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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Prolacto (Agriculture) [1998] EUECJ C-346/96 (29 January 1998) URL: http://www.bailii.org/eu/cases/EUECJ/1998/C34696.html Cite as: [1998] EUECJ C-346/96

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JUDGMENT OF THE COURT (Second Chamber)

29 January 1998
(1)

(Common agricultural policy - Food aid - Supply of skimmed-milk powder - Successful tenderer's failure to discharge its obligations - Loss of security - Payment of the additional costs resulting from a fresh tendering procedure - Cumulation)

In Case C-346/96,

REFERENCE to the Court under Article 177 of the EC Treaty by the Rechtbank van Eerste Aanleg, Brussels, for a preliminary ruling in the proceedings pending before that court between

Belgisch Interventie- en Restitutiebureau

and

Prolacto NV,

on the interpretation of Article 25(1) of Commission Regulation (EEC) No 1354/83 of 17 May 1983 laying down general rules for the mobilisation and supply of skimmed-milk powder, butter and butteroil as food aid (OJ 1983 L 142, p. 1),

THE COURT (Second Chamber),

composed of: R. Schintgen (Rapporteur), President of the Chamber, G.F. Mancini and G. Hirsch, Judges,

Advocate General: P. Léger,

Registrar: L. Hewlett, Administrator,

after considering the written observations submitted on behalf of:

- Belgisch Interventie- en Restitutiebureau, by M. Fruy and B. De Moor, of the Brussels Bar,

- Prolacto NV, by F. Lebacq, of the Antwerp Bar,

- the Commission of the European Communities, by H. van Vliet, of its Legal Service, and B. Vilà Costa, a national civil servant on secondment to that service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of the Belgisch Interventie- en Restitutiebureau, represented by B. de Moor, of Prolacto NV, represented by M. Buyens, of the Antwerp Bar, and of the Commission, represented by H. van Vliet, at the hearing on 2 October 1997,

after hearing the Opinion of the Advocate General at the sitting on 13 November 1997,

gives the following

Judgment

1. By judgment of 11 October 1996, received at the Court on 21 October 1996, the Rechtbank van Eerste Aanleg (Court of First Instance), Brussels, referred to the Court for a preliminary ruling under Article 177 of the EC Treaty a question on the interpretation of Article 25(1) of Commission Regulation (EEC) No 1354/83 of 17 May 1983 laying down general rules for the mobilisation and supply of skimmed-milk powder, butter and butteroil as food aid (OJ 1983 L 142, p. 1).

2. The question was raised in proceedings between the Belgisch Interventie- en Restitutiebureau (Belgian Intervention and Refund Agency, hereinafter 'the Agency') and Prolacto NV, a company governed by Belgian law ('Prolacto'), concerning a demand for payment of compensation to cover all additional costs incurred in respect of a second tendering procedure for various lots of skimmed-

   ilk powder to be supplied as Community food aid, which was made necessary by the first successful tenderer's failure to discharge its obligations, where the securities lodged by the latter had already been declared forfeit to the Agency.

   Legislative framework

3. Commission Regulation No 1354/83 lays down the general rules for the mobilisation and supply of skimmed-milk powder, butter and butteroil as food aid.

4. Article 9(1) provides that, in order to determine the costs of supply of the skimmed-milk powder, including the price for the purchase and packaging of the product, a tendering procedure is to be held in accordance with the rules laid down in Articles 10 to 14, where the product was not placed at the disposal of the successful tenderer by an intervention agency but had to be purchased on the Community market.

5. Article 11(6)(b) provides that no tender is to be valid unless it is accompanied by proof that the tendering security referred to in Article 12 has been lodged before the final date for submission of tenders.

6. Under the second indent of Article 12(1), in the case of goods purchased on the Community market, the tendering security is to be 3% of the intervention price for skimmed-milk powder applicable to the quantity to which the tender relates.

7. Under Article 11(7), tenders may not be withdrawn.

8. Pursuant to Article 14(1), the contract is to be awarded to the tenderer whose tender is the lowest.

9. Article 16(2) provides that the successful tenderer may not unilaterally cancel the operation for which he has been awarded the contract and Article 16(4) that the successful tenderer is to provide the competent bodies concerned with the necessary information as promptly as possible for immediate transmission to the Commission.

10. Article 25 of Regulation No 1354/83 is worded as follows:

    '1. The successful tenderer shall bear all the financial consequences of a failure to supply some or all of the goods on the terms stipulated, if the recipient has made supply possible on such terms.

    If, for reasons attributable to the successful tenderer, shipment has not been made within three months of the expiry date of the shipment period as specified in the notice of invitation to tender or as extended in accordance with Article 17(5), the

    body responsible for payment shall release the successful tenderer from his obligations. In such cases the Commission shall take appropriate action.

    2. The costs arising from a failure to supply the goods as a result of a case of force majeure shall be borne by the body responsible for payment.'

11. In accordance with Article 26(5) of the regulation, where, for reasons attributable to the successful tenderer, the shipment period as specified in the notice of invitation to tender or as extended in accordance with Article 17(5) has not been observed, the body concerned shall withhold, for each day's delay, in proportion to the quantities not shipped, 1% of the amount of the tendering security.

12. Article 26(6) of Regulation No 1354/83 provides:

    'All the securities shall be forfeit in the event of the successful tenderer's being released from his obligations in accordance with the second subparagraph of Article 25(1).'

13. By Decision 87/203/EEC of 10 March 1987 fixing the overall quantities of food aid and establishing a list of products to be supplied as aid for 1987 (OJ 1987 L 80, p. 32), the Commission fixed at a maximum of 94 100 tonnes the quantity of milk powder to be supplied as food aid for 1987.

14. Pursuant to Regulation No 1354/83, Commission Regulations (EEC) No 345/87 of 3 February 1987 (OJ 1987 L 34, p. 8) and No 1358/87 of 15 May 1987 (OJ 1987 L 131, p. 1) provided for the supply by the intervention agencies (for the Kingdom of Belgium this was the Agency) of various lots of skimmed-milk powder as food aid, under the special terms set out in the annexes thereto.

    The dispute in the main proceedings

15. On 23 February 1987, the last day before the deadline, Prolacto submitted its tenders under Regulation No 345/87 in respect of two lots, 232 tonnes at BFR 82 070 per tonne, and 270 tonnes at BFR 82 360 per tonne. The skimmed-milk powder was to be purchased by Prolacto on the Community market.

16. On 5 March 1987, the Agency advised Prolacto that its offers had been accepted and reminded it that the milk had to be delivered in accordance with the provisions of Regulation No 1354/83. It was to be shipped no later than 30 April 1987 on ships provided by the recipient of the food aid.

17. On 17 June 1987, the intended recipient of the lots that Prolacto had undertaken to deliver informed the Agency that the milk had still not been supplied.

18. On 30 June 1987 the Agency called upon Prolacto to discharge its obligations, noting the significant delay in shipping the milk and asking it to inform it when the supply would be effected. The letter referred to Articles 25(1) and 26(6) of Regulation No 1354/83.

19. On 6 July 1987 Prolacto asked for an extension of the delivery date until the end of August 1987, but this was refused on the ground that there was no provision for doing so under Regulation No 1354/83.

20. On 5 August 1987, after the expiry of three months from the final date set for delivery, the Agency asked Prolacto to confirm that it would not be making the deliveries.

21. On 7 August 1987 Prolacto informed the Agency that it was unable to effect the supply.

22. By registered letter of 20 August 1987, the Agency informed Prolacto that, because delivery had not been effected, the tendering securities lodged, which amounted to BFR 573 330 and BFR 667 238 for the two lots concerned, would be declared forfeit, unless Prolacto paid the amounts secured, which it did. The letter contained the full text of the first paragraph of Article 25(1) of Regulation No 1354/83.

23. On 20 May 1987, the last day before the deadline, Prolacto again submitted tenders pursuant to Regulation No 1358/87 for four lots, 425 tonnes at BFR 81 590 per tonne, 235 tonnes at BFR 81 340 per tonne, 320 tonnes at BFR 81 390 per tonne and 720 tonnes at BFR 81 690 per tonne. The skimmed-milk powder was to be purchased by Prolacto on the Community market.

24. On 22 May 1987, the Agency advised Prolacto that its offers had been accepted and reminded it that delivery had to be made in accordance with the provisions of Regulation No 1354/83. The milk was to be shipped no later than 30 June 1987 on ships provided by the recipient of the food aid.

25. Prolacto did not effect the delivery which it had undertaken to make.

26. On 5 October 1987, after the expiry of three months from the final date set for delivery, the Agency asked Prolacto to confirm that the lots had been delivered. The letter contained a reference to Articles 25(1) and 26(6) of Regulation No 1354/83.

27. On 13 October 1987 Prolacto informed the Agency that it was unable to effect the delivery.

28. By letter of 16 October 1987, which referred to Articles 25(1) and 26(6) of Regulation No 1354/83 and cited the full text of the first paragraph of Article 25(1),

    the Agency informed Prolacto that it was obliged to declare forfeit the securities lodged amounting to BFR 1 150 281, BFR 580 744, BFR 790 800 and BFR 1 779 300 for the four lots concerned.

29. In accordance with the last sentence of the second paragraph of Article 25(1) of Regulation No 1354/83, the Commission decided to issue a fresh invitation to tender for the lots that Prolacto had failed to deliver.

30. As regards the two lots that Prolacto should have delivered on the basis of Regulation No 345/87, the Commission issued the fresh invitiation to tender under Commission Regulation (EEC) No 2966/87 of 30 September 1987 on the supply of various lots of skimmed-milk powder as food aid (OJ 1987 L 281, p. 20). The fresh invitation to tender for the four lots that Prolacto should have delivered on the basis of Commission Regulation No 1358/87 was issued under Commission Regulation (EEC) No 3182/87 of 23 October 1987 on the supply of various lots of skimmed-milk powder as food aid (OJ 1987 L 305, p. 8). In accordance with those two regulations, Nos 2966/87 and 3182/87, the supply of the lots of skimmed-milk powder in question was subject to the provisions of Commission Regulation (EEC) No 2200/87 of 8 July 1987 laying down general rules for the mobilisation in the Community of products to be supplied as Community food aid (OJ 1987 L 204, p. 1).

31. Under the fresh tendering procedure the lots were awarded to the tenderer who had submitted the lowest offer. This amounted, however, to BFR 104 100, BFR 104 034, BFR 105 013, BFR 105 000, BFR 105 000 and BFR 104 952 per tonne respectively, so that for the six lots initially awarded to Prolacto, the additional costs for the purchase of milk as food aid by the Community amounted to a total of BFR 50 781 099. That sum represents the difference between the total cost under the new tendering procedure for the six lots which Prolacto had failed to deliver and the price tendered by Prolacto in respect of those lots initially awarded to it.

32. It appears from a letter that the Commission sent on 17 July 1991 to the Kingdom of Belgium that that sum of BFR 50 781 099 was charged to the Belgian State, which was requested to claim reimbursement from Prolacto. By Decision 92/235/EEC of 31 March 1992 on the clearance of certain Member States' accounts in respect of expenditure incurred in 1984, 1985, 1986 and 1987 on agricultural products supplied as food aid (OJ 1992 L 121, p. 29), the Commission deducted that sum from the amount payable by it to the Kingdom of Belgium on account of the expenditure incurred by that Member State in respect of food aid.

33. By registered letter of 3 October 1991, the Agency sent a formal demand to Prolacto for the payment of BFR 50 781 099 pursuant to Article 25 of Regulation No 1354/83 and indicated that default interest would be calculated from 1 November 1991.

34. On 15 April 1992, since Prolacto had failed to pay that amount, the Agency brought proceedings against it in the Rechtbank van Eerste Aanleg, Brussels, claiming the sum of BFR 50 781 099, together with default interest from 1 November 1991 until the total amount and costs had been paid.

35. The Agency based its action on Articles 11(7) and 25(1) of Regulation No 1354/83. In its view, the loss of the security and payment of compensation under Article 25(1) constitute two distinct and independent measures which must be applied cumulatively in order to penalise adequately the failure by a successful tenderer to discharge its obligations.

36. In its defence, Prolacto put forward five pleas, the first four of which were rejected as unfounded by the Rechtbank van Eerste Aanleg, Brussels, which found inter alia that the successful tenderer was not, in this case, a victim of force majeure which made delivery impossible.

37. In its fifth plea, Prolacto maintained before the national court that Article 25 of Regulation No 1354/83 should be read in conjunction with Article 26 of that regulation, and if the successful tenderer did not fulfil its obligations, the financial consequences that it incurred as a result could not, pursuant to Regulation No 1354/83, exceed the amount of the security lodged.

38. In that connection, the Rechtbank van Eerste Aanleg, Brussels, decided that the extent of the obligations incumbent on a successful tenderer who defaulted was unclear; in particular it was uncertain whether Regulation No 1354/83 should be interpreted as allowing Article 26(6) and the first paragraph of Article 25(1) of that regulation to be applied cumulatively, and hence whether the intervention agency could, first, declare the securities forfeit and, secondly, claim compensation to cover the financial consequences of the failure to supply the goods in question.

39. Taking the view that an interpretation of Regulation No 1354/83 was accordingly necessary before it could deliver judgment, the Rechtbank van Eerste Aanleg, Brussels, stayed the proceedings and referred the following question to the Court of Justice for a preliminary ruling:

    'In the context of a tender for the supply of skimmed-milk powder as food aid on the basis of Commission Regulations (EEC) Nos 345/87 and 1358/87 of 3 February 1987 and 15 May 1987, respectively, and the associated tendering securities lodged pursuant to Article 12 of Commission Regulation (EEC) No 1354/83 of 17 May 1983, may a legal person who subsequently failed to fulfil its obligations and did not effect delivery be also the subject of a claim for payment of compensation on the part of the Belgisch Interventie- en Restitutiebureau pursuant to Article 25(1) of Regulation (EEC) No 1354/83 when all the tendering securities have been declared forfeit to that agency?'

40. From the context of the case in the main proceedings, it is apparent that the national court, by its question, wishes to ascertain whether Regulation No 1354/83 must be interpreted as meaning that a successful tenderer who has failed to deliver the goods concerned within the appropriate time-limit but who is not a victim of force majeure is to bear all the financial consequences of its failure, in accordance with the first paragraph of Article 25(1) of that regulation, even if the tendering securities have already been declared forfeit in application of Article 26(6) of that regulation.

41. In that connection, Prolacto observes that if, in accordance with Regulation No 1354/83, failure to discharge its obligation to deliver must entail loss of the securities that it had lodged, payment of those securities precludes a successful tenderer in default being made liable, in addition, for the damage suffered as a result of the failure to supply the goods concerned. According to Prolacto, it follows from Article 25(1) read in conjunction with Article 26(6) of that regulation that the penalty for failure to meet its commitments is limited to payment of the security if, as in this case, the successful tenderer has been released from its obligations pursuant to the second paragraph of Article 25(1). The competent intervention agency is accordingly no longer entitled subsequently to claim additional compensation.

42. That argument cannot, however, be accepted.

43. In the first place, the interpretation put forward by Prolacto is not supported by the actual wording of Article 25 of Regulation No 1354/83.

44. The first paragraph of Article 25(1) provides, in very general terms, that: 'The successful tenderer shall bear all the financial consequences of a failure to supply some or all of the goods on the terms stipulated.'

45. The obligation thus imposed on a defaulting successful tenderer is subject to the sole condition that the recipient of the food aid must have made supply possible on the terms stipulated.

46. In a situation such as that in the case in the main proceedings, it is common ground that that condition is satisfied.

47. Furthermore, under Article 25(2), only where failure to supply the goods is the result of a case of force majeure are the costs arising from the successful tenderer's failure to be borne by the body responsible for payment.

48. In its judgment referring the question to the Court, the Rechtbank van Eerste Aanleg, Brussels, expressly stated that, in the case in the main proceedings, Prolacto was not the victim of force majeure.

49. In those circumstances, it must be held, first, that Article 25 of Regulation No 1354/83 clearly lays down the principle that a successful tenderer in default is to bear all the costs arising as a result of failure to discharge his obligation to deliver, if the failure to supply the goods is attributable to him. In particular, there is nothing in that provision to indicate that payment of a security precludes the successful tenderer from having to make good all the damage caused by his conduct.

50. Secondly, in a case such as that in the main proceedings, the conditions for applying that article are met, inasmuch as the trader concerned has not fulfilled its obligation to supply the various lots of skimmed-milk powder in respect of which it tendered successfully and that failure is not attributable to the recipient of the goods in question or explicable by force majeure.

51. In the second place, Prolacto's line of argument is not consistent with the general scheme of Regulation No 1354/83 as it appears, in particular, from Article 25 read in conjunction with Article 26.

52. Article 11(7) of the regulation provides that tenders may not be withdrawn and Article 16(2) that the successful tenderer may not unilaterally cancel the operation for which he has been awarded the contract.

53. Pursuant to Regulation No 1354/83, a successful tenderer may be released from his obligations only after a formal decision by the intervention agency concerned.

54. To that end, the second paragraph of Article 25(1) provides that: 'If, for reasons attributable to the successful tenderer, shipment has not been made within three months of the expiry date of the shipment period as specified in the notice of invitation to tender ... the body responsible for payment shall release the successful tenderer from his obligations.'

55. Thus, if the intervention agency discovers that the successful tenderer has failed to discharge its obligations for three months and has not been the victim of force majeure, it is to abandon the operation with that tenderer.

56. In application of Article 26(6) of Regulation No 1354/83, the effect of that decision is that the successful tenderer forfeits all the securities that it has lodged and, in application of the last phrase of the second paragraph of Article 25(1), the Commission is authorised to take appropriate action, by initiating a fresh tendering procedure, in order to remedy the first successful tenderer's default.

57. In consequence, the obligations from which the latter is released, pursuant to the second paragraph of Article 25(1), are those which it had undertaken for the purpose of ensuring delivery of the goods in question to the recipient of the food aid, to the exclusion of those imposed on it by the first paragraph of Article 25(1)

    to bear all the financial consequences of failure to discharge its obligations by the end of the time-limit provided for shipment of the goods.

58. It should be noted, moreover, that, in the case in the main proceedings, the letters sent by the Agency to Prolacto after the three-month period had elapsed and those informing Prolacto that the securities lodged were forfeit contained, together with a reference to Article 26(6) of Regulation No 1354/83, an express reference to Article 25(1) of that regulation, and, in some cases, the full text of the first paragraph of that provision was cited. The successful tenderer could not therefore have misunderstood the extent of the obligations incumbent upon it following its default and cannot, accordingly, validly maintain that, following the decision declaring the securities forfeit, the intervention agency was no longer entitled to claim compensation from it subsequently for the damage caused by its conduct.

59. It follows from the foregoing that Regulation No 1354/83 must be interpreted as meaning that payment of tendering securities does not preclude a successful tenderer in default from having to bear all the financial consequences of a failure to supply attributable to it.

60. In the alternative, Prolacto claims that the amount of the tendering securities which have been declared forfeit to the intervention agency should be deducted from the amount of the compensation claimed by the latter pursuant to the first paragraph of Article 25(1) of Regulation No 1354/83.

61. In that connection, the Commission rightly emphasised that the security serves a purpose different from that served by the successful tenderer's obligation to make good the damage resulting from the failure to supply attributable to him.

62. The purpose of the requirement that a security be lodged is to ensure that the successful tenderer fulfils his commitments by encouraging him to effect delivery of the goods intended for food aid within the prescribed period or, in any case, as soon as possible after the expiry of that period, by means of the threat that a percentage of the financial security lodged will be retained in proportion to the length of delay in discharging his commitments, and by penalising him by the total loss of that guarantee if, at the end of a period of time judged reasonable, the failure to discharge his obligation to supply has become manifest and accordingly it is not worth continuing the operation with that tenderer.

63. Thus, in accordance with Article 26(5) of Regulation No 1354/83, where, for reasons attributable to the successful tenderer, the shipment period specified in the notice of invitation to tender has not been complied with, the intervention ageny concerned is to withhold, for each day's delay, in proportion to the quantities not shipped, 1% of the amount of the tendering security.

64. Under Article 26(6) of Regulation No 1354/83, if, for reasons attributable to the successful tenderer, shipment has not been made within three months of the expiry of that shipment period, the security is to be forfeit.

65. Accordingly, the loss of the security lodged constitutes a penalty where, on the expiry of a period that Regulation No 1354/83 sets at three months, it is clear that, despite the deterrent effect of Article 26(5), the successful tenderer has definitively failed to fulfil his obligation to supply the goods in question and that that failure cannot be explained by force majeure or attributed to the recipient of the food aid.

66. The first paragraph of Article 25(1) of Regulation No 1354/83, however, establishes the principle of the contractual liability of the successful tenderer, pursuant to which the latter is obliged to reimburse to the intervention agency all the additional costs arising from failure to discharge his obligation to supply.

67. The aim of that provision is therefore to compensate the successful tenderer's co-contractor for all the losses suffered as a result of the former's disregard of his obligations.

68. Since, accordingly, the function of forfeiture of the security in the event of failure to comply with the delivery date for the goods is different from that of the obligation to compensate for the damage actually caused by breach of the successful tenderer's contractual commitments, and since the two relevant provisions of Regulation No 1354/83 are accordingly independent of each other, the amount of the security declared forfeit pursuant to Article 26(6) should not be deducted from the amount of the compensation due under the first paragraph of Article 25(1). Thus, where no force majeure is involved and the failure to supply is not attributable to the recipient of the food aid, a successful tenderer in default must both suffer the loss of the security and make full reparation to the intervention agency.

69. That interpretation is, moreover, the only interpretation consistent with the wording of the first paragraph of Article 25(1), according to which the successful tenderer is to bear 'all' the financial consequences of a failure to supply the goods attributable to him. In accordance with Regulation No 1354/83 only in a case where the failure to deliver the goods is attributable either to the recipient of the food aid or to force majeure are the ensuing additional costs not to be borne by the successful tenderer.

70. Contrary to Prolacto's submission, that sharing out of the burden of the costs resulting from failure to supply the goods must be regarded as equitable. It would be unfair to make the intervention agency bear even part of the additional costs incurred in respect of a fresh tendering procedure made necessary by the failure to deliver attributable to the first successful tenderer.

71. In the light of the foregoing considerations, the reply to the question submitted by the Rechtbank van Erste Aanleg, Brussels, is that Regulation No 1354/83 must be interpreted to the effect that in the absence of force majeure a tenderer who has failed to deliver the goods concerned within the appropriate time-limits must bear all the financial consequences of that failure in accordance with the first paragraph of Article 25(1) of that regulation, even if the tendering securities have already been declared forfeit in application of Article 26(6) of that regulation, and those securities may not be deducted from the amounts due as compensation for the damage caused by failure to deliver the goods on the basis of the first paragraph of Article 25(1) of the regulation.

    Costs

72. The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court.

On those grounds,

THE COURT (Second Chamber),

in answer to the questions referred to it by the Rechtbank van Eerste Aanleg, Brussels, by judgment of 11 October 1996, hereby rules:

Commission Regulation (EEC) No 1354/83 of 17 May 1983 laying down general rules for the mobilisation and supply of skimmed-milk powder, butter and butteroil as food aid (OJ 1983 L 142, p. 1) must be interpreted to the effect that in the absence of force majeure a tenderer who has failed to deliver the goods concerned within the apropriate time-limits must bear all the financial consequences of that failure in accordance with the first paragraph of Article 25(1) of that regulation, even if the tendering securities have already been declared forfeit in application of Article 26(6) of that regulation, and those securities may not be deducted from the amounts due as compensation for the damage caused by failure to deliver the goods on the basis of the first paragraph of Article 25(1) of the regulation.

SchintgenMancini Hirsch

Delivered in open court in Luxembourg on 29 January 1998.

R. Grass R. Schintgen

Registrar President of the Second Chamber

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1: Language of the case: Dutch.