Opinion of the Advocate-General

Opinion of the Advocate-General

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My Lords,

1 . This dispute arises from the late delivery of a consignment of rape seed oil supplied as Community food aid to Bangladesh .

2 . Under Article 5 of Council Regulation ( EEC ) No 3972/86 on food-aid policy and food-aid management ( Official Journal 1986 L 370, p . 1 ), the Commission is required to lay down rules for the supply of products as food aid . Commission Regulation ( EEC ) No 2200/87 (" the regulation ") accordingly lays down general rules for the mobilization in the Community of products to be supplied as Community food aid ( Official Journal 1987 L 204, p . 1 ). Under that regulation, the supply of food aid is as a general rule determined by a tendering procedure ( Article 3 ) and when it is decided to hold such a procedure, a detailed invitation to tender is published in the Official Journal .

3 . For the detailed provisions of the regulation, reference may be made to the report for the hearing . For present purposes, it is sufficient to note that the regulation provides for a series of securities designed to guarantee performance of the obligations laid down in the regulation and the relevant invitation to tender . Thus provision is made for a tenderer to lodge a tendering security ( Articles 7(4)(a ) and 8 ) and a successful tenderer must, within five days of the award of the contract, furnish evidence to the Commission that a delivery security has been lodged ( Article 12(2 ) ). A further security must be lodged where payment is made in advance by the Commission : in the case of supply free-at-port-of-landing, an advance payment not exceeding 90% of the amount of the tender is to be made at the request of the successful tenderer, upon presentation of supporting documents and of evidence that the successful tenderer has lodged a security in favour of the Commission for an amount equal to the advance, plus 10% ( Article 18(5 ) ).

4 . Article 22 deals with the conditions under which securities are to be released or forfeited . The delivery security must be released in full inter alia where the successful tenderer has carried out the supply in accordance with his obligations or has lodged the security on the advance ( Article 22(2)(a ) ). Under Article 22(2)(b ), the delivery security is to be withheld on a cumulative basis inter alia in proportion to the percentage of the quantities not delivered, or on the basis of one-thousandth of the total value of the tender for each day' s delay in arrival at the port of landing in the case of supply free-at-port-of-landing . ( The English text of the regulation refers, not to one-thousandth, but to 0.001%, i.e . one-thousandth of one per cent . However, it is plain from the other language versions that what is meant is one-thousandth of the total value .) The security on the advance is to be released where definitive entitlement to the amount advanced has been established, or where the advance has been refunded by the successful tenderer ( Article 22(3 ) ). There is no express provision for the withholding or forfeiture of the security on the advance .

5 . By Commission Regulation ( EEC ) No 941/88 the Commission issued an invitation to tender for the supply of 2 000 tonnes of refined rape seed oil to Bangladesh ( Official Journal 1988 L 92, p . 26 ). Under the conditions laid down in the annex to that regulation, the oil was to be delivered free-at-port-of-landing - landed to Chittagong by 31 July 1988 .

6 . Vandemoortele NV was the successful tenderer and duly lodged a delivery security of 10% as required under the conditions of tender . However, the ship chosen for the delivery was delayed by engine trouble on its way to Antwerp, the port of shipment, and the cargo did not reach Chittagong until 28 September 1988, 59 days after the deadline . The Commission released the delivery security in full on 23 September 1988, after Vandemoortele had lodged a security on the advance and requested an advance payment . On 27 October 1988 the Commission made an advance payment of 90% of the tender amount to Vandemoortele and on 30 January 1989 it released the security on the advance in full . When making the final payment of the amount outstanding under the contract, however, the Commission deducted ECU 56 463 in respect of the delayed delivery, representing one-thousandth of the total value of the tender, multiplied by 59 . In these proceedings, Vandemoortele contends that the Commission' s decision to that effect infringed the terms of the regulation and the general principles of legitimate expectations and proportionality .

7 . Before turning to the substance, I must consider briefly a preliminary question, namely, whether the Court' s jurisdiction in this case arises under Article 173 of the Treaty ( as is implicitly assumed in the pleadings ) or under Article 181 by virtue of what is described in Article 181 as an arbitration clause, that is, a choice of court clause contained in a contract . The point is important because, if the Court' s jurisdiction properly arises under Article 181, then the case must be decided in accordance with the applicable rules of contract, whereas if jurisdiction arises under Article 173, the question will be whether the Commission acted lawfully in terms of the legislation and of any relevant general principles of law .

8 . In favour of Article 181, it might be argued that the relationship between the Community ( represented by the Commission ) and the successful tenderer is essentially a contractual one and that Article 23 of Regulation No 2200/87, which declares the Court competent to judge any dispute arising out of supply operations in accordance with that regulation, is worded like an arbitration clause . However, the entire relationship between the Community and the successful tenderer is governed exclusively by Community legislation . Indeed, Article 23 is contained in a regulation, not in a contract . Moreover, if it were an arbitration clause, one would expect it to specify "the law applicable to the contract" in the terms of Article 215(1 ) of the Treaty . It is therefore appropriate that these proceedings should be treated as founded on Article 173 .

Breach of Regulation No 2200/87

9 . Vandemoortele argues that under the regulation the Commission has no power to deduct a penalty in respect of late delivery from the final amount due under the tender, since the regulation provides expressly for the deduction of a penalty from the delivery security only . In its defence, the Commission states that it is its established practice to make deductions in respect of late delivery at the time of final settlement . It argues that that practice is supported by arguments of effectiveness and that making any deduction at that stage is administratively convenient and presents certain advantages to the successful tenderer .

10 . Essentially, the dispute arises from the unsatisfactory drafting of the regulation . Article 22(2)(b ) provides that the delivery security may be withheld for late delivery, on the basis of one-thousandth of the total value of the tender for each day' s delay, but no express provision is made for a deduction at a later stage in a case where the delivery security has to be released prior to delivery . It will be recalled that the Court stated in Case 117/83 Koenecke v BALM [1984] ECR 3291, that a penalty, even of a non-criminal nature, cannot be imposed unless it rests on a clear and unambiguous legal basis ( paragraph 11 ). It is therefore necessary to consider whether, in the absence of an express provision, the scheme and objectives of the legislation none the less give rise to a sufficiently clear and unambiguous implied power for the Commission to make the deduction at a later stage .

11 . In that regard, it should be noted that Article 12(1 ) of Regulation No 2200/87 provides that the successful tenderer shall meet his obligations in accordance with the conditions laid down in the regulation opening the invitation to tender and shall comply with the undertakings referred to in Regulation No 2200/87 . The obligations referred to would be ineffective unless enforced by appropriate means . To that end, Article 12(2 ) provides that "in order to ensure that he meets his obligations regarding the supply operation", including, it can be assumed, the delivery deadline, the successful tenderer is to lodge a delivery security, and Article 22(2)(b ) provides a sanction for late delivery in the form of a deduction from the delivery security . However, the supplier' s obligation to respect the supply deadline, and the need for a sanction to ensure effective observance of that obligation, do not disappear in a case where, because a security on the advance has been lodged, the delivery security has had to be released before delivery takes place . There must therefore be an implied power to impose a penalty at a later stage . Otherwise, as the Commission points out, the successful tenderer could always avoid a late delivery penalty, or indeed a penalty for incomplete or defective delivery, by claiming an advance payment . Moreover, as the Commission again points out, in the absence of a possibility of a deduction at a later stage, the regulation would provide no sanction whatsoever in respect of a delay of less than 60 days . Article 20, which makes the successful tenderer responsible for all the financial consequences of a total or partial failure to supply the goods where the failure is attributable to him, only comes into play where the goods have not been supplied within 60 days of the deadline .

12 . The only argument on which the applicant can then rely is that the deduction should have been made from the security on the advance and not from the final payment . In that context, Vandemoortele argues that, although the regulation makes no provision for deduction for late delivery from the security on the advance, that security might none the less, as regards its economic function, be regarded as taking the place of the delivery security, so that Article 22(2)(b ) could be applied by analogy . At first sight, that argument appears attractive : since, in terms of the scheme of the regulation, the security on the advance does indeed replace the delivery security, and since the security on the advance must cover not only the amount advanced, but also an additional 10% of that amount ( i.e . a maximum total of 99% of the tender amount ), it might plausibly be seen as subsuming the delivery security . However, the fatal flaw in that argument is the fact that Article 22(3 ) expressly provides that the security on the advance shall be released where definitive entitlement to the amount advanced has been established, and that of course is what occurred in the present case . Indeed, if the security on the advance had not been released, on the ground that a deduction was to be made for late delivery, then the applicant could legitimately have complained that there was no provision in the regulation for such a deduction to be made from the security on the advance and that since he was definitively entitled to the amount of the advance, the security on the advance should be released in full, with any deduction in respect of delay to be made, if at all, from the final payment .

13 . Once the conditions of Article 22(3 ) have been fulfilled, and the security on the advance has been released, it would again be unreasonable to argue that there can be no sanction for late delivery : the only remaining possibility in such a case is a deduction from the final amount due . I therefore conclude that, in making a deduction at the time of final settlement in this case, the Commission did not infringe Regulation No 2200/87 .

Breach of general principles of law

14 . Vandemoortele argues that once the delivery security had been released, it could reasonably expect that there would be no subsequent deduction in respect of late delivery : the deduction which the Commission made from the final amount due was therefore in breach of the principle of legitimate expectations .

15 . As already indicated above, where, as in the present case, the Commission has had to release the delivery security because an advance payment has been requested, there must be the possibility of a deduction at a later stage where the delivery is delayed, and the applicant could not therefore reasonably have supposed that no such power existed . In addition, as the Commission has pointed out, Vandemoortele was aware, from its previous experience in this field, of the Commission' s practice of deducting penalties at the time of final settlement . In my view, the applicant therefore has no grounds for reliance on the principle of legitimate expectations . I would add that there can be no injustice to the applicant in suffering a penalty which would plainly have been applicable to it if the delivery security had not been released before delivery .

16 . As regards proportionality, the applicant argues, very much on a subsidiary basis, that a withholding of 5.9% ( 59 thousandths ) of the total value of the tender must be regarded as disproportionate because the delay in delivery was not attributable ( or not entirely attributable ) to the applicant or its agents, who had done everything possible to meet the deadline, and because the delay did not cause any real damage to the Commission or to the recipient of the food aid . In my opinion, that argument must also be rejected . The regulation, in several provisions, already takes account of the situation of a successful tenderer who, through no fault of his own, fails to meet his supply obligations . Article 22(2)(b ) last sentence expressly provides that there is to be no deduction if the failure which has taken place is not attributable to the successful tenderer and does not lead to a payment under insurance cover . In addition, Article 21 provides for the Commission to assess cases of force majeure . In my view, those provisions, on which the applicant has not sought to rely, take adequate account of the requirements of proportionality . I would add that there is nothing in the regulation to suggest that damage to the Commission or to the recipient of the aid is a relevant factor in relation to deductions for late delivery made under Article 22(2)(b ).

17 . Accordingly, I would dismiss the application and order the applicant to pay the costs .

(*) Original language : English .