C-356/99

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COMMISSION V HITESYS

Communities in its decision of 9 September coordinator, that is to say Irvin, who would 1991. 1 then transfer the appropriate shares to the other companies in the group (ZSW and Aston).

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OPINION OF MR SAGGIO — CASE C-356/99

gramme' and Annex II containing the Gen- on reasonable technical or economic eral Conditions. grounds.

Article 8.4 then provides that, in the event of termination by the Commission for non- Article 8 of the General Conditions, enti- performance by the other parties, the tled 'Termination of Contract', provides at Commission may require the reimburse- paragraph 1 thereof that the contractors, ment of amounts of its financial contribu- that is to say the entities carrying out the tion actually paid to such extent as may be research, may terminate the contract uni- 'fair' and 'reasonable' given the nature and laterally by giving two months notice to the amount of the work carried out and its Commission if they consider that no further usefulness in terms of the overall pro- purpose will be served by continuing the gramme. Such amount may then be work for technical reasons or due to a increased in respect of late payment, calcu- change in the exploitation potential of the lated at the rate applied by the European results. Under Article 8.2(a) of the General Monetary Cooperation Fund for operations Conditions, the Commission may terminate in ECU increased by two percentage points, the contract, for the same reasons and from the date of receipt of payment by the giving the same notice. In those circum- contractor. stances, if the Commission considers that the reasons for early termination put for- ward by the contractors are well founded, they have the right to reimbursement of costs incurred; while, if there is no agree- 7. Finally, Article 12 of the General Con- ment on this point, they shall have the right ditions contains the arbitration clause, to reimbursement only of the costs which confers on the Court of Justice sole 'accepted by the Commission'. jurisdiction in respect of any dispute con- cerning the contract, and under Article 11 thereof, Italian law is the applicable law of the contract.

9. During 1994, only a few months after work under the contract had commenced, 11. Subsequently, by letter of 27 July 1995, Irvin was on the verge of bankruptcy due to (see Annex 6 to the application), the Com- severe financial difficulties, caused by the mission requested Hitesys to forward to it failure of the majority shareholder (Offi- the documents relating to the progress of cine Galileo) following the liquidation of the work as provided for in the contract, the public body EFIM. For that reason, it that is to say the second technical report, changed the structure of the company concerning progress for the period from during the same year and became Hitesys. June to December 1994, the final report That company superseded Irvin in the and the cost statement for the period from performance of the contract, with the result 1 January 1994 to 30 June 1995. In the that all the obligations imposed on Irvin by same letter the Commission reserved the the contract, including those relating to the right to seek reimbursement of the advance duties of coordinator, and in particular, the after examination of the aforementioned submission of technical and financial documents. reports, were assigned to Hitesys. For its part, the Commission accepted this amend- ment to the contract by letter of 19 August 1994 (see Annex 4 to the application).

13. In the absence of any response from Hitesys, the Commission sent it a request for payment on 17 July 1997 (see Annex 9 to the application). By a letter of 25 Sep- 15. By a letter of 6 February 1998 tember 1997 (see Annex 10 to the applica- (Annex 12 to the application) the Commis- tion), Hitesys informed the Commission sion confirmed to Hitesys that it was that it had been faced with serious technical seeking reimbursement, stating that the and financial problems inherited from Irvin contract had been terminated on 30 June and that this had prevented it from pro- 1995, and that the company had not gressing with the research forming the fulfilled its contractual obligations since it subject-matter of the contract, and that had not produced the requisite reports therefore 'it was impossible to obtain within the periods provided for in the satisfactory technical results'. In the same contract and, in addition, had not replied letter, Hitesys stated that its technical to the reminder letters and faxes. In con- experts were drawing up a technical-eco- sequence, the Commission stated that it nomic report on the results obtained by could not take into account any of the costs Irvin in order 'to determine whether there set out by Hitesys in the annex to its were any possibilities of continuing the abovementioned letter of 17 December research' and that this report would be sent 1997, with a view to a possible reduction to the Commission by 31 October 1997. In in the amount claimed. those circumstances, it asked that any action against it for the recovery of the advance payment be suspended.

18. The Commission's action was regis- 20. Since as mentioned above, the defen- tered at the Court Registry on 23 Septem- dant did not defend this action, and since ber 1999. It was served on Hitesys on the necessary preconditions are satisfied, 6 October 1999 which, however, lodged no the proceedings are being conducted in defence. Thereupon, the Commission accordance with the special forms and with requested the Court, by letter of 10 January the special evidentiary rules proper to this 2000, to grant the form of order sought in type of case. In that connection it should be its application, in accordance with Arti- recalled that, under Article 94 of the Rules cle 94(1) of the Rules of Procedure. of Procedure of the Court, if the defendant does not defend an action, the applicant may apply to the Court for judgment by default and has the right to obtain a judgment in accordance with the form of order sought if the application in that regard 'appears well founded'. It is there- fore clear from the wording of this provi- Admissibility sion that the judicial appraisal of the adequacy of the evidence in regard to the merits of the claim in this type of proce- dure, in order to be able to uphold the 19. The action is admissible. On 6 October grounds invoked by the applicant, is gen- 1999 it was duly served by post on Hitesys, erally less rigorous than is required in an in accordance with Article 94(1) of the ordinary case, in which both parties are Rules of Procedure of the Court. In addi- present and state their own case; this is so tion, the applicant, by letter of 10 January because it is reasonable to assume that this 2000, requested the Court to grant the appraisal may be conducted on the basis of form of order sought by it. It follows that the documents without, as a general rule, the default on the part of Irvin-Hitesys there being any need to call for production must be deemed attributable to a choice of any document which may be considered made by that company and not to a failure relevant to the decision. The essentially to institute proceedings between the parties summary nature of this assessment is and that, consequently, the present pro- justified and offset by the right of the ceedings are conducted in the form of a unsuccessful defendant in default to apply judgment by default, as defined in afore- for the judgment by default to be set aside

since the (deferred) proceedings between receipt of the notice. A slightly different the parties at that stage allows that unsuc- rule is laid down in the General Conditions cessful party to exercise the rights of the for termination of the contract by the defence, including production of docu- contractors: they may terminate the con- ments deemed relevant to the decision, if tract unilaterally, on giving the Commis- applicable. sion two months notice, if they consider that for technical or economic reasons continuation of the research serves no further purpose. An analogous right is also afforded to the Commission under the contract. That being the case, it must be determined whether, in the present case, the claim for the repayment of the advance 'appears' to be well founded on the basis of the documentation produced by the plaintiff. I consider that this question must be answered in the affirmative, for the follow- ing reasons. The consequences of termination of the contract with regard to the possible pay- ment for research work carried out before termination are very different depending on whether termination occurs in the circum- 21. In its action the Commission contends stances referred to in Articles 8.1 and that Hitesys did not fulfil its obligations 8.2(a) of the General Conditions or in under the research contract and states that, Article 8.2(d) thereof. In the former case, in those circumstances, it took the initiative the contractors are entitled to reimburse- of terminating the contract and requesting ment of costs incurred if the Commission repayment of the advance. considers their reasons to be well founded and 'accepts' the costs stated by them. However, in the second case, that is to say if termination is due to non-performance by one or more contractors, the Commission can request repayment of amounts already It should be noted that the General Condi- paid to such extent as it deems it 'fair' and tions expressly give the Commission the 'reasonable'. It must therefore be ascer- right to terminate the contract unilaterally tained which of the two situations is if it considers that continuation of the applicable in this case. research serves no further purpose, or if one or more of the contractors fails to fulfil his obligations. That is provided for in Article 8.2(a) and (d) of the General Con- ditions under which, as has already been noted, in such a situation, the Commission can consider the contract terminated, after giving notice to the parties to fulfil their 22. In order to clarify this matter it is obligations, provided that the breach of necessary to refer to the correspondence contract still subsists one month after between Hitesys and the Commission. It

will be recalled that the research work was 23. I do not believe that it can be seriously to have been completed by Irvin-Hitesys by doubted that the overall conduct of Irvin- 30 June 1995 and that the coordinator Hitesys, as is apparent from the aforemen- (Irvin-Hitesys) was under an obligation to tioned correspondence, essentially consti- submit a progress report to the Commis- tutes a more or less total breach of its sion every six months concerning progress obligations under the contract. As regards of the work and the results obtained with the submission of technical reports and regard to the activity carried out by all the statements, in particular, it appears that companies in the group, periodic cost Irvin-Hitesys sent the first report six statements corresponding to the progress months later than the date scheduled in of the works, the final cost statement and a the contract (that is apparent from the fax final technical report. from the Commission of 21 February 1995) and that on 27 July 1995, that is when the final date had already passed for completion of the research, it had not by then submitted the technical reports for the period from June to December 1994, or the final technical report, or the cost state- ments for the period from 1 January 1994 to 30 June 1995. In addition, Hitesys acknowledged in its letter of 17 July 1997 to the Commission that it could not It may be inferred from the correspondence progress with the research work provided exchanged between the Commission and for in the contract and was unable to reach Irvin-Hitesys that the company did not satisfactory results. Only in December fulfil the aforementioned obligations. That 1997, following further reminders from is clear in particular from: (a) the fax of the Commission, did Hitesys submit a 21 February 1995, in which the Commis- report on the costs incurred by the com- sion complained of the unsatisfactory pro- pany in carrying out the research pro- gress of the work and asked Irvin-Hitesys gramme and subsequently in its letter of to suspend all work; (b) the letter of 20 April 1998, the final technical report. 3 September 1996, in which the Commis- sion stated that it considered the contract to be terminated and sought reimbursement of the advance payment; (c) the letter of 17 July 1997 in which Irvin-Hitesys acknowledged that it could not progress with the research work in question and was unable to achieve satisfactory technical results; (d) the letter of 6 February 1998 in which the Commission confirmed that the contract had been terminated on 30 June 1995, and held the company 24. It should be added that, as the Com- responsible for not fulfilling its obligations mission observes, a further breach of con- since it had not produced the reports tractual obligations is constituted by the required by the contract within the periods fact that Hitesys did not ask for an laid down therein and did not reply to the extension to the contract in due time, as various reminders from the Commission. allowed by Article 1.7 of the General

25. Since these are the facts which appear from the documents, it was reasonable, it seems to me, for the Commission to consider Hitesys to be in breach of contract 26. The many instances of non-perfor- with all the consequences which that entails mance which are discernible from the under the General Conditions of the con- conduct of Irvin-Hitesys are clearly such tract. It is true that in its fax of 21 February as to justify termination of the contract. In 1995 the Commission did not invoke its action the Commission relies in that Article 8.2(d) of the General Conditions, connection on the allegedly mandatory which concerns termination by the Com- nature of the deadlines laid down in the mission for non-performance; nor, in that contract for submission of the various fax, does it mention Article 8.2(a) thereof, reports. It is inferred that mere failure to which allows termination of the contract observe these deadlines amounts to non- for technical reasons or if it is impossible to performance of the contract warranting exploit the results of the research, but unilateral termination under Article 8.2(d) purely and simply points out to Irvin- of the General Conditions. I cannot agree Hitesys that it should cease all activity in with this argument. Under Italian law, the relation to the research project. In the same period of time allowed for performance is way, it should be noted that in the letter of considered of the essence when the con- 27 July 1995, the Commission informed tracting parties specifically so agree or Hitesys unequivocally that it considered the when it is implicit in the nature and contract to have been terminated on purpose of the contract. 2In this case there 30 June 1995 and requested repayment of is no such indication in the contract, nor the advance. The fact that, in the same are there any factors to support the view letter, the Commission also asked Hitesys that those deadlines may be implied as to produce the technical and financial being of the essence of the contract because reports does not seem to me capable of of the type of activity. On this point the supporting a different conclusion, that is to Commission, in support of its interpreta- say that in this case the contract was tion of the contract, states that failure to terminated not for non-performance but observe the scheduled dates 'may contri- on one of the grounds set out in Article 8.1 bute to altering... the outcomes of the of the General Conditions: those reports are in fact documents to which the Com- mission was entitled to have regard in 2 — See Civil Cassation 2 December 1997, No 8233.

28. It remains to be determined whether the instances of non-performance as noted above can be regarded as justified by technical or economic reasons. In fact, 27. In the present case, however, the legal under Article 8.2(d) of the General Condi- basis for termination for non-performance tions, the Commission is not entitled to is to be found in the General Conditions terminate the contract unilaterally in such a which, in Article 8.2(d), contain, as has case. It does not seem to me that there are already been seen, a specific termination any such grounds in this case. The only clause, whose scope is in accordance with explanation provided by Hitesys to justify the terms of Article 1456 of the Italian its inertia was the financial crisis of the Civil Code. In fact, under that provision, group of companies to which Irvin where a contract contains a termination belonged, but plainly a ground of this kind clause, the contract is terminated automa- cannot be invoked, because it relates in tically where the contracting party who has broad terms to the conduct of the company observed the obligations notifies the concerned and cannot therefore result in defaulting party that he intends to invoke damage to the body awarding the contract that clause. Under Article 1458 of the Civil and the other parties involved in the Code, termination has retroactive effect as research project. between the parties, which means that the basis on which the transfer of assets occurred disappears, and the obligation arises for the parties to return amounts received. 3Therefore, in the present case, once the Commission availed itself of the right conferred on it under the aforemen- tioned clause (in the letter of 27 July 1995, 29. Similarly, account should also be taken confirmed by the subsequent letter of of the fact that, as the Commission points 3 September 1996), the contractual rela- out, the justifications relied on by Hitesys tionship with Hitesys came to an end, and in its letters of 25 September 1997 and at the same time, the obligation arose for 20 April 1998 (serious economic and finan- Hitesys to return the amount received by cial crisis following the liquidation of EFIM) are not only irrelevant, for the reasons given, but reveal a further instance 3 — See Civil Cassation, 12 March 1997, No 2209. of non-performance, since Hitesys was

30. In those circumstances, I do not believe I consider this negative position taken by that it is open to doubt that Hitesys did not the Commission to be reasonable, in fulfil its obligations under the contract and response to the many instances of non- that the unilateral termination of the con- performance by Hitesys identified and tract by the Commission is thus justified. examined above. The delay of several years Under the General Conditions, the Com- in submitting information and also its mission is entitled in such a case to inadequacy fully justifies the line taken by repayment of the advance, which forms the administration. Moreover, Hitesys itself the subject-matter of this dispute. acknowledges this inadequacy, in particular in its letter of 25 September 1997, in which it admits that, following the liquidation of EFIM, Irvin was compelled to conclude that it was 'impossible to achieve satisfac- tory technical results'.

It has already been noted that, under the first paragraph of Article 8.4 of the General 31. In light of all the foregoing considera- Conditions, the Commission may claim a tions, I propose that the claim for reimbur- reimbursement of a smaller sum than that sement by the Commission should be paid by way of advance and, in making an upheld in full. The sum to be paid by assessment in that regard, is to take into Hitesys to the Commission in repayment of account the nature and results of the work the advance must include interest accrued carried out, and of its use and coherence in on the sum paid by way of advance, regard to the Commission's programmes. calculated from 8 January 1994 (presumed

(2) order Hitesys SpA to pay the costs.

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