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Cite as: [2011] EUECJ T-464/9, [2011] EUECJ T-464/09

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JUDGMENT OF THE GENERAL COURT (Eighth Chamber)

4 May 2011 (*)

(Arbitration clause – Contract for financial assistance concluded under the ‘Culture 2000’ Framework Programme – Implementation of the action entitled ‘European Music Roadwork’ – Non-performance of the contract – Repayment of part of the amounts advanced – Partial inadmissibility of the action – Procedure by default)

In Case T-464/09,

European Commission, represented by A.-M. Rouchaud-Joët and N. Bambara, acting as Agents, assisted by C. Erkelens, lawyer,

applicant,

New Acoustic Music Association, established in Orpington (United Kingdom),

Anna Hildur Hildibrandsdottir, residing in Orpington,

defendants,

concerning an application by the Commission under an arbitration clause within the meaning of Article 238 EC, seeking an order that New Acoustic Music Association and Ms Hildibrandsdottir repay to it part of the amount of the advances paid, together with default interest, in performance of Contract No 2003-1895/001-001, to carry out the action entitled ‘CLT2003/A1/GB-317 – European Music Roadwork’, as part of the ‘Culture 2000’ Framework Programme established by Decision 508/2000/EC of the European Parliament and of the Council of 14 February 2000 (OJ 2000 L 63, p. 1),

THE GENERAL COURT (Eighth Chamber),

composed of L. Truchot, President, M.E. Martins Ribeiro (Rapporteur) and H. Kanninen, Judges,

Registrar: E. Coulon,

having regard to the written procedure,

gives the following

Judgment

Contractual framework

1 According to Article I.1.1 thereof, the purpose of Contract No 2003-1895/001-001 (‘the Contract’) is to establish the obligations, on the one hand, of the Commission of the European Communities and, on the other, of New Acoustic Music Association (‘New Acoustic’), a partnership under the laws of England and Wales, with a view to carrying out the action entitled ‘CLT2003/A1/GB-317 – European Music Roadwork’.

2 Article I.2.1 thereof states that the Contract entered into force on the date when the last of the two parties signed it. According to Article I.2.2 of the Contract, the action undertaken and the period of eligibility of costs begin on 1 July 2003 and end on 30 June 2004.

3 Article I.3 of the Contract sets out the modalities of financing and states that the total cost of the action to be undertaken is estimated at EUR 305 742.00. The Commission undertakes to contribute a maximum of 49% of the total eligible costs, that is, a maximum of EUR 149 800. Under Article I.4 of the Contract, an advance payment of 70% of the Commission’s maximum financial contribution must be made by the Commission within 45 days from the signature of the Contract by the later of the two parties.

4 Article I.5 of the Contract states that New Acoustic must, within 2 months following the end of the eligibility period, submit to the Commission, in two copies, a technical and financial implementation report (‘the final report’) together with other documents mentioned in Article I.4, to enable the total amount of the actual eligible costs to be assessed. That provision also sets out what must be contained in the final report.

5 According to Article I.8 thereof, the Contract is governed by the law of Belgium, and the Court of Justice of the European Communities has jurisdiction in disputes between the parties relating to the interpretation and application of the Contract.

6 Part B of the general conditions (II) contains details concerning the financial provisions.

7 Article II.14.1 of the Contract provides that, to be considered as eligible direct costs of the action undertaken, costs must satisfy the following general criteria:

– they must be directly connected with the subject of the Contract and they must be provided for in the budget annexed to it;

– they must be necessary for performance of the action covered by the Contract;

– they must be reasonable and justified and they must accord with the principles of sound financial management, in particular in terms of value for money and cost-effectiveness;

– they must be generated during the lifetime of the action undertaken as specified in Article I.2.2 of the Contract;

– they must be actually incurred by the beneficiary and recorded in his accounts or tax documents and they must be identifiable and verifiable.

8 Article II.14.2 of the Contract sets out the costs that are eligible and Article II.14.4 of that Contract specifies which of those costs may not be considered as eligible.

9 Article II.15.4 of the Contract states that, by the appropriate time-limit indicated in Article I.5, the beneficiary is to submit a request for payment of the balance, together with the following documents: a final report on the implementation of the action; a final financial statement of the eligible costs actually incurred, following the structure of the estimated budget; a full summary statement of the receipts and expenditure of the action; and, if necessary, an external audit report on the action’s accounts.

10 According to Article II.17.2 of the Contract, the total amount paid to the beneficiary by the Commission may not in any circumstances exceed the maximum amount of the grant laid down in Article I.3.3, even if the total actual costs eligible exceed the estimated total eligible costs specified in Article I.3.2.

11 Article II.17.3 of the Contract states that, if the actual eligible costs when the action ends are lower than the estimated total eligible costs, the Commission’s contribution is to be limited to the amount obtained by applying the Community grant percentage specified in Article I.3.3 to the actual eligible costs approved by the Commission.

12 Under Article II.18.1 of the Contract, if an amount has been unduly paid to the beneficiary, or if recovery is justified under the terms of the Contract, the beneficiary undertakes to repay the Commission the sum in question on whatever terms and by whatever date the Commission may specify.

13 Article II.18.2 of the Contract states that, if the beneficiary fails to pay by the date set by the Commission, the sum due is to bear interest at the rate indicated in Article II.16.3. Interest on late payment is to cover the period between the date set for payment, exclusive, and the date when the Commission receives full payment of the amount owed, inclusive.

Background to the dispute

14 On 30 July 2003, the Commission entered into the Contract with New Acoustic, represented by Ms Anna Hildur Hildibrandsdottir.

15 According to the terms of the Contract, New Acoustic undertook to carry out the action entitled ‘European Music Roadwork’, with the financial support of the Community, within the ‘Culture 2000’ Framework Programme. The purpose of that action was, in essence, to provide young acoustic artists the opportunity to perform live at various venues.

16 On 29 August 2003, the Commission paid to New Acoustic, under the terms of Article I.4 of the Contract, as prefinancing, the amount of EUR 104 860, that is, 70% of EUR 149 800.

17 Under Article I.5 of the Contract, New Acoustic had to submit to the Commission, within two months following the end of the eligibility period (30 June 2004), the final report with a view to enabling the Commission to assess the actual total eligible costs. The final report should have been lodged, therefore, by 30 August 2004 at the latest.

18 As is apparent from the email of 6 June 2006 from the Commission to Ms Hildibrandsdottir, the final report was received by the Commission on 6 June 2006. The Commission also requested that missing invoices be sent to it and additional details provided. Those requests were repeated and correspondence between the parties ensued in that regard.

19 By email of 14 November 2006, the Commission communicated its assessment of the eligible costs to New Acoustic, based upon the information provided by the latter. The total eligible costs accepted by the Commission amounted to EUR 145 724.25 and the maximum financial contribution was determined as EUR 71 398.41. The Commission then asked New Acoustic to pay back the amount of EUR 33 461.59, equivalent to the difference between the amount of EUR 104 860.00 paid in advance by the Commission and the Commission’s maximum financial contribution of EUR 71 398.41.

20 By email of 24 November 2006, New Acoustic asked the Commission to reconsider its position on certain points of its financial report and claimed that unforeseeable events had caused difficulties in the execution of the project. Furthermore, referring to a letter of 16 October 2006, New Acoustic indicated that, due to a lack of funding the project had ceased and that no work had been carried out since the month of July 2004. New Acoustic concluded by indicating that it did not have the financial means necessary to satisfy the Commission’s request.

21 By letter of 15 December 2006, the Commission carried out a new estimate of the expenses in the light of the information supplied by New Acoustic, and accepted certain travel expenses. The total amount to be repaid was set at EUR 32 815.77.

22 By email of 24 December 2006, New Acoustic renewed its request for the Commission to reconsider the amount of the sums not eligible under the Contract, providing it with further details concerning certain expenses incurred, and reiterated that it did not have the financial means necessary to satisfy the Commission’s request.

23 By letter of 11 January 2007, the Commission maintained its position, restating that the sum of EUR 32 815.77 had to be repaid. It was stated that, should that decision be contested, the argument had to be accompanied by supporting documents or financial reports, revised if necessary, and by a list of documents, and that it had to be sent within 60 days of receipt of that letter. It was stated that, if there was no reaction within the prescribed period, the Commission would send a debit note for the amount due, indicating a time limit for receipt of payment.

24 By letter of 9 March 2007, New Acoustic repeated its objection of 24 December 2006 with regard to the Commission’s new estimate and requested re-examination of certain eligible costs.

25 In view of the explanations provided by New Acoustic, the Commission accepted certain incurred expenses by letter of 1 June 2007 and, accordingly, carried out a review of its request for repayment and claimed payment of the sum of EUR 31 136.23.

26 A debit note for the amount of EUR 31 136.23 was issued and sent, on 30 November 2007, to New Acoustic by registered post with acknowledgement of receipt, which it received on 8 December 2007. It was indicated that the debit note had to be paid by 13 January 2008 at the latest and that interest for late payment would be due in default of payment on that date.

27 By letter of 8 January 2008, a firm of solicitors made contact with the Commission concerning the debit note for the amount of EUR 31 136.23 and stated that the members of New Acoustic intended to contest that debt or to request that it be written off. That firm of solicitors indicated that it would contact the Commission again.

28 By registered letter with acknowledgement of receipt of 31 January 2008, the Commission sent a reminder to New Acoustic and requested payment of the principal of the debt together with default interest at the rate of 7.70% per year as of 14 January 2008. A second reminder was sent by registered letter with acknowledgment of receipt on 29 February 2008.

29 By letter of 9 April 2008, the firm of solicitors wrote to the Commission indicating, first, that they were instructed by Ms Anna Hildur Hildibrandsdottir alone and not by the three other members of the partnership. It was stated that New Acoustic was a partnership and that Ms Hildibrandsdottir was the representative authorised to conduct all the dealings, but was not the sole protagonist. It indicated that the funds had been spent in good faith and that there had been no abuse. Ms Hildibrandsdottir’s legal counsel proposed meeting the Commission’s agent in person and requested that the debt against his client be written off on a discretionary basis.

Procedure and form of order sought by the Commission

30 By application lodged at the Court Registry on 20 November 2009, the Commission brought the present action pursuant to Article 238 EC.

31 On 28 April 2010, since the defendants had not lodged a defence within the time prescribed, the Commission applied to the Court for judgment by default, in accordance with Article 122(1) of the Rules of Procedure of the Court.

32 In that connection, it should be noted that, although the application for judgment by default was duly served on them, the defendants did not submit a defence. The Court must, therefore, give judgment by default. As the appropriate formalities have been duly complied with, it is for the Court, in accordance with Article 122(2) of the Rules of Procedure, to consider the admissibility of the application and whether the form of order sought by the Commission appears to be well founded.

33 The Commission claims that the Court should:

– order the defendants to repay to the Commission the amount of EUR 31 136.23 in principal, together with interest at the rate of 7.70% per annum, as of 14 January until the date of final payment;

– order the defendants to pay the costs, including those incurred by the Commission.

34 By letter of 20 October 2010, the Court called on the Commission to submit its observations on the admissibility of the action, in so far as it is directed against New Acoustic.

35 By letter received at the Court Registry on 11 November 2010, the Commission lodged its observations.

Law

Admissibility of the action

Arguments of the Commission

36 The Commission states that, pursuant to Article I.8 of the Contract, the Contract is governed by Belgian law and the Court of Justice has jurisdiction to rule on any dispute between the parties arising from the interpretation or application of the provisions of the Contract. Under Article 1134 of the Belgian Civil Code, agreements lawfully entered take the place of the law for those who have executed them and must be performed in good faith.

37 The Commission submits that the action is admissible.

38 The Commission states that the Contract was signed by New Acoustic, represented by Ms Hildibrandsdottir. The Commission submits that, according to the letter of 9 April 2008 from Ms Hildibrandsdottir’s legal counsel, New Acoustic was a partnership and Ms Hildibrandsdottir was the representative individual authorised by the other principals to have the conduct of all the dealings with the Commission. According to the letter of 31 March 2009 from an English law firm acting on behalf of the Commission, which had carried out investigations at the request of the latter, New Acoustic was run as a partnership consisting of four individuals, including Ms Hildibrandsdottir, the authorised legal representative of the partnership. Furthermore, the Commission argues that it is clear from Ms Hildibrandsdottir’s email of 24 November 2006 that New Acoustic was a partnership under the laws of England and Wales, consisting of four individuals and without a formal constitution, which ceased its activities in July 2004, and that Ms Hildibrandsdottir was its legal representative.

39 Under the UK Partnership Act of 1890, the Commission considers that Ms Hildibrandsdottir is liable, for her own part and on behalf of New Acoustic, for the amount owed by the latter to the Commission.

40 In its observations in response to a written question put by the Court on the admissibility of the action with regard to New Acoustic, the Commission acknowledges that, under the law of England and Wales, a partnership does not have legal personality. It considers, however, on the basis of Schedule 2 CCR, Order 5, Rule 9 of the Civil Procedure Rules, that a partnership may be sued.

41 According to the Commission, its action against New Accoustic could be declared inadmissible only if the latter had been dissolved. There is no evidence that such dissolution had occurred at the time when the action was brought.

42 Furthermore, even assuming that the lack of legal personality can be relied upon as grounds for the partial inadmissibility of the action, the Commission submits that the action was brought both against New Acoustic, legally represented by Ms Hildibrandsdottir, and against the latter in her own name, as she was in fact the agent of the partnership and acted in that capacity.

Findings of the Court

43 It follows from Article 1 of the UK Partnership Act 1890 that a partnership is the relation which subsists between persons carrying on a business in common with a view of profit.

44 Under Article 5 of the UK Partnership Act 1890:

‘Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner’.

45 Article 6 of the UK Partnership Act 1890 states:

‘An act or instrument relating to the business of the firm done or executed in the firm-name, or in any other manner showing an intention to bind the firm, by any person thereto authorised, whether a partner or not, is binding on the firm and all the partners.’

46 Article 9 of the UK Partnership Act 1890 provides:

‘Every partner in a firm is liable jointly with the other partners, and in Scotland severally also, for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in a due course of administration for such debts and obligations, so far as they remain unsatisfied, but subject in England or Ireland to the prior payment of his separate debts’.

47 Lastly, Schedule 2 CCR, Order 5, Rule 9 of the Civil Procedure Rules provides that ‘any two or more persons claiming to be entitled, or alleged to be liable, as partners in respect of a cause of action and carrying on business within England or Wales may sue or be sued in the name of the firm of which they were partners when the cause of action arose’.

48 Under Article 1 of the UK Partnership Act 1890, New Acoustic is a partnership of the four individuals who make it up, of which Ms Hildibrandsdottir – as the representative individual authorised by the other principals to have the conduct of all the dealings with the Commission – was the legal representative.

49 Under Articles 5, 6 and 9 of the UK Partnership Act 1890, the debts of a partnership can be recovered either collectively from the partners or from each of them individually.

50 Contrary to the claim of the Commission, it does not appear from any of these provisions that, notwithstanding the fact that a partnership under the law of England and Wales has no legal personality, a legal action can be brought against it.

51 On the contrary, it follows from these provisions and, in particular, from Schedule 2 CCR, Order 5, Rule 9 of the Civil Procedure Rules, on which the Commission relies for the purposes of determining the admissibility of the action brought against New Acoustic, that legal proceedings can be instituted against the partners only, in the name of the partnership, and not against the partnership as such.

52 With regard to Ms Hildibrandsdottir, it is clear from the file and, in particular, from the letter of 9 April 2008 from the law firm instructed by Ms Hildibrandsdottir that she may be sued before the Court as a member of the New Acoustic partnership and only in that capacity.

53 It follows that the action must be declared inadmissible in so far as it is brought against New Acoustic.

Substance

Arguments of the Commission

54 The Commission raises a single plea in law: breach by New Acoustic of its contractual obligations, by failing to reimburse part of the advance payment that the Commission made to it, as it has been established that the actual eligible expenses were lower than the estimated total costs. Under Article 1235 of the Belgian Civil Code, what has been paid without being due can be claimed back.

55 According to the Commission, its financial obligations were to contribute to the costs of the ‘European Music Roadwork’ programme by means of Community funding. As the total cost was estimated at EUR 305 742, the total amount borne by the Community could not exceed 49% of the total eligible costs, as described in Article II.14 of the Contract, that is, the sum of EUR 149 800. The Commission states that it paid, in accordance with the terms of the Contract, the sum of EUR 104 860 by way of advance payment, that is, 70% of the sum of EUR 149 800.

56 The Commission also states that, within two months following the end of the eligibility period, New Acoustic had to submit to it the final report and, if approved, the balance of the grant (that is, 30% of EUR 149 800) had to be paid. That report was submitted on 6 June 2006 and the Commission informed New Acoustic that the total eligible costs amounted to EUR 145 724.25, so that the maximum contribution by the Commission amounted to EUR 71 398.41. The Commission indicates that it requested repayment of the amount of EUR 33 461.99. Following correspondence between the parties and clarifications obtained, the Commission claims that it carried out a new estimate of the amount of the eligible costs and now claims the amount of EUR 31 136.23.

57 Furthermore, pursuant to Articles II.18.2 and II.16.3 of the Contract, the Commission requests that the defendants be ordered to pay default interest at the rate applied by the European Central Bank (ECB) for its main refinancing operations in euros, plus three and a half points. The reference rate to which the increase applies is to be the rate in force on the first day of the month of the final date for payment, as published in the Official Journal of the European Union. This default interest would apply to the period from the final date for payment, exclusive, up to the date of payment. The rate of interest must be calculated in the following way: 4.20% (the basic rate pursuant to OJ 2008 C 2, p.1) increased by 3.50% pursuant to the Contract, that is to say, 7.70% per annum (or EUR 6.57 per day) as of 14 January 2008.

Findings of the Court

– The amount of the claim

58 With regard to the amount of the claim, it should be noted that, on 29 August 2003, the Commission transferred the amount of EUR 104 860 into New Accoustic’s bank account.

59 As is clear from the correspondence between the parties to the dispute, on 6 June 2006 the Commission received the final report concerning the project covered by the Contract. By email of 6 June 2006, the Commission informed Ms Hildibrandsdottir that the list of invoices was missing. The Commission described again how the file had to be completed so that there would be no objections regarding the costs relating to the project in question.

60 The list of invoices was sent by Ms Hildibrandsdottir by email of 19 June 2006.

61 By email of 28 June 2006, the Commission stated that some of the information was missing, which meant that the list of invoices had to be completed by inserting the dates of the actions carried out and made more specific as regards the purpose of the action concerned. In the case of some invoices, the Commission noted that the names of the co-organisers were missing.

62 By email of 18 July 2006, Ms Hildibrandsdottir asked for time to gather all of the information requested and a period of time was granted to her.

63 By email of 22 August 2006, Ms Hildibrandsdottir provided some information, but acknowledged that she had merely done her best to provide the maximum of detail regarding some of the actions undertaken.

64 Following several exchanges of emails, the Commission informed Ms Hildibrandsdottir that several corrections had been made, amounting in total to EUR 24 153.39.

65 With regard to the invoices that were not paid, it must be held that these cannot be regarded as eligible, since the costs were not included in the period concerned, contrary to Article II.14.1 of the Contract.

66 In this regard, it is clear from Article II.14.1 of the Contract that, to be considered as eligible direct costs of the action, the costs must satisfy certain criteria, one of which is that they must be directly connected with the subject of the agreement and must be generated during the lifetime of the action as specified in Article I.2.2, that is, by 30 June 2004.

67 Although Ms Hildibrandsdottir initially challenged the amount of the costs declared by the Commission to be ineligible, it should be noted that, in his letter of 8 January 2008, Ms Hildibrandsdottir’s legal counsel does not put forward any evidence that would call into question the Commission’s analysis concerning the refusal of certain incurred expenditure. Furthermore, in his letter of 9 April 2008, Ms Hildibrandsdottir’s counsel asks the Commission to take his client’s situation into consideration in order to write off the debt, but does not challenge the cost ineligibility criteria relied on by the Commission. However, there is nothing in the documents before the Court to indicate that the Commission was wrong to find that the costs in question were ineligible.

68 It must therefore be held that, the costs declared ineligible by the Commission were not duly justified by Ms Hildibrandsdottir and that accordingly, Ms Hildibrandsdottir is liable to pay the amount of EUR 31 136.23 to the Commission.

– The default interest

69 According to Article II.18.1 of the Contract, if an amount has been unduly paid to the beneficiary or if recovery is justified under the terms of the Contract, the beneficiary undertakes to repay the Commission the sum in question and, pursuant to Article II.18.2, if the beneficiary fails to pay by the date set by the Commission, the sum due is to bear interest at the rate indicated in Article II.16.3, that is to say, at the rate applied by the ECB for its main refinancing operations in euros, plus three and a half points. According to Article II.16.3 of the Contract, the reference rate to which the increase applies is to be the rate in force on the first day of the month of the final date for payment, as published in the C series of the Official Journal.

70 The Commission sent the debit note for an amount of EUR 31 136.23 on 30 November 2007, by registered letter with acknowledgement of receipt, which was received by New Acoustic on 8 December 2007. The debit note indicated that the amount had to be paid by 13 January 2008 at the latest and that, in the event of non-payment, default interest would be applied at the rate of 7.70%.

71 It follows that default interest is due from 14 January 2008. It is clear from the Official Journal for the year 2008 (C 2, p.1) that the rate of interest applied by the ECB for its main refinancing operations was set, on 1 January 2008, at the rate of 4.20%, which means that the rate of default interest must be set at 7.70% per annum as of 14 January 2008.

Costs

72 Under Article 87(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since Ms Hildibrandsdottir has been unsuccessful, she must be ordered to pay the costs, in accordance with the form of order sought by the Commission.

On those grounds,

THE GENERAL COURT (Eighth Chamber)

hereby:

1. Declares that the action is inadmissible in so far as it is brought against New Acoustic Music Association;

2. Orders Ms Anna Hildur Hildibrandsdottir, as a member of the New Acoustic Music Association partnership, to repay to the European Commission the amount of EUR 31 136.23, together with interest at the rate of 7.70% per annum as of 14 January 2008 until the debt is fully discharged;

3. Orders Ms Hildibrandsdottir to pay the costs.

Truchot

Martins Ribeiro

Kanninen

Delivered in open court in Luxembourg on 4 May 2011.

[Signatures]

* Language of the case: English.