Court of Justice of the European Communities (including Court of First Instance Decisions)

JUDGMENT OF THE COURT (Third Chamber)

2 October 2001 (1)

(Arbitration clause - Non-performance of a contract - Proceedings to have a judgment by default set aside)

In Case C-172/97 OP,

SIVU du plan d'eau de la Vallée du Lot, otherwise known as SIVU du pays d'accueil de la Vallée du Lot, established in La Canourgue (France), represented by T. Vernhet, avocat, with an address for service in Luxembourg,

applicant,

APPLICATION to have the judgment by default delivered by the Court of Justice of the European Communities (Third Chamber) on 10 June 1999 in Case C-172/97 Commission v SIVU and Hydro-Réalisations [1999] ECR I-3363 set aside,

the other parties to the proceedings being:

Commission of the European Communities, represented initially by R.B. Wainwright and O. Couvert-Castéra, and, subsequently, R.B. Wainwright and J.-F. Pasquier, acting as Agents, with an address for service in Luxembourg,

and

Hydro-Réalisations SARL, established in Rodez (France),

THE COURT (Third Chamber),

composed of: C. Gulmann, President of the Chamber, J.-P. Puissochet (Rapporteur) and F. Macken, Judges,

Advocate General: S. Alber,

Registrar: R. Grass,

having regard to the Report for the Hearing,

having regard to the Commission's written replies, lodged in the Court Registry on 18 July 2000, to the questions put to it by the Court,

having regard to the fact that the parties wished to forgo a hearing and the cancellation of the hearing,

after hearing the Opinion of the Advocate General at the sitting on 15 February 2001,

having regard to the order of 29 March 2001 reopening the oral procedure and requesting the Registry to transmit to SIVU du plan d'eau de la Vallée du Lot the Commission's written replies to the questions put to it by the Court,

having regard to the fact that the parties wished to forgo a hearing,

having regard to the Report of the Judge-Rapporteur,

after hearing the Opinion of the Advocate General at the sitting on 31 May 2001,

gives the following

Judgment

1. By application lodged at the Court Registry on 12 July 1999, SIVU (syndicat intercommunal à vocation unique) du plan d'eau de la Vallée du Lot, otherwise known as SIVU du pays d'accueil de la Vallée du Lot (SIVU) applied, pursuant to Article 94(4) of the Rules of Procedure, to have the judgment by default delivered by the Court on 10 June 1999 in Case C-172/98 Commission v SIVU and Hydro-Réalisations [1999] ECR I-3363 set aside.

   Facts giving rise to the dispute

2. On 6 December 1990 the European Economic Community, represented by the Commission, entered into a contract (No HY 84/89 FR; the contract) with SIVU and a company named Hydro-Réalisations SARL (Hydro-Réalisations), acting jointly and severally, under which the Community was to provide financial support for a project entitled Plan d'eau sur le Lot. Intégration d'une microcentrale hydroélectrique basse chute dans le seuil. Under the contract, SIVU and Hydro-Réalisations (together the contractor) undertook to construct a weir with a small low-head hydro-electric power station on the River Lot.

3. Under Clause 4.3.2 of the contract, the contractor was required, initially within three months of signature of the contract and thereafter every six months, to prepare interim progress reports containing statements of expenditure incurred.

4. Clause 9 of the contract, entitled Termination of the contract, stipulated that:

   This contract may be terminated by any of the contracting parties subject to two months' notice if continuance of the work programme set out in Annex I has been deprived of its purpose, in particular where it becomes apparent that the work programme will become technically or economically unfeasible or if the estimated cost of the project is exceeded by an unreasonable amount.

   ...

   If verification of the amounts paid by the Commission reveals that the contractor has been overpaid, the latter shall reimburse the Commission immediately the excess, together with interest from the date of the completion or cessation of the works which are the subject of this contract.

   The rate of interest applicable shall be the rate applied by the European Monetary Cooperation Fund for its transactions in ecus published on the first working day of each month.

5. Under Clause 13 of the contract, the parties agreed to refer to the Court of Justice all disputes concerning the validity, interpretation or performance of the contract which, in accordance with Clause 14, was governed by French law.

6. On 31 December 1990 the Commission paid the contractor, in accordance with point I(1)(a) of Annex II to the contract and by way of advance on its financial contribution, the sum of ECU 83 928, which was received by the contractor on 17 January 1991.

7. On 23 May 1991 the contractor transmitted to the Commission a first interim technical report, which was followed on 13 August 1991, after a reminder from the Commission, by a financial report for the period from 1 April 1990 to 30 June 1991, corresponding to the initial phase of the work. The expenditure incurred by the contractor related to the first two stages of the project, so that the Commission made no new payment.

8. Having subsequently sought in vain to obtain from the contractor technical and financial reports for the period from 1 July to 31 December 1991, the Commission notified SIVU, by letter of 7 October 1992, that it must complete performance within one month, stating that if it did not do so the Commission reserved the right to take the appropriate steps regarding continuation of the contract.

9. On 6 November 1992 SIVU informed the Commission that the project had been altered in order to take account of observations which had been made inter alia by environmental protection associations, and that the construction of the small hydro-electric station had been abandoned in favour of a spill-weir. In consequence it no longer required financial support from the Community and had decided to reimburse the advance it had already obtained.

10. By letter of 18 November 1992 the Commission informed SIVU that it was terminating the contract in accordance with Clause 9, and asked it to effect reimbursement of the ECU 83 928 advanced together with interest from the date on which that sum had been received. On 8 December 1992 it issued a debit note against SIVU for the amount of the advance, together with interest, payable by 28 February 1993.

11. SIVU did not comply with that request, or with subsequent requests to repay the advance sent to it by the Commission on 27 January 1994, 1 June 1994, 31 October 1994 and 12 October 1995.

    The judgment in Commission v SIVU and Hydro-Réalisations

12. By application lodged at the Court Registry on 2 May 1997, the Commission brought an action under an arbitration clause based on Article 181 of the EC Treaty (now Article 238 EC) asking that SIVU and Hydro-Réalisations be ordered to pay ECU 83 928, together with interest as agreed in the contract at the rate applied by the European Monetary Cooperation Fund for its transactions in ecus published on the first working day of each month as from 17 January 1991 and interest at the legal rate determined annually by decree published in the Journal Officiel de la République Française as from 28 February 1993.

13. Since neither SIVU nor Hydro-Réalisations, although duly notified of the action, lodged a statement in defence in due time, the Court gave judgment by default.

14. In its judgment in Commission v SIVU and Hydro-Réalisations, cited above, the Court partially upheld the Commission's claim. The operative part of the judgment is worded as follows:

    1. ... SIVU ... and Hydro-Réalisations ... [are ordered] jointly and severally to pay to the Commission ... the sum of EUR 83 928, together with contractual interest with effect from 31 May 1991 until discharge of the debt in full;

    2. ... the remainder of the application [is dismissed];

    3. ... SIVU ... and Hydro-Réalisations ... [are ordered] jointly and severally to pay the costs.

    Facts that were not brought to the Court's attention in sufficient time in the proceedings which resulted in the judgment in Commission v SIVU and Hydro-Réalisations, cited above, and the application to have that judgment set aside

15. On 11 June 1997 SIVU sent a letter informing the Commission that it had ordered a new technical study to evaluate the feasibility of a small power station on the site and that it had decided to keep the advance paid by the Commission to cover the eventuality of the initial project ultimately being carried out. However, SIVU was now in a position to decide against that option and it undertook to take steps to repay the advance immediately, while expressing the hope that that repayment would take place without being subject to any penalty.

16. On 8 October 1998, that is to say eight months before the judgment in Commission v SIVU and Hydro-Réalisations was delivered, SIVU's manager issued a draft for the sum of FRF 587 496 to be paid into one of the Commission's accounts at Banque Bruxelles Lambert. That sum was the subject of two credit advices issued by that bank, the first, dated 23 October 1998, in the amount of FRF 554 889.97 and the second, dated 30 October 1998, in the amount of FRF 32 606.03 or, according to the conversion effected by the Commission, which has not been contested, amounts of ECU 83 928 and ECU 4 973.81 respectively.

17. By letter of 9 June 1999 telefaxed on the same day, SIVU's counsel notified the Commission that SIVU had just informed him that repayment of the capital amount of the advance had been effected by a draft of 8 October 1998 for FRF 587 496. SIVU's counsel asked the Commission consequently to show as much indulgence as possible in order to avoid SIVU's having to pay interest for late payment.

18. By a letter from its counsel of the same date, that is to say the day before the judgment in Commission v SIVU and Hydro-Réalisations was delivered, the date of which had been brought to the attention of the parties by the Court Registry on 30 April 1988, SIVU notified that letter to the Court.

19. Those are the circumstances in which SIVU has applied to have the Court's judgment by default in Commission v SIVU and Hydro-Réalisations set aside.

20. The Commission submitted its observations on that application in pleadings lodged at the Registry on 15 October 1999.

21. On 26 November 1999 a corrigendum to the Commission's observations was lodged by it at the Registry.

22. Acting on a report from the Judge-Rapporteur and after hearing the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry. It nevertheless decided to put questions to the Commission.

23. The Commission's written replies to the questions put to it by the Court were lodged in the Registry on 18 July 2000.

24. Since the parties wished to forgo a hearing, pursuant to Article 44a of the Rules of Procedure the Court decided to give judgment without holding a hearing. The Advocate General delivered his Opinion on 15 February 2001 and the oral part of the procedure was closed.

25. However, it appeared that the written replies from the Commission to the questions put to it by the Court had, as the result of an error, not been transmitted to SIVU. Accordingly, by order of 29 March 2001, pursuant to Article 61 of the Rules of Procedure, the Court reopened the oral procedure in order to give SIVU the opportunity to set out its position on those replies at a hearing.

26. Since SIVU did not express a desire to be heard and the Commission wished to forgo a hearing, the Court decided, pursuant to Article 44a of the Rules of Procedure, to deliver judgment without holding a hearing.

27. In its application SIVU asks the Court:

    - to declare its application to have the judgment by default in Commission v SIVU and Hydro-Réalisations set aside admissible and well founded and consequently to withdraw that judgment;

    - to confirm that the sum of FRF 587 496 was repaid to the Commission on 8 October 1998;

    - to dismiss the Commission's application of 2 May 1997;

    - to hold that interest accrued only from 11 June 1997 or, in the alternative, from 31 May 1991, to 8 October 1998 only;

    - to order the Commission to pay the costs.

28. The Commission, in its observations on the application to have the judgment by default set aside, contends that it should be dismissed and SIVU ordered to pay the costs of the application.

    Examination of the arguments of the parties

29. SIVU challenges, first, the fact that in Commission v SIVU and Hydro-Réalisations the Commission's claim for repayment of the advance of ECU 83 928 was upheld.

    It states that on the date on which that judgment was delivered it had already repaid that sum, so that the Commission no longer had a claim.

30. The Commission replies that even if the Court had been aware of the payment made by SIVU its judgment would have been no different. It would have held in the same way that the contract had been properly terminated by the Commission and that the latter was entitled to repayment of the entire advance paid to the contractor. According to the Commission, the payment made by SIVU does not affect the judgment itself but rather the conditions of its enforcement.

31. It must be pointed out that it is undisputed that, before the judgment in Commission v SIVU and Hydro-Réalisations was delivered, the Commission had received from SIVU, on 23 October 1998, the sum of FRF 554 889.97, or ECU 83 928, corresponding to the amount of the advance paid by the Commission, and then, on 30 October 1998, the sum of FRF 32 606.03, or ECU 4 973.81.

32. However, despite SIVU's letter of 11 June 1997 informing the Commission of its repayment of the advance and expressing the hope that it would not be subject to a penalty and its letter of 9 June 1999 indicating that the capital amount of the advance had been repaid, it cannot be accepted that SIVU had repaid the principal of its debt in its entirety.

33. Article 1254 of the French Civil Code provides:

    A debtor of a debt carrying interest or back interest may not, without the creditor's consent, apply the payment which he makes to the capital in preference to back interest or interest: payment made against the capital and interest, but which is not in the full amount, shall be applied first against interest.

34. It is clear from an examination of the file that the Commission did not accept that the sums repaid should be applied in priority to the capital of the debt.

35. Firstly, the Commission did not reply to SIVU's letter of 11 June 1997 which might have drawn a reply in the form of acceptance of priority application to the principal.

36. Next, it is apparent from the explanation given by the Commission in its written replies to the questions put to it by the Court that that institution's accountant applied the sum of ECU 83 928 paid on 23 October 1998 by SIVU to an order for recovery which identified only the principal sum due with a note above stating merely + interest. However, that purely internal operation in respect of an order for recovery whose wording can be explained by the fact that the sum due as interest had not been settled at the time when the order was issued cannot be regarded as acquiescence to a request that a part payment should be applied in priority to the principal.

37. Last, it is true that, in the corrigendum to its observations on this application to have the judgment set aside, the Commission gave some indications to suggest that it accepted priority application of the sums repaid to the principal. However, in its written replies to the Court's questions the Commission clearly confirmed its initial position that the part payment should be applied in priority to interest and not to the capital of the debt.

38. SIVU did not, however, react to that final position of the Commission.

39. In the circumstances the position expressed in the corrigendum must be considered to have resulted from a mere error and did not reflect any agreement.

40. It must therefore be held that, by its payments of 23 and 30 October 1998, SIVU repaid in priority the interest due by those dates and only in second place the capital of its debt and that any part of the capital that had not been repaid continued to attract interest until the debt was completely extinguished.

41. As regards the amount of interest due by the date of the payments made by SIVU, there is nothing in this application to justify review of the finding in paragraphs 22 to 26 of the judgment in Commission v SIVU and Hydro-Réalisations that the contractual interest should be calculated as accruing from 31 May 1991.

42. SIVU maintains in this connection that the interest in question should not begin to accrue until the date when the small power station project was definitively abandoned, that is to say 11 June 1997.

43. The Commission contends, conversely, that the date of the completion or cessation of the works, mentioned in Clause 9 of the contract, refers to an objective situation, determination of which cannot be left to the unilateral assessment of one of the parties. It considers, moreover, that since the Court ordered SIVU to pay contractual interest until the debt was discharged in full and SIVU has repaid only part thereof, interest continues to accrue.

44. In its judgment in Commission v SIVU and Hydro-Réalisations, the Court considered that, under the third paragraph of Clause 9 of the contract, the contractual interest claimed by the Commission accrued not from the date on which the advance had been received by the contractor, but from the date on which the contractor ceased work. Since the Commission had indicated in its application that the work in question continued until 31 May 1991, the Court held that it was entitled to the interest provided for in the third paragraph of Clause 9 of the contract only from that date.

45. Contrary to SIVU's assertion, the phrase date of the ... cessation of the works, which appears in the third paragraph of Clause 9 of the contract, refers to the date on which the work in fact ceased. Since it is common ground that work did not continue beyond 31 May 1991, SIVU's application must be dismissed in so far as it concerns the date from which contractual interest begins to accrue.

46. On 23 October 1998 SIVU therefore had a debt of ECU 83 928 (capital) + ECU 40 347.64 (interest). Once the payment of ECU 83 928 is taken into account and applied in priority to accrued interest, SIVU's debt still amounted to the sum of ECU 40 347.64 in capital. Until 30 October 1998, the date of SIVU's second payment, that capital produced, at the rate of 4% which was uncontested by SIVU, interest amounting to ECU 30.95. On that date the total debt was therefore ECU 40 378.59, from which the payment of ECU 4 973.81 applied in priority to interest must be deducted. Following that payment the debt therefore still amounted to ECU 35 404.78 in capital, producing interest.

47. Pursuant to Article 2(1) of Council Regulation (EC) No 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the euro (OJ 1997 L 162, p. 1), the reference to the ECU must be replaced by a reference to the euro at a rate of one euro to one ECU.

48. Consequently point 1 of the operative part of the judgment in Commission v SIVU and Hydro-Réalisations must be set aside and SIVU and Hydro-Réalisations ordered jointly and severally to pay the Commission the sum of EUR 35 404.78 together with contractual interest with effect from 30 October 1998 until discharge of the debt in full.

    Costs

49. Under Article 69(3) of the Rules of Procedure, where each party succeeds on some and fails on other heads, or where the circumstances are exceptional, the Court may order that the costs be shared or that the parties bear their own costs.

50. With regard, on the one hand, to the fact that SIVU and Hydro-Réalisations were ordered jointly and severally to pay the costs in Commission v SIVU and Hydro-Réalisations, the Court considers that there is no need to alter that point in the operative part of that judgment. It was because SIVU and Hydro-Réalisations persisted in not reimbursing the advance paid by the Commission that the latter was obliged to bring an action before the Court. The fact that, in the course of the proceedings, SIVU reimbursed part of the sum due to the Commission is immaterial in that respect.

51. On the other hand, with regard to this application to have the judgment by default set aside, the Court would point out that it is a consequence, in large measure, of the fact that that information was not brought to the attention of the Court in sufficient time to enable it to be taken into account in its judgment. Since the Commission and SIVU appear to be equally to blame for that situation, the Court will make a fair assessment of the circumstances of the case and order each party to bear it own costs.

On those grounds,

THE COURT (Third Chamber)

hereby:

1. Sets aside point 1 of the operative part of the judgment by default of 10 June 1999 in Case C-172/97 Commission v SIVU and Hydro-Réalisations.

2. Orders SIVU du plan d'eau de la Vallée du Lot, otherwise known as SIVU du pays d'accueil de la Vallée du Lot, and Hydro-Réalisations SARL jointly and severally to pay the Commission of the European Communities the sum of EUR 35 404.78, together with contractual interest with effect from 30 October 1998 until discharge of the debt in full.

3. Dismisses the remainder of the application by SIVU du plan d'eau de la Vallée du Lot, otherwise known as SIVU du pays d'accueil de la Vallée du Lot.

4. Orders SIVU du plan d'eau de la Vallée du Lot, otherwise known as SIVU du pays d'accueil de la Vallée du Lot, and the Commission of the European Communities to bear their own costs in this application.

Gulmann Puissochet Macken

Delivered in open court in Luxembourg on 2 October 2001.

R. Grass C. Gulmann

Registrar President of the Third Chamber

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1: Language of the case: French.