Opinion of Mr Advocate General Saggio delivered on 26 November 1998. - Commission of the European Communities v Cascina Laura Sas di arch. Aldo Delbò & C. and Gariboldi Engineering Company Srl. - Article 181 of the EC Treaty - Arbitration clause - Non-performance of a contract. - Case C-65/97.



European Court reports 1999 Page I-01017



Opinion of the Advocate-General

1 In the present case, the Commission has brought an action under Article 181 of the Treaty to recover from two Italian companies - Cascina Laura Sas di Aldo Delbò & C. (`Cascina Laura') and Gariboldi Engineering Company Srl (`Gariboldi') - monies paid for completion of a project under a contract which it terminated unilaterally for non-performance. Specifically, the Commission claims reimbursement of ECU 479 134 together with interest payable at the rate set by the European Monetary Cooperation Fund for its transactions in ecus, which is published in the Official Journal of the European Communities on the first working day of each month. It also claims compensation for damage suffered as a result of non-performance, plus costs. It has formally withdrawn its claims against Cascina Laura, in view of the latter's bankruptcy, but maintains its application for costs.

Facts

The contract

2 On 1 June 1990 the European Economic Community, represented by the Commission, entered into a contract (No BM 5/89 IT; `the contract') with Cascina Laura, Gariboldi and Servizi Agroalimentare ed Ambiente Srl (`SAA'), acting jointly and severally (`the contractor').

3 The contract was for completion of `a project to produce electricity and heat from biomass consisting of rice production residue (straw and husks)'. As such it fell within the class of `demonstration projects and industrial pilot projects in the energy field' with which Regulation (EEC) No 3640/85 (1) is concerned (Article 1(1)).

4 Under the contract, the Community undertook to provide the contractor with financial support equal to 40% of the project's actual cost, but subject to a ceiling of ECU 680 103 (Clause 3). The contractor, on the other hand, was responsible for technical and financial matters relating to the project (Clause 4.1). In addition to its primary obligation - completion of the project - the contractor assumed other contractual obligations such as adherence to a strict timetable and the preparation of interim progress reports containing statements of expenditure which it was to send to the Commission (Clause 4.3.2). Work was scheduled to begin on 1 December 1989 and to be completed by 31 July 1991.

5 Clause 8 of the contract provided that the Commission could unilaterally terminate the contract in the event of the contractor's non-performance of any of its obligations thereunder, `in particular if it fail[ed] to comply with the stipulations made in Clause 4.3 thereof'. If non-performance persisted, termination was to take effect `on expiry of a period of one month after notice [was] served by registered letter with acknowledgment of receipt'. Clause 8 further provided that, in such circumstances, `the Contractor [was to] immediately repay to the Commission any amounts advanced by way of financial assistance, together with interest payable from the date of receipt of such funding'. Interest was to be payable at the rate set by the European Monetary Cooperation Fund for its transactions in ecus, which is published in the Official Journal on the first working day of each month.

6 Clause 13 contained the arbitration clause under which reference was to be made to the Court in the event of any dispute concerning the validity, interpretation or application of the contract. Clause 14 provided that the contract was to be governed by Italian law.

The contractor's conduct

7 On 5 July 1990 the Commission made a payment of ECU 204 031 (30% of the maximum contribution) into Current Account No 2007/1 at the Banca Popolare di Intra (Novara Branch), which had been opened in the name of Cascina Laura. On the latter's instructions, the bank then transferred the entire amount, together with interest as at 12 September 1990, in Italian currency to SAA and Gariboldi. By cheque dated 10 July 1990, SAA received ITL 15 360 000; by banker's order of 26 September 1990, Gariboldi received ITL 297 038 483.

8 After receiving the first report required under the contract in December 1990, the Commission made a further payment to Cascina Laura on 20 February 1991 in the amount of ECU 275 103. However, it did not receive the subsequent reports stipulated by Clause 4.3.2 of the contract. The Commission therefore sent reminders to Cascina Laura on 9 July and 13 August 1991. On 25 October 1991 it informed Cascina Laura that if a technical and financial report were not forthcoming by 15 November 1991 it would terminate the contract. By letter of 12 November 1991, Cascina Laura replied that financial difficulties were to blame for its failure to provide the reports but that, thanks to a new partnership into which it would be entering in the near future, these difficulties would shortly be resolved. However, that assertion was not borne out by later events.

9 On 10 April 1992 Gariboldi told the Commission that Cascina Laura's failure to fulfil various obligations posed a grave threat to the project's satisfactory completion. It further maintained that despite the fact that it, Gariboldi, had faithfully and timeously discharged its own contractual obligations, it had not at the time of writing received any financial support from the Community, since the account into which funds had been paid was in the name of Cascina Laura alone. In its view, all the problems arising in connection with the project could be traced to Cascina Laura's failure to respect its obligations to its creditors and suppliers. Consequently, Gariboldi had applied to the Milan District Court to have Cascina Laura wound up.

The Commission thereupon sent Gariboldi a letter dated 7 May 1992 to say that it had been in contact with Cascina Laura, specifically with Mr Delbò, in an attempt to discover what progress had been made with the project.

10 On 2 September 1992 the Commission wrote to Cascina Laura repeating its request. In reply, Cascina Laura once again cited financial difficulties, adding that it was imperative not to take legal action against it as that would cause irreparable damage. On 20 October 1992 the Commission received a further communication from Gariboldi reiterating its complaints about Cascina Laura's conduct and denying any responsibility for the failure to fulfil the contractual obligations.

11 On 21 and 22 June 1993 the Commission carried out an inspection at the head offices of Cascina Laura and Gariboldi. In a report dated 6 July 1993, the Commission officials stated that the only essential part of the installation to have reached completion was the thermal equipment (for which, under internal arrangements, Gariboldi was responsible). However, given the work already accomplished and Gariboldi's interest in preserving the contractual relationship, and in view of the assurances received from Cascina Laura, the Commission officials thought it reasonable to postpone the deadline one last time in order to give the parties a short while longer to complete the project, failing which the Commission would have no choice but to terminate the contract.

12 On 26 November 1993, after the extended deadline had expired with no successful conclusion, the Commission served formal notice on Cascina Laura and Gariboldi to comply with the contract. Pursuant to Clause 8, this meant that, failing performance within one month, the contract would be terminated. In response, Gariboldi maintained that it had fully discharged its own contractual obligations; Cascina Laura made no reply. On 27 April 1994 the Commission sent both companies confirmation that the contract had been terminated and demanded repayment of ECU 608 647 in capital and interest. It issued reminders by letters of 2 May, 26 May and 16 November 1994. Gariboldi alone replied, again maintaining that it was not responsible for the non-performance, this being attributable solely to the conduct of Cascina Laura.

13 So far as concerns the legal situation of the contractors, SAA was declared insolvent by the District Court of Novara on 18 January 1994. Cascina Laura was placed under arrangements with its creditors on 29 November 1994 and declared insolvent on 23 June 1997 by the same court. On 2 June 1994 Gariboldi entered into voluntary liquidation by decision of the general meeting of its shareholders.

Forms of order sought

14 By application lodged at the Court Registry on 14 February 1997 the Commission claimed that the Court should:

`1. order Cascina Laura and Gariboldi jointly and severally to refund ECU 479 134 together with interest as from the payment of that sum until the date of final settlement, by monthly instalments of ECU 1 742 as from 31 July 1990 and of ECU 2 464 as from 20 April 1991 - that is to say, by total monthly instalments of ECU 4 206 as from 20 April 1991 - until the date of final settlement;

2. order Cascina Laura and Gariboldi jointly and severally to pay damages to the Commission in the amount of ECU 100 000 or such sum as the Court may deem appropriate;

3. order Cascina Laura and Gariboldi jointly and severally to pay the costs'.

15 Gariboldi lodged a defence on 12 March 1997. It contended that the Court should:

`1. declare that Contract BM 5/89 IT was never binding upon the defendant in view of the Commission's non-performance of its contractual obligations in so far as it paid funds to a person not empowered at law to receive such payment, the defendant having therefore incurred no liability to the Commission in respect of said monies;

in the alternative, declare that the defendant's signature on Contract BM 5/89 IT signifies, as the applicant itself has confirmed, that the defendant undertook to stand guarantor, and that it falls therefore within the scope of Article 1955 of the [Italian] Civil Code;

confirm that, pursuant to Article 1955 of the Civil Code, the defendant's obligation of guarantorship was extinguished by the applicant's misconduct;

consequently, dismiss all the claims put forward by the applicant against Gariboldi, declaring them to be unfounded in fact or in law;

2. In the further alternative, should the Court of Justice find that the defendant is in any way liable under the contract de quo, declare that henceforth (incidenter tantum) Orzya Srl is neither concerned nor liable in that it was not the defendant's sole shareholder during the period in which the obligation in question arose;

3. order the applicant to pay costs and fees'.

16 The Commission and Gariboldi lodged, respectively, a reply on 10 July 1997 and a rejoinder on 8 October 1997, in which they both confirmed the forms of order sought in the above documents.

17 Cascina Laura failed to appear before the court. On 21 April 1998, following the bankruptcy order made by the District Court of Novara, the Commission, acting in accordance with Article 78 of the Court's Rules of Procedure, partially withdrew its claims, that is to say, those put forward in respect of Cascina Laura. However, pursuant to Article 69(5) of those Rules of Procedure, the Commission requested that the Court order Cascina Laura to pay its share of the costs; the Commission also confirmed that it maintained its claims against Gariboldi.

Substance

18 The Commission's claim for reimbursement, together with interest, is well founded and must be upheld. Its claim for damages, however, should be rejected.

19 With regard to the claim for reimbursement, it should be noted first that Gariboldi does not deny that the project was not completed in good time or in accordance with the desired arrangements. The failure to complete the project is evident from the report following the inspection on 21 and 22 June 1993 (appended to the application). The Commission was right, therefore, to take action under Clause 8 of the contract, pursuant to which `the Commission may unilaterally terminate the contract in the event of the contractor's non-performance of any of its obligations thereunder', particularly in the case of non-compliance with Clause 4.3 concerning the preparation and communication to the Commission of interim progress reports containing statements of expenditure.

Clause 8 also provided that, should the contract be terminated on those grounds, the contractor was immediately to repay to the Commission any amounts advanced by way of financial assistance, together with interest payable from the date of receipt of such funding. The interest was to be payable at the rate set by the European Monetary Cooperation Fund for its transactions in ecus.

20 However, Gariboldi denies liability. It maintains that it is not required to reimburse the funds which the Commission paid directly and exclusively to Cascina Laura, since neither the latter nor its legal representative was empowered under the contract to receive that money on behalf of the other companies. Throughout the contractual relationship and up until the notice to comply, Gariboldi had not been involved in any of the correspondence concerning the fulfilment of contractual obligations. In Gariboldi's view, it follows that the relationship committing the companies to joint and several liability was never perfected, because from the outset the Commission conducted contractual relations exclusively with Cascina Laura.

21 Alternatively, Gariboldi contends that the Commission's conduct was a sign that it regarded Gariboldi's role merely as one of guarantorship in respect of the performance by Cascina Laura - the company which actually received the funds - of the principal contractual obligation (completion of the project). That legal situation would be governed by Article 1955 of the Italian Civil Code, under which the guarantor's liability is extinguished where unlawful conduct on the part of the creditor makes it impossible to bring proceedings for recovery against the party for whom the guarantor is answerable. In the present case, the Commission failed to show due diligence in monitoring Cascina Laura's compliance with its contractual obligations, notwithstanding repeated requests and complaints from Gariboldi. Gariboldi was unable, therefore, to defend its interests by recovering the materials supplied and finding a new partner capable of bringing the project to completion. To sum up, the obligations incumbent upon the guarantor (Gariboldi) in undertaking to be answerable for the principal debtor (Cascina Laura), in respect of the latter's performance of contractual obligations, were extinguished by conduct attributable to the creditor (the Commission) which precluded the guarantor from bringing proceedings for recovery against the principal debtor.

Gariboldi adds that the Commission itself implicitly acknowledged this in its application. On the subject of joint and several liability in the context of contractual obligations, the Commission explains that the rationale underlying that principle is that it `buttresses the rights of the creditor, serving both as a guarantee and as a mechanism to facilitate recovery of the debt'. Gariboldi construes this as an admission on the part of the Commission that Gariboldi had merely agreed with the financing body to stand guarantor for performance of the principal contractual obligation, the other companies being responsible for the actual performance. Gariboldi's situation is therefore governed by the rules on guarantorship set out in the Italian Civil Code. One of the relevant provisions is Article 1955, referred to above, which relieves the guarantor of its obligation to the creditor whenever conduct attributable to the latter precludes an action for recovery against the principal debtor.

22 To my mind, Gariboldi's arguments are not convincing. In its introductory section, the contract defines `the contractor' as the three companies - Cascina Laura, Gariboldi and SAA - and specifies that they are `acting jointly and severally'. Thus it was the express and unambiguous intention of the contracting parties that the obligations entailed were to be binding on all three companies, jointly and severally. The situation is therefore covered by Article 1292 et seq. of the Italian Civil Code, which govern joint and several liability and, in particular, by Article 1292. This provides that `in the case of joint and several liability, the same obligation is binding upon a number of debtors, such that any one of them may be compelled to discharge that obligation in full, thereby relieving the other debtors thereof'. As the Corte di Cassazione (Italian Court of Cassation) has explained, (2) `in cases where a number of debtors are liable, jointly and severally, to one and the same creditor, the situation is one of a plurality of debtor-creditor relationships, each separate and autonomous in itself, sharing only the obligation owed, such that the creditor is free to demand performance in full from any one of those debtors, with the result that the generic guarantee bearing upon property, referred to in Article 2740, attaches to the property of each and every debtor, separately and to the extent of the whole of the debt'. That is to say, where the relationship is one of joint and several liability, for the purposes of the above provisions of the Italian Civil Code, each and every debtor undertakes to be answerable for his co-debtors' performance of their contractual obligations.

23 The failure to complete the project contracted for inevitably triggers the obligation on the part of `the contractor' to refund the monies received from the Commission (Clause 8). Since the companies concerned were jointly and severally liable in this connection, it was open to the Commission to enforce its rights against all the debtors as a body, or against only one or two of them. Proceedings were accordingly brought against the two companies still in business at the time when the contract was terminated (Cascina Laura and Gariboldi) and then, following Cascina Laura's entry into liquidation, against Gariboldi alone.

24 I shall now weigh the objections raised by Gariboldi. It should be made clear at the outset, however, that Gariboldi's liability, which arose upon its signature of the contract, is not extinguished merely because the Commission paid the funds into an account opened exclusively in the name of Cascina Laura; nor because the correspondence concerning performance of the contract was initially sent to Cascina Laura alone. In fact, the contract did not require the Commission to pay the funds into an account opened in the names of all three companies. Annex II to the contract, which contains the financial clauses, merely requires the money to be paid into `an interest-bearing account opened for that purpose by the contractor'. (3) In any case, the monies paid by the Commission were then transferred to Gariboldi, as it acknowledged (thereby amending its initial position) in its rejoinder. This shows that the companies concerned recognised between themselves that the fact that the account was in the name of only one of them was of no importance. It also shows that Gariboldi was aware that the funds were going to be lodged in the account bearing the name of Cascina Laura. Indeed, it is possible that this was decided upon, quite simply, for reasons of practicality. However, in the absence of any express provision in the contract, it is not a circumstance which in any way diminishes the companies' joint and several liability.

25 The same may be said of the correspondence exchanged by the Commission exclusively with Cascina Laura. Since the contract contained no express provision to the contrary, the Commission was free to call on any single one of the companies concerned to perform the contractual obligations. However, as Gariboldi has repeatedly emphasised, Cascina Laura had fallen short of fulfilling its own obligations under the arrangements agreed between the companies themselves. Consequently, it is not clear how the outcome would have been any different if the Commission had acted otherwise (by sending reminders to Gariboldi, too). The end result would in any event have been termination of the contract, triggering the obligation on the part of the companies jointly and severally liable to repay the money.

26 Thus it cannot be said that the relationship of joint and several liability was frustrated ab initio because of the way in which the Commission handled contractual relations. Nor do I agree with Gariboldi that the effect of the Commission's conduct was to alter the nature of the obligations involved from those of joint and several liability (merely the nomen iuris) to those of guarantorship.

27 Suffice it to note here that under Article 1937 of the Italian Civil Code `willingness to act as guarantor must be stated expressly'. Gariboldi itself acknowledges in its rejoinder that if there is to be a relationship of guarantorship `the will of the parties must be unambiguous and explicit'. It is clear from the wording of the contract, however, that the three companies bound themselves vis-à-vis the Community jointly and severally. Each of them voluntarily assumed an obligation towards the Community to comply in full with the terms of the contract, there being no external indication as to how they might have allocated responsibilities between themselves under an internal arrangement. The fact that the Commission conducted contractual relations exclusively with Cascina Laura cannot fundamentally alter the express intention manifested by the parties. It should also be noted that, far from merely standing guarantor for the other companies' fulfilment of the obligation, Gariboldi made a contribution of a very practical nature: it supplied the machinery necessary for the project contracted for. That being so, it is reasonable to assume that the three companies each assumed different responsibilities under internal arrangements in order to achieve a common objective.

Of course, Gariboldi could have played a different part in the contractual relationship, confining its role to that of a supplier of the necessary equipment. But this was not the case. It voluntarily agreed to share with the other companies an obligation expressed to the Commission as joint and several liability. Gariboldi certainly cannot blame the Commission if, in the course of contractual relations, the companies which it had freely chosen as its partners in a particular project fell short of their obligations under internal arrangements.

28 As for the alleged admission on the part of the Commission that Gariboldi had assumed merely the obligations attaching to guarantorship, suffice it to note that none of the statements made in the Commission's pleadings can be construed to that effect. It is common case that the whole point of joint and several liability is to provide the creditor with a guarantee in the sense that he is therefore sure of being able to enforce his rights easily. Joint and several liability per Article 1292 of the Italian Civil Code subsumes the role of the guarantee in so far as the debtor is also bound by the obligations of his fellow debtors.

29 Once the possible existence of guarantorship has been dismissed, there is no need to consider the applicability in the present case of the provisions relied upon by Gariboldi in support of its argument that the creditor's conduct extinguished the guarantor's obligation. The allegation that the Commission was too slow, despite Gariboldi's warnings, in checking to see whether Cascina Laura had discharged its contractual obligations and in terminating the contract is therefore irrelevant. Indeed, Gariboldi's sole purpose in mentioning this was to demonstrate that the guarantorship had been extinguished, pursuant to Article 1955 of the Civil Code, on account of the creditor's conduct.

30 In view of all the foregoing considerations, I believe that the Commission's claim must be upheld. Gariboldi must therefore be ordered to pay the Commission the capital sum of ECU 479 134, together with interest payable at the rate set by the European Monetary Cooperation Fund for its transactions in ecus, which is published on the first working day of each month. The dates relevant for calculating the amount of interest are therefore 31 July 1990 for the first payment (ECU 204 031 at the rate of 10.25% per annum) (4) and 20 April 1991 for the second payment (ECU 275 103 at the rate of 10.75% per annum). (5) Thus the interest due in addition to the capital sum mentioned above is ECU 1 742 per month with effect from 31 July 1990, to be increased by ECU 2 464 per month with effect from 20 April 1991 until the date of final settlement.

Damages

31 The Commission also claims that the Court should order Gariboldi to pay damages for non-performance of contractual obligations. The legal basis of this claim is Article 1453 of the Italian Civil Code, which provides that `in contracts for reciprocal performance, where one of the contracting parties fails to fulfil its obligations, the other may demand performance or terminate the contract, without prejudice to its right to claim damages'. As regards calculation of damages, Article 1226 of the Civil Code provides that `if no precise figure can be ascribed to the damage, the courts may set an amount deemed to be equitable'.

32 The Commission maintains that the contractor's non-performance in the present case has caused it to suffer damage in the following ways: (i) the Commission paid considerable sums for a project which was never even begun; that money could have been given to other undertakings under the same programme; (ii) the Commission had to waste resources in unsuccessful contractual relations with the contractor, with no positive results; the efforts involved deprived it of both man hours and material resources, which could otherwise have been put to better use in the interests of both the public and the institution; (iii) the Commission had lost credibility in the eyes of the other Community institutions, the Member States and other potential contractors.

On those grounds, the Commission seeks damages in the amount of ECU 100 000, unless the Court of Justice should set a different figure, considering it to be more equitable.

33 The Commission's claim should not be upheld. Even though, in the abstract, the considerations listed above could be regarded as ample grounds for holding the contractor liable, I do not believe that the Commission has sufficiently discharged the burden of proof incumbent on a party claiming damages under the general rules of Italian law governing delict or tort. (6) Consistent with the general principle set out in Article 1223 of the Italian Civil Code, entitlement to damages for failure to perform a contractual obligation may be recognised, in the absence of a penalty clause incorporated in the terms of the contract, solely where the party purporting to suffer damage demonstrates that, as a result of non-performance, it has suffered damage to property (danno emergente), or has lost an opportunity to make financial gain (lucro cessante), and that such damage or loss is the immediate and direct consequence of the wrongful act or omission (nesso di causalità adeguata).

34 On the basis of the Commission's assertions - which, to tell the truth, are rather general - it is impossible to tell whether the above criteria are met in the present case. The information given is insufficient to disclose whether or not the alleged damage exists, or whether there is a causal link between the alleged damage and the contractor's non-performance. As regards the first criterion, in particular, it is not clear why the failure to accomplish the project - hence the impossibility of directing the funds to other undertakings under the same programme - should have caused the Commission to suffer damage. It should be added that it is the Commission itself which chooses the contractor, on the basis of its own appraisal and taking into account any guarantees of reliability offered by the prospective contractor vis-à-vis its timely performance of contractual obligations. As regards the second criterion, the Commission does not explain which resources were `wasted' in conducting contractual relations with Cascina Laura and Gariboldi, or in what way its `efforts' to ensure that the contractor complied with its obligations had caused damage to the institution. Lastly, even assuming that the Commission is capable of suffering non-material damage because of non-performance, no evidence has been produced to show the damage which the Commmission purports to have suffered, in terms of loss of credibility, in the eyes of the States or of private persons as a consequence of the failure to accomplish the project contracted for. In any event, it is a risk inherent in any contractual relationship involving reciprocal commitments that one party may fail to fulfil its obligations, from which it cannot be inferred that the credibility of the other party is diminished as a direct result.

35 By way of conclusion, it is my view that the Commission has not discharged the burden of proof attaching to its claim for damages in respect of loss suffered as a consequence of the contractor's non-performance; accordingly, that claim must be rejected.

Costs

36 Since the Commission has applied for costs, should Gariboldi be unsuccessful in its pleadings it must be ordered to pay the costs of the proceedings pursuant to Article 69(2) of the Rules of Procedure. As regards Cascina Laura, in view of the fact that the claims against it were partially withdrawn solely on account of its conduct, I believe that the Commission's application for an award of costs against it should be upheld pursuant to Article 69(5) of those Rules of Procedure.

In the light of the foregoing considerations, I propose that the Court should:

(1) order Gariboldi to pay the Commission ECU 479 134 by way of a capital sum, together with interest in the amount of ECU 1 742 per month from 31 July 1991, plus ECU 2 464 per month from 20 April 1991 until the date of final settlement;

(2) dismiss the Commission's claim for damages;

(3) order Gariboldi and Cascina Laura jointly and severally to pay the costs incurred by the Commission in these proceedings.

(1) - Council Regulation (EEC) No 3640/85 of 20 December 1985 on the promotion, by financial support, of demonstration projects and industrial pilot projects in the energy field (OJ 1985 L 350, p. 29).

(2) - Judgment No 2623 of 13 March 1987.

(3) - See Clause 1 of the Annex, entitled `Detailed rules for payment'.

(4) - OJ 1990 C 163, p. 1.

(5) - OJ 1991 C 86, p. 1.

(6) - The Italian Court of Cassation has consistently held that `the award of damages necessarily presupposes - even though the figure set is an equitable amount - proof of the existence of damage, it being incumbent upon the party purporting to have suffered such damage to discharge the evidentiary burden'.