third party, a stranger to the main contract, to justify the objective breach of its own obligations to the parties to the contract.

— ITL 46 675 000 in respect of labour costs;

40. The considerations which I have set out in points 34 to 36 above will permit me to be brief on this point. TVR must be held liable for failing to transfer the advance of — ITL 3 270 538 (for the period 1 Sep- ECU 165 000 to Brunei and the arguments tember 1991 to 3 August 1992) and it has made in its defence cannot be ITL 5 092 963 (for the second contract accepted. year) in respect of travel expenses;

— ITL 2 396 031 in respect of consum- 4 1 . I therefore believe that this part of the ables; action is justified and that the Court may allow the Commission's claim, since the latter, in order to comply with its obligation to Brunei, had to make a second payment of ECU 165 000, which on this occasion it — ITL 623 391 in respect of other costs; paid directly to the university. 15 and

15 — Under Article 2(1) of Council Regulation (EC) No 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the euro (OJ 1997 L 162, p. 1), as regards the amount of the principal sum and the — ITL 11 667 000 in respect of over- interest, all referencesto the ecu are to be replaced by a reference to the euro at a rate of one euro to one ecu. heads.

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47. It is clear from the documents before the Court that, on 30 November 1993, 44. The response to this claim contained in TVR submitted a cost statement in respect the defence is very unclear, since it merely of the second contract year. 17 The Com- states that the audit report from Ernst & mission rejected that statement in a letter Young shows that the labour costs calcu- dated 31 January 1994, on the ground, lated by TVR are wholly consistent with inter alia, that at a meeting held in Brussels the work undertaken and with the amount on 15 March 1993 it had agreed with the charged. The defence goes on to say that, contractors that, with effect from that date, according to that report, the charge made certain work provided for in the contract for labour was lower than it should have would no longer be funded and that the been because it was based on the rate for contractors should confine themselves to 1991, rather than 1992, the year in which completing the feasibility assessment. 18 the work was actually carried out. There- The Commission therefore requested the fore, the defendant argues, the second part defendant to submit details of the work of the claim is clearly unfounded. undertaken during the periods 1 September 1992 to 15 March 1993 and then from the latter date up to termination of the contract on 26 May 1993, so that it could ascertain whether that agreement had been complied with.

49. On 15 March 1994, the defendant sent a further document to the Commission, in C. Interest which it provided details of the travel costs for the second year but no information relating to labour costs. For that reason, the Commission, in a letter dated 6 April 1994, informed TVR that, in respect of the 51. Under Article 8.4 of Annexe II to the second year, it had decided to accept only contract, in the event of termination, the the travel costs and not the labour costs, in Commission should receive not only reim- respect of which the defendant had failed to bursement of advance payments it has supply the information requested. The made but also interest on those amounts, defendant expressed its disagreement with to be added from the date on which that decision in a letter dated 26 July 1994, payments were received by the other party but once again failed to provide further to the contract. The rate of interest is the details of the labour costs for the second rate applied by the European Monetary contract year. Cooperation Fund for its operations in ECU, increased by two percentage points, such rate being published on the first working day of each month.

50. In order to adjudicate upon this claim by the Commission, the Court must refer to 52. Therefore, the Commission seeks inter- the documents submitted by the parties. est on the amount of ECU 211 307 (being Those documents contain no indication at the sum of ECU 165 000 paid to TVR for all that the defendant, in spite of the transfer to Brunei and ECU 46 307 repre- repeated requests it received from the senting the difference between the advance Commission, 19 provided sufficient infor- and the costs proved by TVR) at the rate of mation regarding the work performed dur- 12% from 21 December 1991, 20 which comes to ECU 69.47 per day. The defen-

— By entering into a contract with a party 54. Last, the Commission requests the which did not honour its commitments, Court to order TVR to pay compensation the Commission has suffered a loss of for the damage suffered by reason of its credibility in the eyes of all those with a non-performance, which, in the Commis- potential interest in entering into a sion's view, is the following: contract with it.

— A number of its officials spent a large 55. The Commission contends that the number of hours monitoring the defen- overall sum to compensate for this damage dant's activities and requesting it to amounts to ECU 20 000, although the Court may calculate it differently using the option provided in Article 1226 of the 21 — In answer to a question I asked at the hearing, the Italian Civil Code, which provides that defendant's representative stated that he agreed with the Commission's interpretation that the second subparagraph of Article 8.4 of Annexe II to the contract provides for a fixed rate of interest in the event of termination of the contract. Since the parties are in agreement on this point, 22 — The Commission calculates that 56 working hours have there is no need to analyse the question in greater detail, been lost in this way. Using the rate of ECU 52 per hour, although I believe that the wording of this clause might the total amount works out at ECU 2 912 (although the perhaps allow a different interpretation. application cites the incorrect figure of ECU 2 925).

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where the exact amount of the loss cannot (b) There can be no 'loss of credibility' vis- be proved it is to be determined by the à-vis third parties as a result of one court according to equitable principles. party to a contract, such as the one in these proceedings, failing to fulfil all its obligations and causing the contract to be terminated.

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that contractual relationship to be deter- V — Costs mined. The defendant should be held liable for that item of expenditure in view of its evasive attitude following termination of 59. Since virtually the whole application the contract and of its failure to justify must be granted, and since the applicant much of the expenditure claimed. Further- has applied for costs, the defendant must be more, TVR does not dispute that head of ordered to pay the costs, in accordance claim, either in the defence or in the with Article 69(2) of the Rules of Proce- rejoinder. dure.

VI — Conclusion

60. In the light of the foregoing considerations, I propose that the Court of Justice should essentially grant the application and order the defendant to pay to the Commission:

— the sum of EUR 211 307, together with interest at the rate of EUR 69.47 per day from 21 December 1991 until the debt is paid in full;