Opinion of Mr Advocate General Alber delivered on 16 July 1998. - Connemara Machine Turf Co. Ltd v Coillte Teoranta. - Reference for a preliminary ruling: High Court - Ireland. - Public supply contracts - Definition of contracting authority. - Case C-306/97.



European Court reports 1998 Page I-08761



Opinion of the Advocate-General

A - Introduction

1 The present request for a preliminary ruling by the High Court of Ireland concerns the question whether, for the purposes of Directives 77/62 (1) and 93/36, (2) Coillte Teoranta can be regarded as a contracting authority. (3)

2 Connemara Machine Turf Company Ltd, the plaintiff in the main proceedings, is engaged in the production of machine cut turf and the sale of chemical fertilisers. The defendant in the main proceedings, the Irish Forestry Board (Coillte Teoranta), was established in December 1988 pursuant to the Forestry Act. The greater part of land dedicated to forestry and formerly owned by the State and the Department of Energy was transferred to Coillte Teoranta. In return, the company shares were transferred to the Minister for Energy, the Minister for Finance, two Government civil servants in trust for the Minister for Finance, and to the Government.

3 On 12 March 1993 Coillte Teoranta invited tenders for the supply of certain fertilisers to the value of IR £165 947. Connemara submitted a tender but was unsuccessful. On 10 March 1994 Coillte Teoranta again invited tenders for the supply of certain fertilisers to the value of IR £232 016. Connemara was again unsuccessful with its tender.

4 Coillte Teoranta failed to comply with the Community-law provisions governing the award of public contracts when it invited the tenders; in particular, no notices were published in the Official Journal of the European Communities.

5 Connemara argues in its action that those provisions were infringed; Coillte Teoranta, on the other hand, submits that it is not a contracting authority and is therefore not under any obligation to comply with those provisions of Community law.

6 The High Court of Ireland has accordingly referred the following questions to the Court for a preliminary ruling:

`(1) Is the defendant a "contracting authority" within the definition of the term "contracting authorities" contained in Article 1(b) of Council Directive 77/62/EEC of 21 December 1976?

(2) Is the defendant a "contracting authority" within the definition of the term "contracting authorities" contained in Article 1(b) of Council Directive 93/36/EEC of 14 June 1993?'

B - Relevant legal provisions

Community law

7 Article 1 of Directive 77/62 provides the following definition of a contracting authority:

`For the purpose of this Directive:

...

(b) "contracting authorities" shall be the State, regional or local authorities and the legal persons governed by public law or, in Member States where the latter are unknown, bodies corresponding thereto as specified in Annex I;

...'

8 Annex I to Directive 77/62, as amended by Directive 88/295, contains a list of the legal persons governed by public law and bodies corresponding thereto mentioned in Article 1(b). Point VI refers to these as being, in the case of Ireland:

`other public authorities whose public supply contracts are subject to control by the State'.

9 Directive 77/62 was repealed by Directive 93/36. This new directive required to be transposed in national law by 14 June 1994. It had not been transposed in Ireland by that date. It should once more be borne in mind that the tendering procedures had been completed before that date.

10 The concept of a contracting authority is henceforth defined as follows in Article 1:

`For the purpose of this Directive:

...

(b) "contracting authorities" shall be the State, regional or local authorities, bodies governed by public law, associations formed by one or several of such authorities or bodies governed by public law;

"a body governed by public law" means any body:

- established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character, and

- having legal personality, and

- financed, for the most part, by the State, or regional or local authorities, or other bodies governed by public law, or subject to management supervision by those bodies, or having an administrative, managerial or supervisory board, more than half of whose members are appointed by the State, regional or local authorities or by other bodies governed by public law;

...'

11 The relations between the Department of Agriculture, Food and Forestry, the Department of Finance and the shareholders of Coillte Teoranta are defined by the Forestry Act 1988 and by the Memorandum and Articles of Association of the company itself. For reasons of clarity, it will be necessary to return to the individual provisions of those rules during the examination of what constitutes a contracting authority.

C - Analysis

12 The question first arises as to which provisions of Community law are applicable. The national court making the reference seeks an interpretation of Directives 77/62 and 93/36.

13 It is common ground that Directive 77/62, as amended by Directive 88/295, is relevant. In the view of Coillte Teoranta, the Irish, United Kingdom and French Governments, however, Directive 93/36 or its underlying premisses should also be enlisted for the purpose of reaching a decision in the case.

14 It should, however, be pointed out that the latter directive did not require to be transposed until 14 June 1994 and that Ireland had not yet done so by 22 July 1994. (4) The invitations to tender, however, were made in March 1993 and 1994, and thus at a time when Directive 93/36 had not yet been transposed in Irish law and also did not yet require to be so transposed.

15 It is extremely doubtful to what extent the directive which is later in time can be used for the purpose of interpreting the earlier directive. The above parties, which submit that the Court should proceed in such a manner, rely in this regard on the recitals in the preamble to Directive 93/36, according to which that directive was adopted primarily for reasons of clarity. For that reason, they claim, there should be no problem in construing the earlier provisions in the light of the new version or in assessing the facts of the case on the basis of the new definition.

16 First, it should be noted in this regard that the wording of the definition of a contracting authority in Directive 93/36 has been substantially extended and now contains individual features which were nowhere mentioned in the earlier version.

17 The first recital in the preamble to Directive 93/36 does admittedly mention that a new version is required for reasons of clarity. This, it is stated, is necessary since Directive 77/62 had in the past been amended on a number of occasions and further amendments were subsequently to be made. In this way, it was intended to achieve an alignment with the provisions on the award of contracts for public works and service contracts. (5) According to the third recital, however, this alignment relates also to the introduction of a functional definition of contracting authorities. On an a contrario reading, however, this means that the definition which has now been given need not necessarily be identical with that which previously applied, and extreme caution should therefore be taken in using it as an aid to interpretation. The new directive, which has also repealed and replaced Annex I to the old version, contains in its definition of a contracting authority additional matters which do not merely amplify the previous definition or general thinking on the topic but also constitute modifications which go further and cannot be applied retroactively. Furthermore, in interpreting a provision of Community law it is necessary to consider its wording, its context and its aims. (6) For the present case, therefore, it follows that the facts may be assessed solely on the basis of Directive 77/62.

18 In the view of Connemara, the United Kingdom and French Governments, as well as the Commission, Coillte Teoranta is a contracting authority within the meaning of Directive 77/62, with the result that notice of the supply contracts required under Article 9 of the directive to be published in the Official Journal of the European Communities, something which, however, was not done in this case.

19 In support of this contention, it is submitted that Coillte Teoranta fulfils important public functions, such as the conservation of national forests and the support of forestry development in Ireland. Coillte Teoranta owns 12 national parks and makes leisure facilities available at more than 180 locations throughout Ireland. In order to meet those objectives, the company was established by statute and financially provided for by the Irish Government. It also follows from its Memorandum and Articles of Association that the Government appoints the Board and its Chairman and that the company's finances are controlled by the Government.

20 Against this, Coillte Teoranta and the Irish Government argue that it is simply a State-owned private undertaking. Although the State has a majority shareholding, it does not exercise any influence over the day-to-day running of the company. Coillte Teoranta is required under the Forestry Act to carry on its business in a commercial manner. State influence is limited to general commercial policy, in the same way as that which any majority shareholder in any other company might exercise. The objectives and tasks of the company, however, are exclusively commercial in nature. Coillte Teoranta is thus in competition with other undertakings and is in no different position whatever compared with those undertakings. If Coillte Teoranta makes its facilities and property available to the public for leisure and recreational purposes, this is done on commercial grounds, since the benefit derived from these activities exceeds the costs. In short, neither Coillte Teoranta itself nor the conclusion by Coillte Teoranta of contracts with other undertakings is subject to influence by the State in excess of that which majority shareholders in other companies would be recognised as having.

21 As already mentioned, the State, regional or local authorities, and - in the case of Ireland - other public authorities under Point VI of Annex I whose public supply contracts are subject to control by the State constitute contracting authorities for the purposes of Article 1(b) of Directive 77/62.

22 This means that in the present case it is first necessary to examine whether Coillte Teoranta can be subsumed within the concept of the `State'.

23 In connection with such an examination, the Court was called on in the Beentjes case (7) to determine the status of a body which did not have any separate legal personality, the functions and composition of which were regulated by statute and whose members were appointed by a committee of the Province in question. It was required to apply rules laid down by a central committee established by a State decree and the members of which were appointed by the Government. The State ensured compliance with the obligations arising from the body's legal transactions and financed the public works contracts which it awarded.

24 The legislation applicable at that time was Directive 71/305; (8) however, the definition of a contracting authority contained therein also corresponds to that found in Directive 77/62.

25 In Beentjes, the Court concluded that the concept of the State, as used in the directive, fell to be interpreted in functional terms. (9) The aim of the directive was, for the Court, to ensure `... the effective attainment of freedom of establishment and freedom to provide services in respect of public works contracts ...'. (10) The Court accordingly concluded that the body at issue in that case had to be regarded as coming within the notion of the State, since its composition and functions were laid down by legislation and it was dependent on the authorities for the appointment of its members, the observance of the obligations arising out of its measures and the financing of the public works contracts which it was its task to award. That, the Court ruled, was the case even though the body was not part of the State administration in formal terms. (11)

26 A similar approach should be taken in the present case. The objective of the directive here relevant does not differ in any essential respects from that at issue in Beentjes. According to the first and second recitals in its preamble, Directive 77/62 is designed to ensure better supervision of the prohibition of restrictions on the free movement of goods in regard to public supply contracts. In addition, the directive - according to the 12th recital in its preamble - set itself the task of developing effective competition in the field of public contracts. In order, however, to guarantee competition free from any discrimination, those to whom the directive is addressed - namely, the contracting authorities - must be determined in a functional and not exclusively a formal perspective.

27 In functional terms, Coillte Teoranta cannot be regarded as part of the State. Admittedly, the company was established by statute and provided with financial means by the public authorities, it must consult with the Minister for Finance in regard to issues of forestry development in areas of economic interest, its directors are Government appointees, and the annual plan for the sale of land and timber must be agreed with the Government.

28 Coillte Teoranta does, however, have a separate legal personality. The public contracts which it awards are financed out of the company's capital, which, although originally provided by the State, has in the meantime also been guaranteed through private commercial activities. No public contracts are awarded at the expense of the State. All things considered, State influence on the business activities of Coillte Teoranta must be regarded as being appreciably less than was the case with regard to the facts underlying Beentjes. The functional approach thus does not point to the company's being dependent on the State in such a way as to justify the conclusion that it constitutes part of the State.

29 Once it is held that Coillte Teoranta, in accordance with the view here expressed, cannot be subsumed within the notion of the State under Article 1(b) of Directive 77/62, it remains to be examined whether it may be a public authority whose public supply contracts are subject to control by the State within the meaning of Annex I. The decisive factor in this, apart from looking after public interests, is the degree of influence which the State may exercise over the award of public contracts.

30 Connemara, the United Kingdom and French Governments, and the Commission take a similar viewpoint to that on the issue previously discussed. They argue that, particularly in view of the fact that the company was established by statute, that its Board is appointed by the Government, and that its initial capital was provided by the State, which continues to control its finances, it follows that Coillte Teoranta is an authority whose public contracts are controlled by the State.

31 Against this, Coillte Teoranta and the Irish Government again point to the commercial character of the company, which finds itself in competition with other private undertakings on the market in question. It does not enjoy any preferential rights such as would give it an advantageous position in relation to others. State influence is limited to that which other shareholders are recognised, or may be recognised, as having. In legal terms, the State has no possibility of influencing day-to-day business, nor has it ever attempted to exercise such influence. Coillte Teoranta is treated under company law in the same way as any other company. Its activities are directed at making profits and are independent of ministerial instruction.

32 The crucial question is therefore the following: were the public supply contracts which Coillte Teoranta awarded subject to control by the State, in the terms used for Ireland by Annex I to Directive 77/62?

33 Here, too, an approach should be adopted which does not consider the matter merely from the formal aspect. All public undertakings are subject to some form of State control; that, however, is not tantamount to their also being contracting authorities within the meaning of the directive.

34 The concept of public undertakings is to be found in Article 90(1) of the EC Treaty. That provision prohibits Member States from enacting or maintaining in force, in relation to such undertakings, measures that are contrary to Community competition policy. The characteristic feature of public undertakings is that public authorities can influence the course of business. For that purpose, it suffices if there is a possibility of influence being exerted, and such a possibility will always exist if the State holds the greater part of the company capital. (12)

35 Its status as a public undertaking, however, still provides no indication as to whether the public supply contracts which Coillte Teoranta awards are subject to control by the State. Since Annex I to Directive 77/62 refers expressly to State control over public supply contracts, this point requires to be considered in concrete terms. (13) Accordingly, the supply contract in question would, under the relevant provisions, have to be open to State control in such a way that public authorities are able to exert influence on the manner in which the contract is concluded.

36 The State initially provided Coillte Teoranta with its entire company capital. In return, the State received corresponding shares in the company. The annual land and timber sale plan must be agreed with the Department. The company directors are appointed by the competent ministers; investments exceeding a total amount of IR £250 000 require the approval and consent of the competent ministers. The Minister for Energy can set out financial objectives. The company also carries out functions in the public interest, such as the provision of leisure, recreation, sporting, educational, scientific, cultural and holiday facilities on its property. The Board of Directors looks after the day-to-day business of the company, which includes decisions on the award of contracts.

37 There is, however, no provision under which it would be possible for the Minister or any civil servant to instruct the company or its directors to award contracts (possibly on the basis of non-commercial criteria). The company is under an obligation to conduct its business in a cost-effective and economic manner. Its directors are under an obligation to exercise their powers, in accordance with their duty of loyalty to the company, in a manner independent of their own interests. Although the company is required to abide by the principles of national forestry policy, this applies in equal measure to every owner of forest land in Ireland. The directors must submit annually a five-year development plan, indicating in detail the plans regarding management and development of the company and its assets, as well as acquisition and sale of property, forestry objectives and profit forecasts. Here too, the relevant provisions do not grant any powers to the State authorities to intervene for the purpose of regulating the company's day-to-day activities.

38 Therefore, although the criteria mentioned make it possible to point to a general State influence on the company, that influence does not, under the provisions material to the present case, suffice to exercise specific control over the award of public supply contracts. The conclusion of contracts relating to public supplies is not dependent on action by State authorities. Coillte Teoranta is for that reason not a contracting authority within the meaning of Directive 77/62.

39 It follows from the foregoing considerations that Coillte Teoranta does not come within the scope of Directive 77/62.

40 Even though Directive 93/36 is not applicable to the present case, given that the contracts were concluded before that directive entered into force, and since that directive also modifies and does not simply clarify, the following may, in the alternative, be noted with regard to the national court's second question. In view of the definition of a contracting authority in Article 1(b), as extended by amendments, it would be necessary to examine whether Coillte Teoranta is a body governed by public law. It would first have to have been established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character. This would probably have to be answered in the affirmative, since Coillte Teoranta also - or primarily - has the function of providing leisure and recreational facilities for the public on its property. Even though these do not represent the company's only functions, this does not affect the outcome, so long as it attends to needs which it is specifically required to meet. (14) In addition, Coillte Teoranta has its own legal personality. If the company's board consists in the majority of State appointees, Coillte Teoranta may well be a contracting authority within the meaning of the new Directive 93/36. As stated above, however, that directive is not applicable to the present case. The second question submitted by the national court does not therefore require to be answered.

D - Conclusion

41 In light of the foregoing considerations, I propose that the questions submitted by the High Court of Ireland be answered as follows:

A company such as that described in the order for reference is not a contracting authority within the meaning of Council Directive 77/62/EEC of 21 December 1976 coordinating procedures for the award of public supply contracts.

(1) - Council Directive 77/62/EEC of 21 December 1976 coordinating procedures for the award of public supply contracts (OJ 1977 L 13, p. 1), as amended by Directive 88/295/EEC (OJ 1988 L 127, p. 1).

(2) - Council Directive 93/36/EEC of 14 June 1993 coordinating procedures for the award of public supply contracts (OJ 1993 L 199, p. 1).

(3) - In Case C-353/96, Treaty-infringement proceedings have been brought by the Commission against Ireland, the Commission arguing that Coillte Teoranta failed to publish notice of its invitations to tender. See Advocate General Alber's Opinion of 16 July 1998 in that case ([1998] ECR I-8565, I-8567).

(4) - This becomes apparent from the Irish Government's reply of 22 July 1994 to the Commission's letter of formal notice.

(5) - Council Directive 93/37/EEC of 14 June 1993 concerning the coordination of procedures for the award of public works contracts (OJ 1993 L 199, p. 54) and Council Directive 92/50/EEC of 18 June 1992 relating to the coordination of procedures for the award of public service contracts (OJ 1992 L 209, p. 1).

(6) - Case C-84/95 Bosphorus v Minister for Transport, Energy and Communications, Ireland and the Attorney General [1996] ECR I-3953, paragraph 11 and the references contained therein.

(7) - Case 31/87 Beentjes v Netherlands State [1988] ECR 4635.

(8) - Council Directive 71/305/EEC of 26 July 1971 concerning the coordination of procedures for the award of public works contracts (OJ, English Special Edition 1971 (II), p. 682).

(9) - Beentjes, cited above in footnote 7, paragraph 11.

(10) - Beentjes, cited above in footnote 7, paragraph 11.

(11) - Beentjes, cited above in footnote 7, paragraph 12.

(12) - Joined Cases 6/73 and 7/73 Commercial Solvents v Commission [1974] ECR 223, paragraph 41, and Joined Cases 188/80 to 190/80 France, Italy and United Kingdom v Commission [1982] ECR 2545, paragraph 26.

(13) - See in this connection the Opinion of Advocate General Lenz in Case C-247/89 Commission v Portugal [1991] ECR I-3659, 3670, point 59.

(14) - See in this connection the judgment in Case C-44/96 Mannesmann Anlagebau Austria and Others v Strohal Rotationsdruck [1998] ECR I-73, in particular paragraphs 25 and 26, and the Opinion delivered on 19 February 1998 by Advocate General La Pergola in Case C-360/96 BFI Holding v Gemeente Arnhem and Gemeente Rheden [1998] ECR I-6821, I-6824.