Commission v Nea Energeiaki Technologia (Law governing the institutions) [2002] EUECJ C-416/98 (21 February 2002)

Judgment By application lodged at the Court Registry on 20 November 1998 and notified to the defendant on 11 December 1998, the Commission of the European Communities brought an action, under an arbitration clause based on Article 181 of the EC Treaty (now Article 238 EC), against Nea Energeiaki Technologia EPE (NET) for repayment of the sum of GRD 13 800 000, together with GRD 24 382 218 interest at the rate prescribed in the contract, totalling GRD 38 182 218, and also default interest due under Greek legislation from the date of service of the application herein on NET to the date on which NET fully discharges its debt, or, at least, interest calculated on the basis of the European Investment Bank (EIB) rate for the period from the date on which the application herein was lodged to the date on which NET discharges its debt in its entirety. Legal background and facts NET is a company with limited liability incorporated under Greek law, whose object consists in designing and manufacturing alternative energy systems and taking part in public invitations to tender. In 1985, the European Economic Community, represented by the Commission, concluded with NET a subsidy contract bearing numbers WE 131/83 and WE 72/84 (hereinafter the contract), drawn up in English and signed by the Commission on 15 July 1985. The contract was concluded within the framework of action covered by Council Regulation (EEC) No 1972/83 of 11 July 1983 on the granting of financial support for demonstration projects relating to the exploitation of alternative energy sources and to energy saving and the substitution of hydrocarbons (OJ 1983 L 195, p. 6), as amended by Council Regulation (EEC) No 2126/84 of 23 July 1984 (OJ 1984 L 196, p. 4) and Council Regulation 1971/83 of 11 July 1983 on the granting of financial support for pilot industrial projects and demonstration projects relating to the liquefaction and gasification of solid fuels (OJ 1983 L 195, p. 1), as amended by Council Regulation (EEC) No 2125/84 of 23 July 1984 (OJ 1984 L 196, p. 3). The contract Under Article 1 of and Annex I(A)(1) to the contract, NET had undertaken, in return for a financial contribution from the Commission, to carry out a project entitled Kea Island for the installation of a 300 kW wind energy converter on a Greek island, to demonstrate the functioning of that system for a period of two years and thereafter to hand it over to the users. Under Article 3 of the contract, the financial support granted by the Community was fixed at 40% of the actual cost of the project, as verified and accepted by the Commission, excluding value added tax and subject to a limit of GRD 46 000 000. According to the timetable for execution of the project set out in Annex I(A)(2) to the contract, construction of the wind energy converter was to commence on 1 June 1985 and be completed before 1 January 1986, on which date demonstration of the functioning of the system was to begin. The demonstration was to last two years and the project was to be put into commercial operation on 1 April 1988. Annex II(I) to the contract, headed Method of payment, provides, in the first and second subparagraphs of paragraph 1(a), that, within 30 days following signature of the contract, the Commission was to advance a net sum of GRD 13 800 000, representing 30% of the maximum amount of financial support granted to the wind energy conversion project. Under the latter provision, that advance and any interest earned on it were to be used solely for implementation of the project. Furthermore, the second subparagraph of Annex II(I)(1)(c) to the contract stipulates that sums paid by way of financial support are not to become the property of the contractor definitively until the final report and statement of expenditure have been approved. Article 8 of the contract provides: In the event of non-fulfilment by the Contractor of an obligation under this contract the Commission may serve notice by registered post with acknowledgement of service. If on the expiry of one month following such service the Contractor is still in breach of its obligations, the Commission may terminate the contract without further formality. The contract may also be terminated where, in order to obtain the financial assistance, the Contractor has made false statements and may be held responsible for them. In both cases the Contractor shall immediately repay to the Commission the amount of the financial assistance received by it, plus interest from the end of the period of one month referred to above. The rate of interest shall be the European Investment Bank rate in force on the date of the Commission decision to grant financial assistance to the project. Article 9 of the contract stipulates: The present contract may be terminated by either party on giving two months' notice if it would serve no further purpose to continue with the work programme set out in Annex I, for example because a technical or economic failure of the project is to be anticipated, or because the estimated costs of the project have been too far exceeded. In that event, the Commission may request full or partial repayment of the amounts paid as financial assistance, plus interest from the date of termination of the contract, if the programme in so far as it was implemented has produced results which can be exploited commercially. The rate of interest shall be the European Investment Bank rate in force on the date of the Commission decision to grant financial assistance to the project. Repayment shall be made in accordance with paragraphs II.1 and II.2 of Annex II. Under Article 13 of the contract, the Court of Justice of the European Communities is to have sole jurisdiction in respect of all disputes concerning the validity, interpretation or application of the contract. Under Article 14 of the contract, the applicable law is Greek law. The relevant provisions of Greek law Article 147 of the Greek Civil Code (the Civil Code) provides: Any person who is induced by deception to make a declaration of intent shall be entitled to seek annulment of the act. In the event of a representation made to another person, if the deception is attributable to a third party, annulment may be sought only if the addressee of the representation or any other person directly acquiring rights as a result of that representation knew or should have known of the deception. According to Article 154 of the Civil Code: The annulment of a legal act because of error, deception or threats shall be effected by judicial decision. Only the person who has made an error or been misled or threatened, or his heirs, may seek annulment. Article 155 of the Civil Code is worded as follows: An action for annulment shall be directed against the other contracting party or, in the case of a unilateral act, against the person securing a legitimate interest from it. Article 157 of the Civil Code provides: The right to seek annulment shall be extinguished two years after the legal act. If the error, deception or threats have continued after the act, the period of two years shall commence on the day on which that situation ceases. In any event, no action for annulment shall be admissible more than 20 years after the act. Article 340 of the Civil Code provides: The person liable to perform an obligation performance of which has fallen due shall be placed in default upon being served with formal notice through judicial or extrajudicial channels by the person to whom that obligation is owed. Article 345 of the Civil Code is worded as follows: In the case of pecuniary debts, the creditor shall be entitled, after notice of default has been served, to claim default interest as prescribed by law or by the legal act concerned without having to prove loss. A creditor who also proves other actual damage shall also be entitled to claim in respect thereof, save as otherwise provided by law. Article 346 of the Civil Code states: A person from whom a pecuniary debt is due shall, even if not formally placed in default, be liable to pay interest at the statutory rate as from the date of service of judicial process to enforce payment of the debt due. Facts In accordance with the contract, the Commission paid NET an advance of GRD 13 800 000 on 16 July 1985. None of the phases of the contract, as set out in Annex I thereto, was implemented. Between the date on which it signed the contract and 1988, the Commission called on NET on several occasions to start the works contracted for. NET confirmed that the start of the works was imminent. By letter of 28 November 1988 the Commission again drew attention to the delay in starting work on the project and called on NET to provide it, before 15 December 1988, with a copy of the authorisations needed for construction of the project, which should have been granted by the Greek authorities, and a report on the progress of the works. Having received no communication, the Commission informed NET by letter of 22 February 1989 that it had decided to apply Article 8 of the contract and that it was therefore giving NET a period of one month in which to comply with its obligations, failing which the contract would be terminated without further formality. One month later, on 17 May 1989, the Commission issued a recovery order. That order was not complied with and it therefore served formal notice on NET, by registered letter of 23 January 1990, requiring it to discharge the debt within 15 days. By letter of 26 June 1989, NET replied to the Commission's letter of 22 February 1989, acknowledging that the project had not been implemented. It invoked the failure of its negotiations with Dimosia Epichirisi Ilektrismou (the Public Electricity Board) and the Municipality of Naxos (Greece), non-fulfilment of commitments given to NET by the Experimental Centre for Exploitation of Biodegradable and Renewable Energy Sources of the Municipality of Apeiranthos (Greece) and the annulment by the Danish company Danish Wind Technology, the manufacturer and possible supplier of the wind energy converter, of the contract under which that company was represented in Greece by NET. In that letter, NET also stated that it had spent part of the advance granted by the Commission. It referred, in that connection, to the large number of trips made by its director, P. Freris (the signatory of that letter), to the island of Naxos and to Denmark in order to make arrangements for, in the first case, proper installation of the equipment and, in the second, financing of the project. In the same letter, NET also informed the Commission that, after deduction of the expenses incurred by it in endeavouring to launch the project, the amount of the advance remaining was GRD 10 million and that it was prepared to repay that sum. It also proposed that the Commission should claim only the sum of GRD 10 million, in view of the expenditure which NET had incurred and the fact that it had no other financial resources or reserves. In a further letter of 21 September 1989, NET again asked the Commission to take into consideration the substantial expenditure which it had incurred in respect of administrative costs, travel, research, and so forth, and, in terminating the contract, to apply not Article 8 but Article 9 thereof, at the same time approving the expenditure in question. The Commission acceded to NET's proposal and, after a check had been carried out, approved expenses amounting to GRD 11 703 963. On 27 March 1990 it thus drew up a new recovery order for GRD 9 257 051, plus GRD 241 500 representing bank interest, giving a total of GRD 9 498 551. It also stated that the latter sum was to be paid by 15 May 1990. Since NET did not pay the GRD 9 498 551 within that period, the Commission gave it formal notice to make payment on several occasions, in particular by letters of 30 July and 10 October 1990 and 17 March, 2 August and 3 November 1993. By letter of 20 November 1990, NET replied to the Commission's letter of 27 March 1990, stating that, because of financial difficulties, it was not able to pay its debt and asking for a deferment until the end of 1991. By letter of 11 August 1993, NET again referred to its financial difficulties, asked for more time and raised the possibility of coming to an arrangement regarding its debt. By an extra-judicial demand dated 31 March 1998, served on NET by a process-server, the Commission again required NET to pay its debt, as provided by the terms of the contract. In an extra-judicial reply dated 29 May 1998, notified to the Commission by a process-server, NET repeated its arguments regarding the difficulty of obtaining national grants for the programme provided for in the contract, the problems connected with the supply of the wind energy converter and the reactions of the municipal council of Naxos. NET also informed the Commission that it had been in liquidation for a considerable time and requested a new arrangement regarding its debt, suggesting that the Commission accept repayment of a sum of GRD 4 000 000, interest-free and payable by instalments. Forms of order sought The Commission claims that the Court should: - order NET to repay to it the total financial contribution received from the Community, on the ground that the arrangement accepted by the Commission was void as having been obtained by improper means; accordingly, order NET to pay the entire principal debt of GRD 13 800 000, plus interest which, under the contract, amounted at the time of service of the application herein to GRD 24 382 218, giving a total of GRD 38 182 218, plus default interest payable under Greek legislation as from service of the application herein on the defendant until full discharge of its debt, or at least interest calculated on the basis of the EIB interest rate for the period from lodgement of the application herein until total discharge of the debt by NET; - in the alternative, order NET to pay it the sum resulting from the arrangement mentioned in paragraph 28 of this judgment, namely GRD 9 498 551, together with interest payable on the principal amount (GRD 9 257 051) which, under the contract, amounted at the time of service of the application herein to GRD 14 643 006, giving a total of GRD 24 141 557, plus interest at the rate prescribed by Greek law, as from service of the application herein until discharge of the debt, or at least interest at the EIB rate for the period from lodgement of the application herein until total discharge of the debt by the defendant; - in either case, order NET to pay the Commission's costs, including the fees of its agents. NET contends that the Court should: - dismiss the action in its entirety; - in the alternative, order it to pay to the Commission the sum of GRD 3 986 515, without interest; - order the Commission to pay NET's costs, including lawyers' fees. The Commission's principal claim The Commission states, as a preliminary point, that it is clear from a combined reading of Articles 8 and 9 of the contract and the second subparagraph of Annex II(I)(1)(c) thereto that the contractor must assume responsibility for and the risks of executing the programme in its entirety and that the contractor is not entitled to retain the financial contribution if the programme is unsuccessful, even if the contractor is not responsible for that failure. Only Article 9 of the contract allows the Commission to require partial repayment of the amounts already granted as financial support, by approving the expenses incurred up until termination of the contract. According to the Commission, NET acknowledged, in its correspondence with it, that the programme for which it had accepted Community financial support had failed a considerable time earlier. Consequently, by repudiating the contract under Article 8 thereof and by notifying that repudiation to NET in accordance with the contractual procedure, the Community is entitled to claim repayment of the advance already paid to NET, whether or not the latter is at fault (Case C-209/90 Commission v Feilhauer [1992] ECR I-2613 ). The Commission does not deny, first, that it accepted NET's proposal for an arrangement and, second, agreed to termination of the contract on the basis of Article 9 thereof together with a consequent reduction of the Community's claim to the sum of GRD 9 498 551, having regard to the expenses that NET claimed to have incurred. However, it agreed to that arrangement on the basis of NET's assertions that it had at its disposal the sum of GRD 10 million - corresponding to the balance of the advance of GRD 13 800 000 received by it - and, second, the tacit but clear and obvious condition that the abovementioned sum should in fact be paid. The Commission states that NET's proposal for an arrangement was, first, misleading, because NET never seriously intended repaying the amounts covered by that arrangement, as is clear from its subsequent conduct, and, second, spurious, because NET did not possess the funds necessary for repayment, as it has admitted for the first time before the Court. The pretext of an arrangement was used to enable it to evade its duty finally to repay the total amount of the financial contribution by protracting the dispute. According to the Commission, NET's failure to inform the Commission that it had subsequently been put into liquidation formed part of that strategy. The Commission infers from this that its acceptance of NET's proposal for an arrangement and the reduction of the Community claim deriving from it are void, by virtue of Article 147 of the Civil Code, inasmuch as they were obtained by deception. It therefore asks the Court to treat the arrangement secured by NET as void and to order NET to repay the full amount of the advance made, namely GRD 13 800 000, plus interest at the contractual rate and default interest at the legally prescribed rate. It must be borne in mind that, under Article 147 of the Civil Code, a person who has been induced by deception to make a declaration of intent is entitled to seek annulment of the act. For a legal act to be capable of annulment under that provision, three conditions must be fulfilled: there must have been misleading action or subterfuges, intent on the part of the perpetrator and a causal link between the misleading conduct and the coming into being of the legal act. As far as the first condition is concerned, it must be observed that any conduct liable to create or reinforce an incorrect impression or perception of reality through misrepresentation or the concealment of facts or only partial disclosure of facts constitutes deception. The obligation to disclose certain facts or provide the other party with certain information depends on the type of contract, the requirements of good faith in the relations between the parties, morally sound conduct and bilateral contractual practice. It must be emphasised that, in commercial transactions and particularly where a commercial risk is to be assumed, the obligation to disclose information on the financial status of either party must be greater than usual. As regards the second condition, it is important to note that the intention of the perpetrator is an inherent part of the concept of deception. It consists of fraudulent intent on his part, namely the knowledge or, at least, the awareness that his conduct is misleading, and of acceptance of the consequences of the deception. It follows that the concept of deception excludes negligence, even serious negligence, on the part of the perpetrator. Finally, as far as the third condition is concerned, a legal act cannot be annulled and the perpetrator of the deception may be released from any liability if it is shown that the deception did not influence the contractual intent of the victim and that the latter would have concluded the contract even if there had been no fraudulent conduct. It is in the light of those considerations that the question whether the arrangement proposed by NET on 26 June 1989 and accepted by the Commission on 27 March 1990 must be annulled under Article 147 of the Civil Code is to be examined. It must be declared that the first condition for the application of Article 147 of the Civil Code, namely the fact of misleading conduct, is satisfied in this case since NET lied about the sum available to it when it proposed the arrangement in issue. It is clear from NET's letter of 26 June 1989 that it had assured the Commission that, after deduction of the expenses incurred in its efforts to launch the project, the balance of the advance which it claimed to hold amounted to GRD 10 million. However, as NET itself has admitted before the Court, that sum was not available and would have had to be raised. Nor can the fraudulent nature of NET's conduct be doubted. As is clear from the text of the letter sent by it to the Commission on 26 June 1989, the statement that it held a balance of GRD 10 million of the advance paid by the Commission was specifically intended to persuade the Commission to agree to reduce its claim to GRD 10 million. Moreover, the fact that it was not until after that statement by NET that the Commission decided to apply Article 9 of the contract, whereas it had initially decided to apply Article 8, indicates that the Commission's declaration of intent, by which it accepted NET's proposal for an arrangement, was made on the basis of that statement. NET has not contradicted the Commission on this point. However, even though the three conditions required for annulment of that statement of intent by the Commission pursuant to Article 147 of the Civil Code are fulfilled in this case, it must be borne in mind that, under Article 157 of the Civil Code, the right to seek annulment of a legal act on grounds of deception is extinguished two years after that act. Also, under that same provision, if the deception continued after the act, the period of two years starts to run from the date on which that situation ceased. In this case, the legal act resulting from NET's misleading conduct came into being on 27 March 1990. In its letters to the Commission of 20 November 1990 and 11 August 1993, NET referred to considerable financial difficulties which did not allow it to discharge its debt within the time-limit set by the Commission. That gives a clear indication that NET did not have the sum of GRD 10 million at its disposal. It follows that the Commission cannot validly claim that NET's deception continued beyond 11 August 1993, the latest date as from which the Commission could be regarded as having learned of NET's real financial situation. Accordingly, the Commission's right to seek annulment of the act on grounds of deception was extinguished no later than 11 August 1995. It follows that, by the present application, which was lodged on 20 November 1998, the Commission is no longer entitled to seek annulment of the declaration of intent by which it agreed to NET's proposal for an arrangement. Consequently, the Commission's main claim must be rejected. The Commission's alternative claim In the event of the Commission's acceptance of the arrangement proposed by NET being regarded as valid, the Commission claims that NET should repay the amount covered by that arrangement, namely GRD 9 257 051, plus GRD 241 500 by way of bank interest, giving a total of GRD 9 498 551, a sum which, moreover, was proposed by NET itself. NET replies, first, that, under Article 9 of the contract, the Commission can demand total or partial repayment of the aid disbursed only if the programme, to the extent to which it was implemented, yielded results capable of commercial exploitation. It must be recalled that, under Article 9 of the contract, the Commission may request full or partial repayment of the amounts paid as financial assistance, plus interest from the date of termination of the contract, if the programme in so far as it was implemented has produced results which can be exploited commercially. It is true that that wording is not entirely unambiguous. However, in view in particular of the main object of the contract, which is the provision and installation of a wind energy converter on a Greek island, that provision must be interpreted as meaning that the Commission may seek partial reimbursement of amounts paid by way of support only if the programme, at the time of cancellation, has produced results which can be exploited commercially. In all other circumstances, it is entitled to seek reimbursement of those amounts in their entirety. NET's argument cannot therefore be upheld. However, NET contends, in the alternative, that the expenses of GRD 11 703 963 declared by it and approved by the Commission in connection with the agreement for termination of the contract under Article 9 thereof were based not on the contractual position but on its tax returns. According to NET, the Commission must accept all expenses actually incurred for the purposes of implementation of the wind energy conversion project, regardless of whether or not they are recognised by the Greek tax authorities. In that connection, NET refers to additional expenses amounting to GRD 12 830 000 and contends that the grand total of entirely justified contractual expenditure is GRD 24 533 963. It must be stated that, as already made clear in paragraph 50 of this judgment, the agreement of 27 March 1990 by which NET and the Commission agreed that the Commission should limit its claim to GRD 9 498 551 and that NET should repay that amount to the Commission is valid and, consequently, binding on the parties. Moreover, it is clear from that agreement that the parties agreed not only on the principle, but also on the amount, of the debt to be paid by NET. In those circumstances, NET must be ordered to pay the Commission the sum of GRD 9 257 051, plus bank interest of GRD 241 500, making a total of GRD 9 498 551, in accordance with the arrangement concluded by NET and the Commission on 27 March 1990. Interest The Commission claims, first, that NET should be ordered, under Article 9 of the contract, to pay default interest from the date of termination of the contract under that provision, namely 27 March 1990, on the principal amount of its debt, at the EIB interest rate applicable on the date of the Commission decision granting its financial contribution to the project, namely 15 July 1985. Second, the Commission claims that NET should be ordered to pay, also on the principal amount of its debt, interest at the legally prescribed rate under Article 346 of the Civil Code as from the date of service of the application until discharge of the entire debt, failing which to pay interest at the EIB rate as from lodgement of the application until total discharge of the debt. NET replies that, since cancellation of the contract was agreed under Article 9 thereof, the payment of interest is not justified because the works did not progress to the stage at which the results were capable of commercial exploitation. According to NET, Article 9 of the contract provides for payment of default interest in only one specific case, namely where commercial exploitation is possible, and in the present case it is not. In any event, NET contends that the interest rate should be that applied by the EIB; in no case should default interest under Greek law be applied, since the payment of default interest was not agreed upon between the parties. It must be borne in mind that Article 9 of the contract expressly stipulates that the Commission may seek reimbursement of all or any amounts paid by way of support, plus default interest as from the date of termination of the contract. Article 9 also provides that the interest rate is to be the EIB rate applicable on the date of the Commission decision concerning the grant of the financial contribution to the project. It must be held that, as is clear from paragraph 55 of this judgment, the above contractual stipulation does not link the obligation to pay interest to the possibility of commercial exploitation of the project, but rather to the possibility that the Commission may seek only partial reimbursement of the financial aid already paid. It is therefore beyond dispute that NET's debt must be increased by interest at the contractual rate pursuant to Article 9 of the contract. However, the Commission is claiming, for the period from service of the application on NET to the date of NET's total discharge of its debt, interest at the statutory rate under Greek law. In that connection, Article 346 of the Civil Code provides that a person owing money, even if not in default, is liable to pay interest at the legally prescribed rate as from the date on which judicial process in respect of the overdue debt is served. Given that Article 9 of the contract does not state whether the contractual rate of interest is also applicable during the course of legal proceedings, it is appropriate to apply the statutory interest rate prescribed by Greek law under Article 346 of the Civil Code for the period from service of the application on NET to total discharge by NET of its debt. In those circumstances, in view of all the foregoing, NET must be ordered to pay to the Commission, first, the sum of GRD 9 498 551 resulting from the agreement concluded by NET and the Commission on 27 March 1990, namely the principal sum of GRD 9 257 051 plus GRD 241 500 in respect of bank interest, and, second, interest on the principal amount due, calculated on the basis of the EIB rate applicable on 15 July 1985 for the period from 27 March 1990 to 10 December 1998 and on the basis of the statutory rate under Greek law for the period from 11 December 1998, the date of service of the application on NET, until total discharge by the latter of its debt. Costs 70. Under Article 69(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 the Commission has applied for costs and NET has been unsuccessful, the latter must be ordered to pay the costs. On those grounds, THE COURT (Second Chamber) hereby: 1. Orders Nea Energeiaki Technologia EPE to pay to the Commission of the European Communities, first, the sum of GRD 9 498 551 resulting from the agreement concluded between Nea Energeiaki Technologia EPE and the Commission on 27 March 1990, namely the principal sum of GRD 9 257 051 plus GRD 241 500 in respect of bank interest, and, second, interest on the principal amount due, calculated on the basis of the European Investment Bank rate applicable on 15 July 1985 for the period from 27 March 1990 to 10 December 1998 and on the basis of the statutory rate under Greek law for the period from 11 December 1998, the date of service of the application on Nea Energeiaki Technologia EPE, until total discharge by the latter of its debt; 2. Orders Nea Energeiaki Technologia EPE to pay the costs. Colneric Skouris Cunha Rodrigues Delivered in open court in Luxembourg on 21 February 2002. R. Grass N. Colneric Registrar President of the Second Chamber 1: Language of the case: Greek. BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII