Opinion of the Advocate General — ECLI:EU:C:2000:291
Date: 2000-05-25
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Energy
Procedure: Arbitration clause
Origin: Italy

summary nature of this assessment is justified and offset by the right of the unsuccessful defendant in default to apply for the judgment by default to be set aside since the (deferred) proceedings between the parties at that stage allows that unsuccessful party to exercise the rights of the defence, including production of documents deemed relevant to the decision, if applicable. 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 following reasons. 21. In its action the Commission contends that Hitesys did not fulfil its obligations under the research contract and states that, in those circumstances, it took the initiative of terminating the contract and requesting repayment of the advance. It should be noted that the General Conditions expressly give the Commission the right to terminate the contract unilaterally if it considers that continuation of the 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 Conditions 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 obligations, provided that the breach of contract still subsists one month after receipt of the notice. A slightly different rule is laid down in the General Conditions for termination of the contract by the contractors: they may terminate the contract unilaterally, on giving the Commission 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. The consequences of termination of the contract with regard to the possible payment for research work carried out before termination are very differentdepending on whether termination occurs in the circumstances referred to in Articles 8.1 and 8.2(a) of the General Conditions or in Article 8.2(d) thereof. In the former case, the contractors are entitled to reimbursement of costs incurred if the Commission 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 paid to such extent as it deems it 'fair and 'reasonable. It must therefore be ascertained which of the two situations is applicable in this case. 22. In order to clarify this matter it is necessary to refer to the correspondence between Hitesys and the Commission. It will be recalled that the research work was to have been completed by Irvin-Hitesys by 30 June 1995 and that the coordinator (Irvin-Hitesys) was under an obligation to submit a progress report to the Commission every six months concerning progress of the work and the results obtained with regard to the activity carried out by all the companies in the group, periodic cost statements corresponding to the progress of the works, the final cost statement and a final technical report. It may be inferred from the correspondence exchanged between the Commission and Irvin-Hitesys that the company did not fulfil the aforementioned obligations. That is clear in particular from: (a) the fax of 21 February 1995, in which the Commission complained of the unsatisfactory progress of the work and asked Irvin-Hitesys to suspend all work; (b) the letter of 3 September 1996, in which the Commission 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 responsible for not fulfilling its obligations since it had not produced the reports required by the contract within the periods laid down therein and did not reply to the various reminders from the Commission. 23. I do not believe that it can be seriously doubted that the overall conduct of Irvin-Hitesys, as is apparent from the aforementioned correspondence, essentially constitutes a more or less total breach of its obligations under the contract. As regards the submission of technical reports and statements, in particular, it appears that Irvin-Hitesys sent the first report six months later than the date scheduled in the contract (that is apparent from the fax 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 statements 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 progress with the research work provided for in the contract and was unableto reach satisfactory results. Only in December 1997, following further reminders from the Commission, did Hitesys submit a report on the costs incurred by the company in carrying out the research programme and subsequently in its letter of 20 April 1998, the final technical report. 24. It should be added that, as the Commission observes, a further breach of contractual obligations is constituted by the fact that Hitesys did not ask for an extension to the contract in due time, as allowed by Article 1.7 of the General Conditions, even though it was aware of the delays which were building up. 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 with all the consequences which that entails under the General Conditions of the contract. It is true that in its fax of 21 February 1995 the Commission did not invoke Article 8.2(d) of the General Conditions, which concerns termination by the Commission for non-performance; nor, in that fax, does it mention Article 8.2(a) thereof, which allows termination of the contract for technical reasons or if it is impossible to exploit the results of the research, but purely and simply points out to Irvin-Hitesys that it should cease all activity in relation to the research project. In the same way, it should be noted that in the letter of 27 July 1995, the Commission informed Hitesys unequivocally that it considered the contract to have been terminated on 30 June 1995 and requested repayment of the advance. The fact that, in the same letter, the Commission also asked Hitesys to produce the technical and financial reports does not seem to me capable of supporting a different conclusion, that is to say that in this case the contract was terminated not for non-performance but on one of the grounds set out in Article 8.1 of the General Conditions: those reports are in fact documents to which the Commission was entitled to have regard in determining the amount which it could claim back. It should be noted that, under Article 8.4 of the General Conditions, the Commission, in assessing whether to request the reimbursement of all or only part of the advance, must have regard 'to the nature and results of the work undertaken and its use under the Community programmes. 26. The many instances of non-performance which are discernible from the conduct of Irvin-Hitesys are clearly such as to justify termination of the contract. In its action the Commission relies in that connection on the allegedly mandatory nature of the deadlines laid down in the contract for submission of the various reports. It is inferred that mere failure to observe these deadlines amounts to non-performance of the contract warranting unilateral termination under Article 8.2(d) of the General Conditions. I cannot agree with this argument. Under Italian law, the period of time allowed for performance is considered of the essence when the contracting parties specifically so agree or when it is implicit in the nature and purpose of the contract. (3) In this case there is no such indication in the contract,nor are there any factors to support the view that those deadlines may be implied as being of the essence of the contract because of the type of activity. On this point the Commission, in support of its interpretation of the contract, states that failure to observe the scheduled dates 'may contribute to altering ... the outcomes of the collateral research and technological development activities ... mentioned as related and supplementary in the technical report relating to the project in Annex I to the contract. However, the reference in question seems to me to be too imprecise to be able to support the inference that the deadlines are of the essence, a matter which requires to be reflected in the clear consensus of the contracting parties. 27. In the present case, however, the legal basis for termination for non-performance is to be found in the General Conditions which, in Article 8.2(d), contain, as has already been seen, a specific termination clause, whose scope is in accordance with the terms of Article 1456 of the Italian Civil Code. In fact, under that provision, where a contract contains a termination clause, the contract is terminated automatically where the contracting party who has observed the obligations notifies the defaulting party that he intends to invoke that clause. Under Article 1458 of the Civil Code, termination has retroactive effect as 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. (4) Therefore, in the present case, once the Commission availed itself of the right conferred on it under the aforementioned clause (in the letter of 27 July 1995, confirmed by the subsequent letter of 3 September 1996), the contractual relationship with Hitesys came to an end, and at the same time, the obligation arose for Hitesys to return the amount received by way of an advance payment. In those circumstances the subsequent submission by Hitesys of the technical and financial reports could not constitute performance of the contract since once the contract is terminated, it is treated as never having existed. 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, under Article 8.2(d) of the General Conditions, the Commission is not entitled to terminate the contract unilaterally in such a case. It does not seem to me that there are any such grounds in this case. The only explanation provided by Hitesys to justify its inertia was the financial crisis of the group of companies to which Irvin belonged, but plainly a ground of this kind cannot be invoked, because it relates in broad terms to the conduct of the company concerned and cannot therefore result in damage to the body awarding the contract and the other parties involved in the research project. 29. Similarly, account should also be taken of the fact that, as the Commission points out, the justifications relied on by Hitesys in its letters of 25 September 1997and 20 April 1998 (serious economic and financial crisis following the liquidation of EFIM) are not only irrelevant, for the reasons given, but reveal a further instance of non-performance, since Hitesys was required by Article 1.4 of the General Conditions to notify the Commission without delay of any event or circumstance likely to compromise the performance of the contract, yet only mentioned these matters in correspondence as from September 1997. 30. In those circumstances, I do not believe that it is open to doubt that Hitesys did not fulfil its obligations under the contract and that the unilateral termination of the contract by the Commission is thus justified. Under the General Conditions, the Commission is entitled in such a case to repayment of the advance, which forms the subject-matter of this dispute. It has already been noted that, under the first paragraph of Article 8.4 of the General Conditions, the Commission may claim a reimbursement of a smaller sum than that paid by way of advance and, in making an assessment in that regard, is to take into account the nature and results of the work carried out, and of its use and coherence in regard to the Commission's programmes. In the present case the Commission is seeking reimbursement of the total amount paid by way of advance. On this point, it states in its application that the documentation supplied does not allow 'the activities carried out to be precisely identified, the time taken for implementation or their functional link with the Community project to which this dispute refers. A similar point was made by the Commission in its letter to Hitesys of 14 July 1998 (see Annex 14 to the application). I consider this negative position taken by the Commission to be reasonable, in response to the many instances of non-performance by Hitesys identified and examined above. The delay of several years in submitting information and also its inadequacy fully justifies the line taken by the administration. Moreover, Hitesys itself 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 satisfactory technical results. 31. In light of all the foregoing considerations, I propose that the claim for reimbursement by the Commission should be upheld in full. The sum to be paid by Hitesys to the Commission in repayment of the advance must include interest accrued on the sum paid by way of advance, calculated from 8 January 1994 (presumed date of receipt of the advance by Hitesys) to 8 September 1999, and is to be determined in accordance with the criteria laid down in the second paragraph of Article 8.4 of the General Conditions, together with interest accruing until the actual date of payment. 32. Finally, since I propose that the Commission's claim should be upheld, Hitesys should also be ordered to pay the costs under Article 69(2) of the Rules of Procedure, in accordance with the claim on that behalf by the administration. Conclusions 33. I therefore propose that the Court should: (1) order Hitesys SpA to pay to the Commission EUR 132 500 by way of capital, together with EUR 61 032.8 by way of interest accrued due at the rate of 8.25% for the period from 8 January 1994 to 8 September 1999, that is to say a total amount of EUR 194 443.7, as well as EUR 30.364 by way of interest for each extra day's delay until actual payment; such amount being in connection with the financing relating to contract JOU2-CT93-0417; (2) order Hitesys SpA to pay the costs. 1: - Original language: Italian. 2: - Council Decision 91/484/EEC of 9 September 1991 (OJ 1991 L 257, p. 37). 3: - See Civil Cassation 2 December 1997, No 8233. 4: - See Civil Cassation, 12 March 1997, No 2209.