Court of Justice 07-12-1976 ECLI:EU:C:1976:174

The jurisdiction of the Court as regards the application for the implementation of the contract

The Commission expresses a doubt as to the validity of the arbitration clause as regards its form. An arbitration clause under Article 153 of the EAEC Treaty constitutes a genuine loss of jurisdiction, by making it possible to exclude potential disputes from the jurisdiction of all the national courts.

While care must be taken to avoid making the procedure onerous to no useful purpose for the party seeking to rely upon such a clause, none the less two other equally important requirements should be borne in mind:

• First, to draw the attention of the conctractor to the importance of an agreement tending to exclude the settlement of possible disputes from the jurisdiction of the national courts;

• Secondly, as far as possible to avoid uncertainties with regard to interpretation for the national courts before which such a case may be brought.

Indeed, in view of the total absence of a form of procedure, those courts might be prompted to declare that they had jurisdiction or, at the expence of procedural economy, would be obliged to have recourse to the procedure laid down in Article 150 of the EAEC Treaty in order to obtain the interpretation of Article 153, whilst subsequently retaining jurisdiction over the case which was before them.

However, in view of the intention of both parties from the outset that the Court of Justice should have jurisdiction, in this respect the Commission leaves the matter to the discretion of this Court.

The applicant asserts that the absence of any formal challenge by the Commission to the jurisdiction of the Court of Justice, together with the unequivocal acknowledgement of the intention of the parties to confer jurisdiction on that Court, amounts to full acceptance of its jurisdiction. Indeed, Community law, which spurns all formalism, contains no provision as to the form which a special agreement on jurisdiction between the parties should take, and the law of the Member States unanimously acknowledges that the absence of challenge to the jurisdiction of the courts before which the case is brought amounts to acceptance of the jurisdiction of that court when the court is not prevented by any reason of functional jurisdiction from so doing.

The law applicable

The applicant and the defendant agree that as regards the application for the implementation of the contract, Italian law applies.

The substance of the caseThe application for the implementation of the contract

The applicant maintains that the Commission was under a duty to give it three months' notice when it (the Commission) had decided not to renew the cleaning contract any further. Under the contract, the relations between the parties were governed by the draft agreement and by Italian law. That draft provides for three months' notice.

Even if if is correct that the fixing of a precise date other than the date contained in the draft for the expiry of the contract was capable of altering the period initially prescribed, namely 36 months, and that such fixing made the notice clause ineffective in the case of a contract of two or three months duration since the period prescribed by the clause was either longer than or the same length as such contract, the situation in this instance was different because, in the applicant's opinion, the contract was a contract for the provision of services from time to time.

The applicant was informed only at the end of December 1975 of the Commission's decision to conclude the new contract with another undertaking. It was asked by the Commission to continue providing its own services until 31 January 1976, in order to enable the tasks to be transferred.

Thus Pellegrini extended the provision of its services, which should have ended on 31 December, and engaged resources and staff for that purpose for a period which was to last one month.

This legal situation is provided for by Italian law. Article 1563 (2) of the Italian Civil Code provides that, ‘If the person to whom services are provided periodically has the power to fix the date for the performance of the various services, he shall give the person providing the services reasonable advance notice of the date thereof’. The ‘draft agreement’ lays down a period of notice of three months, considering that that length of time is necessary to dismantle the organization of the undertaking providing the services. Thus the Commission was able to ask Pellegrini to continue providing its services, but it cannot do so without having regard to Pellegrini's right to a reasonable period of notice in order to dismantle its organization without incurring loss.

It cannot be maintained that the applicant should have taken this action as from 18 September 1975, the date on which notice was given of the new request for tenders, for the simple reason that the Commission did not inform Pellegrini until the end of December that it had chosen another company, while at the same time asking it to keep its own organization in working order and to operate for a further month: the period of notice was too short, taking into account the precise provisions of the draft agreement, as well as of the agreements taken as a whole, which had always provided for an extension of the contract for two or three months and never for one month only.

The establishment of the damages in respect of the loss arising from the excessive shortness of the period of notice given to Pellegrini raises considerable difficulties.

The Italian law applicable in this instance contains two provisions according to which they may be quantified.

The compensation for damages arising from non-performance or delay shall include both the loss sustained by the creditor and the loss of profit, in so far as they are a direct and immediate consequence thereof (Article 1223 of the Italian Civil Code).

If the exact amount of the damages cannot be proved, the court shall quantify the loss suffered according to the rules of natural justice (Article 1226 of the Italian Civil Code).

Accordingly Pellegrini leaves the matter to the assessment of this Court according to the rules of natural justice which, on the basis of the economic value of the contract, will be able to deduce therefrom all the necessary facts for the quantification.

The Commission replies that Article 1563 (2) of the Italian Civil Code is not relevant. In reality, when mention is made in that provision of the right to fix the date for the various occasions on which services are to be provided, it is intended to refer to the right to fix the various dates for performance and not the right to repudiate the contract. In fact the possibility of repudiation is provided for and regulated further by Article 1569, but only in respect of contracts of indeterminate length, fixed-term contracts being governed by the general principle that they terminate upon the expiry of the prescribed period.

In view of the possibility of budgetary restrictions, the Commission has always reserved to itself the right of unilaterally terminating the contract and, in the event of its doing so, it must observe a period of notice (Article 3 of the draft agreement). On the other hand, when the contract reaches its term, the relationship ends automatically.

After the expiry of the term originally agreed, the contract was renewed several times, always for a limited period.

Because it was asked in December 1975 to provide until 31 January the services previously supplied, and agreed to do so, the applicant therefore knew, without a shadow of a doubt, that it was given no guarantee of a further extension of the old contract or the award of the new contract.

The Commission contends that it cannot be complained that it has failed to fulfil any of its obligations. Therefore there are no grounds on which to base a judgment ordering it to carry out an obligation or to pay compensation for damage; the applicant has produced no evidence of any damage which it may have suffered.

The application for annulment

The applicant asserts that the measure declaring the company from Venice to be the successful tenderer for the cleaning services is vitiated by misuse of powers in that it fails to name Pellegrini as the successful tenderer for the cleaning services at the establishment in spite of the conclusive proof adduced by Pellegrini which follows, apart from a large number of documents, from the registered letter of 16 January 1976 from the Directorate-General, and even though Pellegrini submitted a tender with a price which was much more favourable to the Community.

Thus, instead of pursuing the specific aim of the measure which concludes the adjudication procedure and which consists in providing the Community with the necessary services on the most favourable terms, the Community body pursued a different aim not at all consistent with the Community's interests which finally gave an undue advantage to a third party.

The measure is also vitiated by a further misuse of powers, in so far as the lack of foresight and negligence shown by the Commission amounts to a failure to have regard to the legal purpose of the measure.

In its defence the Commission asserts that an administration which organizes a request for tenders is not bound to award the contract to the lowest bidder. On the contrary it must assess all the details of the tender within the economic context in which the request for tenders is taking place, and its choice does not necessarily fall upon the least expensive tender, but upon that which, in practice, gives the most substantial guarantees of meeting the interests of the public authority.

An infinitely more advantageous offer from the point of view of cost may well be deemed far less attractive if account is taken of the structure and the working methods of the tenderer's undertaking having regard to the requirements of the public authority for the period over which the contract is to be performed. Hitherto faultless supply of services may be inadequate in view of new management principles which the public authority intends to apply.

The ground of misuse of powers does not appear to be supported by objective, relevant and concordant evidence apt to prove that the aim of the Commission's decision was another than that of the interests of the service.

As regards the ground based on the clear lack of foresight and care, the Commission claims that all those who took part in the request for tenders carried out an inspection of the establishment during which any information asked for was provided, and that the decision-making stage included obtaining the compulsory opinion of the Purchases and Contracts Advisory Committee, the task of which is to evaluate the tenders submitted from the technical and economic point of view or to make an assessment of the advantages and disadvantages of the choice made by the Commission. Not only did the Commission observe the rules laid down by the provisions in force for the purpose of ensuring that the decision was consistent with the interests of the service, but it went to the trouble of seeking the opinion of a technical advisory body even though that was not compulsory.

Pellegrini replies that the decision of the Commission is based upon an opinion which is itself defective. In fact, the opinion only cites two grounds for the choice made: only the company from Venice was, according to the opinion, of ‘fully satisfactory commercial and industrial size’ and it alone makes provision for the training of specialist staff. It was not found that the company from Venice was the only one which possessed the other qualifications, references and financial requirements because, at all events, owing to the perfect course of the past dealings with Pellegrini, which had been acknowledged several times, it was impossible for Pellegrini to offer less substantial guarantees.

The Commission had essentially to concern itself with obtaining more economical service of equal quality; such is the specific purpose of the measure.

Pellegrini's antecedents offered every guarantee of a fully satisfactory performance of the services; no actual comment was made as to the inadequacy of that undertaking's industrial size, taking into account of course the service to be carried out, or as to its capacity for training specialist staff to perform cleaning work.

Consequently, the stated grounds are not relevant or at least they relate to purposes which are completely secondary in relation to the specific objective of the measure, since the Commission had in the first place to concern itself with concluding a contract enabling the cleaning services to be adequately provided. The grounds distort the facts in that they conflict with a point of fact, namely the commendable performance of the previous services, from which it emerges that Pellegrini also devoted attention to the training of its staff, for otherwise it could not have provided its services properly; the grounds appear totally wrong, both because Pellegrini showed that it is of appropriate industrial size to perform the services, and because it is not clear why it was necessary to inquire into the commercial size of an undertaking which has to carry out a cleaning service only in the Euratom establishment in Italy. It is the applicant's submission that these arguments completely refute the line of argument embodied in the compulsory opinion, in which the Commission concurred. The least that was required was to show, by means of appropriate, detailed and comparative examination, why Pellegrini did not possess the qualifications which the company from Venice was found to have.

The total lack of such examination shows that the procedure followed gave no more than an appearance of legality, and that it ended in a defective measure.

In its rejoinder the Commission asserts that the party relying upon a misuse of powers must show, at least by means of objective, relevant and concordant evidence, that the measure was taken for an exclusive or at least determining purpose, other than the purpose for which the power of decision had been conferred, or that, as a result of a serious lack of foresight or care, the administrative authority objectively failed to have regard to the legal purpose of the measure.

Pellegrini has failed to prove either.

The legal purpose of the Commission's decision was not to obtain services equal in quality at a lower price. On the contrary the Commission had to aim at obtaining on appropriate economic terms such services as was deemed best suited to the requirements of the Centre. The contract was not awarded as the result of an adjudication procedure, but as the result of a request for tenders. The decision on the expediency of using one of these procedures rather than the other comes within the discretion of the authorizing officer who, in this instance, had previously sought the optional opinion of the Purchases and Contracts Advisory Committee.

The examination of the various tenders pursuant to Article 59 (2) of the Financial Regulation of 25 April 1973 (OJ L 116, p. 1) is based upon a threefold technical and economic assessment.

This is from the point of view of the service tendered which is best suited to meet the needs of the administrative authority, taking account of technical merit and the other features of the service; from the point of view of the commensurability of the relationship between the price asked and the services offered; and from the point of view of the guarantees which each tenderer offers that he is capable of carrying out the obligation which he undertakes to discharge.

The compulsory opinion of the Purchases and Contracts Advisory Committee carries out a more thorough examination and a more considered assessment of each of these technical and economic aspects; finally, the prior supervision by the financial controller of the choice of a contractor is designed to ensure that the criteria of good financial management are followed.

Formal compliance with these rules of procedure in itself raises a presumption of lawfulness in respect of the decision adopted. This presumption appears to be all the stronger when, not only has the procedure been formally followed, but also the three processes of decision, consultation and supervision have come to identical conclusions regarding the merits, and concur in acknowledging the aptness of the measure in question.

Not only did the services offered by the company from Venice meet the needs of the Ispra Centre in all particulars, but also, by reason of its industrial and commercial size, that company was the only one which was capable of fulfilling the management criteria which the Commission proposes to implement.

There is no doubt that the chosen undertaking is capable of ensuring particularly thorough performance of the cleaning services. The larger size of the undertaking, from the commercial and industrial point of view and the retraining of its staff for their part guarantee in particular, in the relationship between the Commission and the holder of the contract, more flexible management than that which could be obtained in the case of the other tenderers, and less dependent on external factors than had been the case with the relationship with Pellegrini. Management and mobility of staff in a climate of social tranquillity constitute a primary requirement for the Ispra Centre, which is perpetually subject to the hazards of decisions on programmes. Precisely by virtue of its capacity for increasing its work-force without difficulty with trained staff and for utilizing surplus staff elsewhere without problems, a large-scale undertaking concerned about the retraining of its staff shows, even from the purely economic point of view, that it meets the requirements of the Centre, a fact which cannot be overlooked.

Continued employment for the staff of the undertaking holding the contract is in fact a problem with economic as well as social implications which the Commission must take into account in order to avoid the direct repercussions on the establishment which conflicts on this subject could have. Therefore when choosing a contractor, the defendant was within its rights and was taking care of its own economic interests in taking care to avoid incurring once more, during the implementation or on the expiry of the contract, the problem of guaranteeing employment for the staff of the contract-holder.

The applicant is unable to offer a single piece of relevant evidence of the alleged misuse of powers to which the request for tenders at issue gave rise. At all events, its arguments are, moreover, not supported by the many objective and concordant pieces of evidence which, according to the case-law of the Court, are necessary to establish that the application is well founded.

Jurisdiction

8 The applicant takes the view that the Court has jurisdiction to give a ruling on the first head of its conclusions by virtue of an arbitration clause contained in Article 15 of the ‘draft agreement’.

It is expressly provided in Article 15 of the ‘draft agreement’ that the Court shall have jurisdiction, pursuant to Article 153 of the EAEC Treaty, to decide any disputes between the Commission and the contractor relating to the said agreement, the agreement being moreover governed by Italian law.

9 Both parties agree that the agreement reached between them in December 1971 involved conferring jurisdiction on the Court.

However, while declaring itself prepared to accept this jurisdiction, the Commission expressed a doubt as to the formal validity of the clause conferring jurisdiction.

10 Article 38 (6) of the Rules of Procedure stipulates that any application submitted under Article 153 of the Euratom Treaty shall be accompanied by a copy of the arbitration clause.

Since these requirements have been fulfilled in this instance by the production of the contractual documents, consisting in the “draft agreement” and the correspondence referring thereto, the bringing of the matter before the Court of Justice under Article 153 is valid.

Substance of the case

11 Since the letter of 20 December 1971 expressly referred to the services laid down in the “draft agreement”, the terms and conditions of that draft were to govern the contractual relationship in so far as they were not excluded or amended by the express terms of the letters.

Thus the clause in Article 2 which fixed the term of the contract at 36 months was excluded.

12 First, the applicant invoked Article 3 of the “draft agreement” which reserves to the Commission a right of unilateral repudiation subject to three months' notice, in order to maintain that the Commission was obliged to give it such notice before putting an end to the contractual relationship at issue.

13 Even if this clause applies, under certain circumstances, in cases of anticipatory repudiation of the contract, it cannot come into play in this instance.

14 In fact the letter of 18 September 1975 specifies that the applicant remained responsible for the cleaning work only until 31 December 1975.

15 Furthermore, the applicant was notified, by a letter of 18 September 1975, of the issue of a request for tenders, in which it took part by submitting an offer to the Directorate of the Centre.

16 Under these circumstances, the contractual relationship was to come to an end on 31 December 1975.

17 Secondly, on the basis of Italian law, which applies to the contract by virtue of Article 15 (1) of the ‘draft agreement’, the applicant seeks to rely upon the provisions of Article 1563 (2) of the Italian Civil Code.

18 Under that provision, which relates to contracts of ‘somministrazione’ (supply), if the party entitled to receive the supply has the right to fix the dates of each occasion on which services are to be provided, he must give reasonable advance notice informing the party providing the services of such dates.

19 Even if this provision were applicable to the contract in question, the applicant must have known, from the moment when the Commission had informed it in September 1975 that its services would no longer be required after 31 December 1975 and that a request for tenders had been issued with a view to a new contract, that the contractual relationship would expire on 31 December 1975, that is in three months' time.

20 As that period corresponds to the period fixed in the ‘draft agreement’ in the event of anticipatory repudiation, it must be considered as reasonable notice.

21 When in December 1975 the applicant was approached by the Commission with a view to carrying out provisionally the cleaning of the establishment at Ispra during January 1976 in order to enable the tasks to be transferred to the new company, the Commission was not acting in the exercise of a right conferred upon it by the ‘draft agreement’.

By that means, it was proposing, for a short period, a new fixed-term contract which Pellegrini accepted.

22 Accordingly, in so far as the application is based upon the alleged breach of the contract, it must be dismissed as unfounded.

The application for annulment

23 The applicant seeks the annulment of the measure by which the Commission decided to conclude the new cleaning contract for the establishment at Ispra with Flexon-Italia.

It alleges that the act is vitiated by misuse of powers or at least by negligence.

24 In this connexion, it bases itself upon the fact that the tender accepted was 50 % higher than all the others, and that the only reasons which the Commission gave for its decision and which appear in the compulsory opinion of the Purchases and Contracts Advisory Committee were irrelevant with regard to the choice of an undertaking carrying out the cleaning of the establishment at Ispra alone.

25 As the applicant had carried out the cleaning service for many years in a perfectly satisfactory manner, as emerges from the assessments made by the Directorate of the establishment at Ispra, the true purpose of the procedure of request for tenders was to remove the applicant and to obtain for Flexon an undue advantage.

26 Under Article 59 (2) of the Financial Regulation of 1973 (OJ L 116, 1973, p. 15) the administrative authority may freely choose the offer ‘thought to be the most attractive’, which leaves it a certain margin of discretion.

27 This provision does not stipulate that the price must constitute the only decisive factor in the evaluation of the financial and technical aspects of the offers.

28 In a procedure for request for tenders, the fact that the Commission chose an undertaking whose offer was higher in price than the others does not of itself constitute a misuse of powers.

29 The reasons stated by the Commission to justify its choice, in particular the stability of employment which the chosen undertaking was capable of offering to its workers through its ability to transfer them to other tasks, came within the considerations of a technical nature which it could take into account under Article 59 of the Financial Regulation for the purpose of making its choice.

30 In order to find that there has been a misuse of powers, it would have to be shown that the reasons for the Commission's choice were extraneous to the interests of the service.

Although the applicant's statements may give rise to doubts in this connexion, it has nonetheless not proved this fact sufficiently in law.

Costs

34 Article 69 (2) of the Rules of Procedure provides that the unsuccessful party shall be ordered to pay the costs if they have been asked for in the successful party's pleading.

Since Flexon did not submit any pleadings in this connexion, it must bear its own costs.

35 As regards the costs of the Commission, the successful party, Article 69 (3) of the said Rules provides that, where the circumstances are exceptional, the Court may order that the parties bear their own costs.

In this instance, since it had been informed by the Commission that its work in the past had been entirely satisfactory and had learned that the prices of Flexon were markedly higher than its own, the applicant had good reason to consider itself justified in asking the Commission to explain before the Court the grounds for its choice.

In these circumstances, instead of ordering the applicant to bear all the costs, it should be ordered only to bear its own costs.