Judgment — ECLI:EU:C:1999:290
Date: 1999-06-10
Language of the case: Italian
Court formation: Third Chamber
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Energy
Concepts: Proceedings relating to a contract
Procedure: Arbitration clause
Origin: Italy

summary of the expenses incurred in the previous period, accompanied by the appropriate supporting documents; - a short publishable report on the state of advancement of the works and on the results obtained. 5. Article 8, which is of central importance to the present proceedings, reads as follows: 'The present contract may be terminated as of right by the Commission in the event of non-fulfilment by the contractor of any of its obligations under the present contract, in particular failure to observe the time-limits for submitting the reports provided for in Article 4.3, where the contractor has been formally called on to comply by means of a registered letter with a certificate of receipt and has failed to do so within a period of one month thereafter. The contract may also be terminated in the event of the contractor having, in order to obtain the financial contribution, made false statements, provided that they are imputable to the contractor. In any such case the contractor must immediately reimburse to the Commission the amounts paid to it by way of financial contribution, together with interest as from the date of receipt of those amounts. The rate of interest shall be that applied by the European Investment Bank on the date of the Commission decision concerning award of the contract for the project to which the financial contribution relates. 6. In accordance with Article 13, the Court of Justice is competent to rule on any disputes regarding the validity, the interpretation and the application of the contract. Article 14 provides that the contract is governed by Italian law. 7. On 20 August 1986, the Commission paid over some ITL 246 000 000 to Montorio. On two occasions in January and September 1987, the Commission wrote to Montorio to remind it of its obligations to comply with the reporting requirements under Article 4.3 of the contract. By letter of 3 November 1987, the Commission acceded to Montorio's request for a six-month extension for completion of the work, and on three dates in 1987 and 1988 paid over further sums totalling ITL 209 200 000. On two further occasions in November 1988 and March 1989, the Commission was obliged to remind Montorio of its obligationsunder Article 4.3. Up to this point, the Commission did not operate the provisions of Article 8 of the contract. 8. By registered letter of 5 March 1990, the Commission did, however, threaten to terminate the contract if Montorio did not provide the final technical and financial reports. It appears from this letter that the Commission thought then that the work had been completed by 31 May 1989, as agreed; further correspondence revealed that this was not so. By letter of 18 September 1991 Montorio notified the Commission that it wished to modify the original project and requested, in effect, a further extension of the deadline for completion to 31 December 1992. By a second registered letter, of 20 December 1991, the Commission requested a copy of the formal decision of the competent authority of the Comune di Montorio to allocate the financing for the modified project, and of the authorisation to connect the planned turbine to the electricity grid. The letter indicated that, failing transmission of the documents by 31 January 1992, the contract would be terminated in accordance with Article 8. Montorio sent a reply on 8 January 1992. 9. Following a site inspection in March 1992, the Commission requested Montorio, by registered letter of 25 August 1992, to provide the following documents: - the written agreement of the Abruzzo Region indicating the amount and timing of its contribution to the new project; - Montorio's written resolution concerning the repayment of the monies granted under contract 149 (see below); - an analysis of the financing for the total cost of the project; and - a new work programme which would show how the project would be carried out. All of the documents were to be presented by 30 September 1992, failing which the Commission indicated that it would apply Article 8 of the contract. 10. Montorio informed the Commission by letter of 13 October 1992 that the building work would start on 3 November. By two respective letters dated 29 October 1992, Montorio sent the Commission a new work programme and informed it that the remission of the remainder of the funding from the Abruzzo Region was subject to considerable delays. In its reply of 30 November 1992, the Commission stated that Montorio's letter of 13 October had been sent after the deadline and did not contain any of the information requested, and informed Montorio that it had therefore decided to apply Article 8 of the contract. The relevant service of DG XIX of the Commission unsuccessfully requested repayment of ITL 455 200 000 by letters of 19 December 1995 and 24 January 1996. (b) Contract 149 11. Contract No HY-149-85 ('contract 149) concerned the construction of a 300 kW hydroelectric plant integrated with a wind-diesel system for generating and water pumping (back to back). The reporting and termination clauses were essentially similar to those of contract 147; the work was to be completed by the end of May 1988. Montorio was permitted, in accordance with Article 4.2.1, to sub-contract the carrying out of part of the work, and had, in April 1986, concluded such a contract with TECNO srl. The Commission paid over ITL 158 400 000 to Montorio on 8 August 1986. 12. On two occasions in 1987, the Commission requested Montorio to provide the first report required under Article 4.3.1 of the contract. On 27 October 1987, TECNO suspended work on the installation. On 8 January 1988, the Commission sent Montorio a letter of formal notice in accordance with Article 8, threatening termination of the contract if the financial and technical reports required under Article 4.3.1 were not provided within one month of receipt of the letter. By letter of 16 March 1988, the Commission confirmed that it was terminating the contract. According to the Commission, the work which was the subject-matter of contract 149 was never even commenced. 13. A final letter requesting reimbursement of the sums paid out under contracts 147 and 149 was sent on 20 September 1996; Montorio did not reply. (c) The proceedings before the Court 14. The Commission initiated the present proceedings on 24 September 1997. As regards contract 147, the Commission complains of Montorio's failure to respect the following clauses: - Article 2 (timetable for the completion of the work) - Article 4.3 (provision of periodic reports) - Article 4.4 (provision of information on delays) - Article 4.5 (provision of information on the progress of the work). The Commission claims that the contract was terminated in accordance with Article 8, citing the letter of 25 August 1992 as the letter of formal notice required by 'Article 4.3. It states that Montorio was notified of the termination by registered letter of 30 November 1992. 15. As regards contract 149, the Commission cites Montorio's failure to respect Article 4.3, 4.4 and 4.5 of the contract, concerning the provision to the Commission of periodic reports, and of information on any events which might jeopardise the fulfilment of the contract, and of information on the progress of the work. It therefore claims that the contract was terminated in accordance with Article 8 as a result of the letter of formal notice of 8 January 1988, and that Montorio was notified of the termination by registered letter of 16 March 1988. 16. Relying on Article 1453 of the Italian Civil Code, the Commission is also claiming compensation for damage suffered as a result of Montorio's failure to respect the contracts. It estimates the time spent supervising Montorio's activities at 150 official-hours; at ITL 125 000 per hour, it is claiming ITL 11 875 000 under this head. To this, the Commission adds the damage to its credibility vis-à-vis the other institutions and the Member States, as well as third parties which may wish to conclude contracts with the Community. The Commission estimates the total damage at ITL 50 000 000, without prejudice to any other amount the Court may decide to award in equity. 17. In its defence, Montorio argues that the completion date of 30 November 1988 was only indicative, as evidenced by the fact that the Commission (4) took no action for nearly a decade to sanction the failure to comply with it; as the Commission did not put the municipal administration on notice to comply with its obligations and fix a final deadline to this end, the request for termination for non-performance based on Article 1453 of the Italian Civil Code is inadmissible. The Commission's behaviour had led Montorio to believe that it was prepared to wait until the legal proceedings against TECNO for non-performance had been concluded, and the Abruzzo Region had decided once again to finance the work. 18. On the merits, Montorio argues that the Commission had 'after mature reflection, by the letter of 25 August 1992, fixed the period for communication of the documents as expiring on 30 September 1992. In its view, the Commission has ignored the fact that Montorio had, by letter of 29 October 1992, provided the Commission with the work programme it had requested on 25 August 1992; as the letter of 30 November 1992 is based on a false factual premiss, Article 8 of the contract is therefore inapplicable. 19. Montorio also claims that the clause concerning the contractual rate of interest is null and void, as, in accepting Article 8, the Mayor had only accepted the conditions under which the contract could be terminated, not the rate of interest. It finally argues that Article 8 provides that interest is only due from the moment of the termination of the contract, not from that of the receipt of the sums at issue. 20. In its rejoinder, Montorio claims that a party may waive or suspend an express termination clause, where that party postpones the date fixed for the carrying out of the contract. The Commission's letter of notice of 25 August 1992 only concerned technical and financial reports; these were however supplied on 29 October 1992. Montorio also claims that it never received the letter of the Commission dated 16 March 1988 by which it informed Montorio that contract 149 was dissolved. As regards the rate of interest, it submits that, in accordance with the principles of contract law in force, the dominant party must provide the other party with all the necessary information including, in casu, the contractual interest rate. II - Analysis 21. In the present proceedings, the proper consideration of Montorio's defence has been hampered somewhat by its incoherent presentation, and in particular Montorio's persistent failure to indicate which of the contracts its arguments refer to. None the less, in the spirit of the general principles governing the duty of the Court, I have attempted, where possible, to interpret these arguments in the manner which is consistent with the defendant's conclusions, to wit, that the Commission's claim should be rejected because Montorio has fulfilled its contractual obligations and, in the alternative, that interest is due at the legal rate reckoned from the date of the initiation of the present legal proceedings, or at least that of the letter declaring the contract terminated. (a) Partial inadmissibility of Montorio's defence 22. In its rejoinder, Montorio argues that the contractual provision fixing a higher rate of interest than the legal rate is illegal because the actual rate was not indicated and that the predominant contractor is obliged to communicate all the relevant elements to the other party. It also argues that it had never received the Commission's registered letter of 16 March 1988, and hence that contract 149 had never been terminated. These pleas are clearly inadmissible under Article 42(2) of the Rules of Procedure of the Court of Justice, which prohibits the introduction in the course of proceedings of any new plea in law, 'unless it is based on matters of law or fact which come to light in the course of the procedure. Montorio has not sought to argue, nor, in my view, could it, that either of these pleas is so based. (b) The termination of contract 147 23. Montorio's first claim, which may only be interpreted as concerning contract 147, is that the deadline fixed for completion of the work was merely indicative in character, as demonstrated by the fact that the Commission waitedalmost a decade after the expiry of the deadline before initiating the present proceedings. In these circumstances, the Commission's action for termination of the contract for non-performance in accordance with Article 1453 of the Italian Civil Code is inadmissible. 24. While it is true that the Commission refers to the breach of a number of Montorio's obligations under contract 147 other than Article 4.3, it is clear that the Commission is relying on the termination in 1992 of that contract in accordance with Article 8, rather than requesting termination for non-performance in accordance with Article 1453 of the Italian Civil Code. Montorio's plea of inadmissibility is therefore misconceived. The same is true of its argument contesting the serious character of the breach, which does not arise where a party relies on an express termination clause; as the Corte di Cassazione (Court of Cassation) held in its judgment of 28 January 1993, in concluding such a clause the parties have already agreed that the failure to comply with the specified obligation is such as to justify the termination of the entire contract. (5) 25. Montorio's second claim is that Article 8 of the contract, which must also, in the light of the dates mentioned, and despite certain inconsistencies, be treated as referring to contract 147, is inapplicable because: - the letter of formal notice was not sent by registered post; - the Commission continued to request reports after the expiry of the deadline, so that it must be considered as having waived the termination clause; - the Commission's attitude is contradictory, in that it had stated in its letter of 20 September 1996 that the contract had been terminated in 1988, while it is clear from its letter of 30 November 1992 that the contract was not resolved. Thus, having declared that it wished to terminate the contract, the Commission adopted a course of behaviour demonstrating that it had waived the clause, even agreeing on a new deadline for completion. In response to the Commission's letter of 25 August 1992 setting a deadline of 30 September 1992, Montorio sent the documents on 29 October 1992; the legal conditions governing termination as of right were therefore not fulfilled. 26. I would reject the first branch of this claim as simply untrue. The Commission has produced copies of the certificate of receipt for each of the registered letters of formal notice it sent to Montorio concerning contract 147 on 5 March 1990, 20 December 1991 and 25 August 1992. Moreover, Montorioreplied to each of these, by letters of 19 April 1990, 8 January 1992 and 13 October 1992, and cannot claim not to have received them. 27. The second and third branches of Montorio's argument seem to me to raise the same legal point, to wit, whether the Commission's behaviour after the expiry of the deadline should be interpreted as indicating a waiver of the termination, in line with the relevant case-law of the Corte di Cassazione. (6) Montorio's argument concerning the alleged contradictory attitude of the Commission in seeking to terminate in 1992 a contract which it had already terminated in 1988 is based on a confusion between contracts 147 and 149, and should be rejected. 28. In order to deal with this point satisfactorily, it becomes necessary to determine exactly if and when contract 147 was properly terminated. The reliance on an express termination clause is regulated by Article 1456 of the Italian Civil Code which provides that: 'The contracting parties can expressly agree that the contract will be terminated if a specified obligation is not performed in the designated manner. In this case, the termination takes place by operation of law when the interested party declares to the other that he intends to avail himself of the termination clause. 29. In the present case, the Commission first sent a letter of formal notice calling on Montorio to comply with Article 4.3 of the contract on 5 March 1990. Though Montorio's failure, for obvious reasons, to supply the reports requested would have entitled the Commission to terminate the contract at least from the date indicated in that letter (31 May 1990), it did not do so either then, or following Montorio's failure to comply with the deadline laid down by the registered letter of 20 December 1991. In neither case could the termination take place 'by operation of law, as the Commission had not notified Montorio of its intention to avail of the option to terminate, as required by both Article 1456 of the Italian Civil Code and Article 8 of the contract. On the other hand, the Commission's intention, as expressed in its letter of 30 November 1992, to terminate contract 147 following Montorio's failure to comply with its letter of 25 August 1992 is clear and unequivocal. 30. Montorio has accepted that the Commission could, in principle, rely on Article 8, combined with Article 4.3, of the contract, though arguing that Article 8 was inapplicable in the circumstances because of the two letters it had sent the Commission on 29 October 1992. In particular, it has not challenged the Commission's view that the registered letter of 25 August 1992 constituted a proper call for compliance within the meaning of Article 8. 31. In order for the Commission properly to terminate contract 147, it is of course obliged to comply strictly with the procedural requirements of Italian law and of Article 8. That said, the reference in its application to 'Article 4.3 is clearly intended to refer to the first paragraph of Article 8, which, in fact, provides for the sending of a letter of formal notice should the reports required under Article 4.3 not be provided within the deadline set. Article 4.3, on the other hand, does not refer at any point to the sending of such a letter. As I have had to go to some lengths to interpret the defendant's pleadings in the present case, it seems only equitable that what is clearly a typographical error in the Commission's pleadings should not be given undue importance. 32. The Commission was obliged, under Article 8 of contract 147, to call upon the defendant to comply with Article 4.3; in the present case, however, where Montorio had egregiously failed to comply with most of its obligations under the contract, and where, by the time of the Commission's letter of 25 August 1992, almost no work had been carried out, the Commission could hardly have been expected to call for reports 'on the state of progress of the work, or the supporting financial documents. In these circumstances, it would appear to me to be excessively formalistic to require the Commission in its letter of formal notice to call upon Montorio to comply with the deadlines for the provision of the reports due under Article 4.3 of the contract, when both parties knew that compliance with that obligation was no longer possible. Had the contractual relationship not evolved, the Commission would have had no alternative but to bring it to an end much earlier, which is exactly what Montorio had sought to avoid. Moreover, Montorio has not disputed the fact that it was under an obligation to provide the documents listed in the letter of 25 August 1992, failure to comply with which would allow the Commission to terminate the contract under this provision, and has expressly argued that by providing the work programme it had complied with Article 8. Furthermore, the material requested by the Commission in this letter corresponded closely to information on the carrying out of the work and the financial management thereof which the reports were intended to provide. This interpretation of Article 4.3 of the contract also appears to me to best reflect the common intention of the parties, which is the guiding principle for the interpretation of contracts laid down by Article 1362 of the Italian Civil Code. 33. A party may only rely on an express termination clause where the responsibility for the non-performance of the specified obligation is imputable to the defaulting party, in accordance with Article 1218 of the Italian Civil Code. (7) It is clear from the facts of the present case, and in particular the assumption by Montorio of the entirety of the technical and financial responsibility for the execution of the work envisaged, in accordance with Article 4.1 of contract 147,that responsibility for its failures under the contract may not be imputed to any other party or cause. Indeed, Montorio has not sought to deny its responsibility in this respect. 34. The only point outstanding is therefore one of fact: whether Montorio had, before the termination of the contract had become operative (on notification by the Commission, by letter of 30 November 1992), provided the Commission with the documents specified in its letter of 25 August 1992. The first of the documents requested was the written agreement of the Abruzzo Region indicating the amount and timing of its contribution to the new project. Contrary to its affirmations, the letter of 29 October 1992 on which Montorio relies does not comply with this request; on the contrary, the relevant letter indicates that funding from the Region had suffered considerable delays, and that the sum would be available before the end of January 1993. There is however nothing in the case-file to indicate that this funding had been allocated by the date indicated, or even before the commencement of the present proceedings. 35. The Commission had also requested a written resolution from the Comune di Montorio concerning the repayment of the monies granted under contract 149. There is nothing to indicate that this was forthcoming either, then or now; on the contrary, while it failed to present any substantive argument on the point, Montorio has in the course of the present proceedings expressly contested any liability to reimburse these sums. 36. Thirdly, the Commission had requested an analysis of the financing for the total cost of the project. Neither of Montorio's letters of 29 October 1992 make any reference to such an analysis, nor has Montorio shown that the Commission received the information requested. In any event, none of the information was supplied within the period indicated by the Commission in its letter of 25 August 1992, i.e. before 30 September 1992. 37. In these circumstances, taking the Commission's letter of 25 August 1992 as a call for compliance in accordance with Article 8 of contract 147, this contract was, in my view, validly terminated by the Commission by letter of 30 November 1992. 38. While the Commission may have dragged its heels somewhat in seeking to recover repayment of the amounts advanced under the two contracts, Montorio has provided no evidence of any Commission behaviour which could support the view that it no longer wished to rely on the termination of the contract under Article 8 after this date. The only communications it received from the Commission in relation to contract 147 after the letter of 25 August 1992 were the letter of 30 November 1992, noting that this contract (and contract 149) had been terminated, and the requests for repayment from the Commission's services by letters of 12 December 1995, 24 January 1996 and 20 September 1996. In particular, I would reject as wholly unsubstantiated Montorio's claim that theCommission led it to believe that the Commission was prepared to await the outcome of legal proceedings which were apparently pending against TECNO. Nor do I consider it remotely possible to construct the request by the Commission in its letter of 25 August 1992 for a copy of the written agreement of the Abruzzo Region regarding the financing of the project as indicating an intention to wait for that financing before terminating the contract, especially as Montorio was unable to comply with this request. In any case, this argument is inconsistent with Article 4.1 of the contract, as noted above, which expressly provided that Montorio assumed the entire technical and financial responsibility for the project. 39. I am therefore of the opinion that both contract 147 and contract 149 were validly terminated by the Commission by letters of 30 November 1992 and 16 March 1988 respectively, and that Montorio should be ordered to repay the sums advanced under each contract, as specified in the Commission's application. (c) The termination of contract 149 40. Given the terms of Montorio's statement of defence, and in particular the dates and alleged facts relied on, I do not consider it possible to interpret this as making any argument in law whatsoever concerning the Commission's claim in respect of the repayment of the sums due under contract 149. It appears clearly from the case-file that the Commission's application in relation to contract 149 is admissible and well founded. I therefore propose that the Commission's claim be upheld in this regard. (d) The amount of interest due 41. In alleging the nullity of the clause fixing the rate of interest at that applied by the European Investment Bank at the date of the Commission decision awarding the contract ('the EIB rate), Montorio is relying on Article 1341 of the Italian Civil Code. This provides, inter alia, that clauses in standard-form contracts which establish in favour of the party which has prepared them in advance a derogation from the competence of the courts, presumably here that to determine the rate of interest, are ineffective, unless specifically approved in writing. In the present case, on 25 July 1986 the acting mayor of Montorio expressly approved in writing, 'within the meaning of Articles 1341 and 1342 of the Italian Civil Code, a number of clauses of the contract, including Article 8, at page 11 thereof. Paragraph 3 of this provision not only specifies the rate of interest, but does so in the context of the application of the express termination clause. I can find no merit in the defendant's argument on this point, and Montorio has not contested the Commission's figure of 14.2% as being the EIB rate. I therefore recommend that the Court hold that the interest on the sums advanced is 14.2%. 42. Montorio's argument concerning the date from which the interest is due is equally devoid of merit. In its view, 'it follows from the terms of Article 8 ('[pur] considerando le prescrizioni dettate dall'art. 8) that interest is due from the date of the dissolution of the contract. The terms of the third paragraph are, however, crystal clear, and require the payment of interest as from the date of receipt of those amounts. Montorio has not contested the calculation of the interest due on each of the amounts advanced upon which the Commission relies in its application, and I would therefore recommend that the Court find in favour of the Commission in this regard. (e) The Commission's claim in damages 43. Damages for non-performance of a contractual obligation is admitted in some circumstances by Article 1218 of the Italian Civil Code. It appears from the case-law of the Corte di Cassazione that the party seeking such damages must prove the fact of such loss, while according to Article 1223 of the Italian Civil Code, damages are restricted to loss, or loss of earnings, sustained by the plaintiff as a direct and immediate consequence of the non-performance. In the present case, the Commission has not shown that the behaviour of the defendant was such as to cause supplementary costs above and beyond those which it would have incurred in the handling of such contracts as part of its duties under the EC Treaty; the causal link between the defendant's glaring failures and any loss by the Commission has not been shown. 44. Furthermore, the fact that one contractor has not respected its contracts can hardly be said to lead to a loss of credibility for the Commission in its relations with other potential contractors, the Community institutions and the Member States; any loss of credibility which could be said to arise does so as a result of the Commission's tardiness in pursuing Montorio for three years after it was clear beyond doubt that contract 147 was not going to be carried out, or, in the case of contract 149, eight years, and from the Commission's decision not to request, in its letters of December 1995 and January 1996, Montorio to pay the interest due on the sums advanced. (f) Costs 45. If the Court were to follow my recommendations on the merits, the Commission would have succeeded in all of its submissions. In those circumstances, I would recommend that Montorio be ordered to pay the costs of the action, as the Commission has requested. III - Conclusion 46. In view of the foregoing, I propose that the Court: (1) Order the Comune di Montorio al Vomano to reimburse to the Commission, in respect of contract No WE-147-85: - ITL 246 000 000, plus interest at 14.2% calculated from 1 December 1986 until the date the sum is paid to the Commission; - ITL 49 200 000, plus interest at 14.2% calculated from 1 March 1988 until the date the sum is paid to the Commission; - ITL 110 800 000, plus interest at 14.2% calculated from 1 June 1988 until the date the sum is paid to the Commission; - ITL 49 200 000, plus interest at 14.2% calculated from 1 August 1988 until the date the sum is paid to the Commission. (2) Order the Comune di Montorio al Vomano to reimburse to the Commission, in respect of contract No HY-149-85, ITL 158 400 000, plus interest at 14.2% calculated from 1 November 1986 until the date the sum is paid to the Commission. (3) Order the Comune di Montorio al Vomano to pay the costs. 1: Original language: English. 2: - OJ 1983 L 195, p. 6. 3: - If the period between the date of forwarding laid down in the last intermediate report and the end of the work programme is less than six months, the contractor shall set out the results and the conclusions for that period in the final report. 4: - Montorio refers both to 'the European Community and to 'the Commission; for the sake of clarity, I will refer to 'the Commission throughout. 5: - Corte di Cassazione, judgment of 28 January 1993, no. 1029, Soc. Pierre Balmain v Soc. Intermoda, 1993 Il Foro Italiano 1470, 1475-1476. 6: - See, for example, judgment of 16 February 1988, no. 1661, Giur. it., 1989, I 1, p. 141. 7: - Opinion of Advocate General La Pergola of 15 October 1998 in Case C-69/97 Commission v S.N.U.A., paragraph 14 (judgment pending).