Opinion of the Advocate-General
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My Lords,
1. In this case, the applicant, Compagnia Italiana Alcool SaS di Mario Mariano & Co., seeks the annulment under Article 173 of the EEC Treaty of two decisions of the Commission not to take action in respect of special tender procedures Nos 5/90 and 6/90, which were opened pursuant to Commission Regulations Nos 2575/90 (OJ 1990 L 243, p. 22) and 2576/90 (OJ 1990 L 243, p. 24) respectively. Those regulations made provision for the special sale by tender, for use as motor fuel within the Community, of vinous alcohol held by intervention agencies. The applicant also seeks compensation under Article 178 of the EEC Treaty and the second paragraph of Article 215 for the damage it claims it will suffer as a result of the contested decisions.
The disposal of alcohol obtained from distillation
2. In order to explain the background to the applicant' s claims, it is necessary to examine the attempts which have been made by the Community legislature to deal with the problem of surplus alcohol production. The preamble to Regulation No 822/87 on the common organization of the market in wine (OJ 1987 L 84, p. 1) states (at p. 2) that "the situation of the wine market with its large surpluses is deteriorating very rapidly". This required action to be taken to reduce the Community' s wine-growing potential and to absorb surpluses. The preamble explains (at p. 4) that "compulsory distillation appears to be the most effective measure to absorb surpluses of table wine on the market". However (p. 5), "in order to avoid disturbance on the market in alcohol and spirituous beverages, rules should be laid down for the disposal of alcohol obtained from distillation in the context of intervention on the market in wine".
3. Accordingly, Articles 35 and 36 make provision for the distillation of by-products of winemaking and of certain wines. By virtue of Article 37(1),
"Disposal of the products of distillation referred to in Articles 35 and 36 which are held by the intervention agencies must not cause any disturbance of the market in alcohol and spirituous beverages produced in the Community.
To this end, they shall be disposed of in other sectors, and in particular in the fuel sector, each time disposal is likely to bring about such disturbance."
Article 39 of Regulation No 822/87 makes provision for the compulsory distillation of table wine where, "in respect of a given year, the market in table wine and wine suitable for yielding table wine is in a state of serious imbalance". The products obtained from these distillation operations are taken over by the intervention agencies. According to Article 40(3) of Regulation No 822/87,
"Products taken over by the intervention agency or products derived from their processing shall be disposed of either by public auction or by a tendering procedure. They shall be disposed of in a manner which ensures that:
° the alcohol can be sold on the market in the normal way for the various uses,
° any disturbance of the markets in alcohol and spirituous beverages is avoided,
° equality of access to the merchandise and equality of treatment of prospective purchasers is guaranteed."
4. General rules on the disposal of alcohol obtained from the distillation operations referred to in Articles 35, 36 and 39 of Regulation No 822/87 and held by intervention agencies are laid down by Council Regulation No 3877/88 (OJ 1988 L 346, p. 7). In drawing up those rules, the Community legislature had to take account of two main risks.
5. First, the normal market for alcohol and spirituous beverages is extremely sensitive and can be disturbed by the entry of quantities of alcohol which may appear small in absolute terms. According to the Commission, leading manufacturers normally market only a few thousand hectolitres a year for human consumption. By comparison, the quantities of alcohol held in storage are huge, so that a small fraction of it could, if released, cause massive disturbance to the normal market. As I shall explain, the special sales at issue in these proceedings together concerned 4.8 million hectolitres.
6. The fifth recital of Regulation No 3877/88 therefore recalls the requirement of Article 40(3) of Regulation No 822/87 that disturbance of the markets in alcohol and spirituous beverages produced in the Community should be avoided. According to the following recital, "the possibility of such alcohol creating additional difficulties ... in other sectors of utilization or for certain destinations should also be avoided". The same recital adds that "such difficulties seem slighter in the fuel sector" and that "a preferential outlet must be sought in that sector without however excluding any other opportunities of sale".
7. The second risk which had to be borne in mind arose from the fact that, because of the large quantities of alcohol involved, it was envisaged that removal from the storehouses of the intervention agencies concerned would take place in lots. This gave rise to the danger that changes in market conditions might induce purchasers not to take up second or subsequent lots.
8. In order to counter these risks, the Community legislature laid down a number of conditions designed to ensure that alcohol obtained from distillation which is disposed of from Community stocks is only used for specific purposes and that purchasers take up the entire quantity they agree to purchase.
9. The rules laid down in Regulation No 3877/88 provide for the alcohol to be sold by the tendering procedure, which is said by the third recital of the preamble to offer "the advantage of being generally more accessible to operators in the alcohol sector" than sale by auction. According to Article 1(2) of that regulation, "The conditions governing invitations to tender must ensure equality of treatment for all interested parties wherever they are established in the Community." However, Article 1(4) states that "Admission to the tendering procedures ... shall be limited to interested parties who have guaranteed compliance with their obligations by putting up a security." Moreover, by virtue of Article 2 of Regulation No 3877/88, each tendering procedure may be subject to special conditions, "particularly to avoid market disruptions". The Commission may, in accordance with the Management Committee procedure laid down in Article 83 of Regulation No 822/87, "either take action on the tenders received or take no action".
10. Detailed rules for the disposal of alcohol obtained from the distillation operations referred to in Articles 35, 36 and 39 of Regulation No 822/87 and held by intervention agencies are laid down by Commission Regulation No 1780/89 (OJ 1989 L 178, p. 1). That regulation has subsequently been amended and I shall refer to the relevant amendments where relevant. For the present, I shall confine myself to the original version.
11. According to Article 1(1) of Regulation No 1780/89, disposal may be effected by a standing invitation to tender, by individual invitations to tender or by special invitations to tender. Article 1(2) provides that the expression "invitation to tender" shall mean "the organization of a competition among interested parties in the form of a call for bids, the contract being awarded to the party submitting the most advantageous bid complying with the rules laid down in this Regulation". The fifth recital explains that "since the objective of invitations to tender is to obtain the most favourable price, the contract must be awarded to the tenderer offering the highest price where the Commission decides to take action in respect of tenders...". However, the sixth recital makes it clear that "in order not to affect competition with products which the alcohol may replace, the Commission should be given the possibility of taking no action in respect of tenders received".
12. The tenders with which these proceedings are concerned were special invitations to tender, the rules relating to which are laid down in Title III of Regulation No 1780/89. Under those rules, which are designed for sales of large quantities of alcohol, special invitations to tender may stipulate that the alcohol involved is to be sold only for a specific purpose or for shipment to a specific destination. They may also prohibit certain uses or destinations (Article 18(1)). Each notice issuing a special invitation to tender must relate to two lots, which are to be covered by one removal order. Tenders are to be invited for the price of the first lot (Article 18(2)). The price of the second lot is to be the price agreed for the first lot, adjusted by a coefficient specified in the notice of invitation to tender (Articles 18(2) and 27).
13. Notices issuing special invitations to tender must be published in the Official Journal and must specify the formalities for the submission of tenders, the final use and/or destination for which the alcohol involved is intended, and certain other matters set out in Article 20 of Regulation No 1780/89. According to Article 23(1), the Commission, acting in accordance with the Management Committee procedure
"and within 15 working days of the last date for the submission of tenders, may decide in the light of the tenders submitted:
° either to award a contract,
° or to make no award".
If a contract is awarded, the Commission is required by Article 23(2) to accept the highest tender. By virtue of Article 23(3), the Commission must notify tenderers immediately and in writing of the decision taken on their tender. It must also notify the intervention agencies holding the alcohol.
14. Successful tenderers must, within 20 days of being notified of the decision taken on their tender, obtain a statement of award from each of the intervention agencies holding the alcohol, certifying that their tenders have been accepted, and provide proof "that a performance guarantee has been lodged with each intervention agency concerned to ensure that the alcohol constituting the first lot is in fact used for the purposes specified in the notice of invitation to tender" (Article 24).
15. Provisions relating to the removal of the alcohol are laid down in Articles 25, 26 and 28 of Regulation No 1780/89. According to Article 26(1), the removal of the second lot may not begin until the expiry of the time-limit for the removal of the first lot laid down in Article 25(2). Article 26(2) provides:
"Before the second lot is removed, successful tenderers shall provide proof that a performance guarantee has been lodged with each intervention agency concerned to ensure that the alcohol constituting the second lot is in fact used for the purposes specified in the notice of invitation to tender."
The amendments to Regulation No 1780/89
16. Regulation No 1780/89 was amended by Commission Regulation No 2568/90 (OJ 1990 L 243, p. 11). The third recital of the latter regulation states that "certain of the conditions governing special sales by tender for the use of vinous alcohol in the fuel sector within the Community should be amended so as to give tenderers certain assurances as regards supplies and to take account of the cost of the investments that need to be made in processing plants for that particular use without, however, completely preventing the physical movement of the quantity of alcohol put up for sale". More specifically, the fifth and sixth recitals state:
"Whereas, in the case of special sales by tender, a lower performance guarantee, the purpose of which is to ensure that the alcohol awarded is put to the intended use, should be required than for other types of tendering procedure given the possibility for supervising and checking the use of the alcohol concerned within the Community; whereas the said performance guarantee may even be replaced by inspection by an international surveillance firm until the alcohol in question has been put to its final use;
Whereas the successful tenderer should be obliged to lodge a 'removal guarantee' in respect of each lot in a special sale to ensure that the alcohol is physically removed within the time-limits laid down so as to reduce the financial costs associated with the storage of certain alcohols; whereas the timetable for the physical removal of the alcohol awarded should be revised accordingly."
17. Under the amended version of the second indent of Article 24(2) of Regulation No 1780/89, successful tenderers must provide proof of the lodging with each of the intervention agencies concerned of a performance guarantee and a removal guarantee. The purpose of the performance guarantee is "to ensure that the total quantity of alcohol for which a contract is awarded is in fact used for the purposes specified in the notice of invitation to tender, unless the Commission has decided, in its discretion and in accordance with the procedure laid down in Article 83 of Regulation (EEC) No 822/87, to replace such guarantee by the obligation for the successful tenderer to submit to an inspection by an international surveillance firm...". The purpose of the removal guarantee is "to ensure that the alcohol constituting the first lot is removed within the time-limit laid down in Article 25".
18. Under the amended version of Article 26 of Regulation No 1780/89, the removal of the alcohol constituting the second lot may not begin until all of the alcohol constituting the first lot has been physically removed from the stores of the intervention agencies concerned: see Article 26(1). Before the second lot is removed, the successful tenderer must provide proof that the removal guarantee has been lodged with the intervention agency concerned to ensure that the alcohol constituting the second lot is removed within the time-limit laid down in Article 26(3): see Article 26(2).
19. The Commission points out that the amendments introduced by Regulation No 2568/90 had the effect of both easing and reinforcing the guarantee system established by Regulation No 1780/89. On the one hand, a specific removal guarantee was introduced in respect of each lot, to ensure that the alcohol was physically removed within the time-limits laid down, and the performance guarantee was extended to cover the entire period of the contract and no longer applied lot by lot. On the other hand, the Commission was given the power to replace the performance guarantee with an obligation for the successful tenderer to submit to inspection by an international surveillance firm. I note that the reasons put forward in the preamble to Regulation No 2568/90 for changing the guarantee system are expressly endorsed by the applicants.
The facts
20. According to the Commission, alcohol distilled from wine may be used for a number of purposes, including the preparation of pharmaceuticals and of drinks for human consumption. It may also be used in a variety of chemical and industrial products, such as paint, detergent, pesticides and yeast. Vinous alcohol may in addition be used in the fuel sector, where it has three distinct uses.
21. First, it may be used as a substitute for petrol. There is at present no significant market for alcohol as a petrol substitute in the Community, although there is in some third countries, notably Brazil. Secondly, vinous alcohol may be used to blend with petrol. Used in this way, it may constitute up to five to ten per cent of the final product. The Commission informs us that the Community exports alcohol to Brazil for this purpose and that it is seeking to increase such exports to the Caribbean, where Community alcohol is imported for processing into ethyl alcohol. The resulting product is apparently blended with petrol and sold on to the United States as "gasohol".
22. Once alcohol for blending with petrol is exported from the Community, control over the final use to which it is put is exercised by means of financial guarantees and customs certificates. Where the final product is produced within the Community, however, the Commission claims that effective monitoring is made difficult by the fact that the alcohol is mixed with petrol before the final product is marketed. According to the Commission, this makes it difficult to check that the alcohol has been used for the authorized purpose. There is therefore a danger that it will be illicitly diverted to the market in alcohol for human consumption, which might thereby suffer disturbance.
23. The third use to which alcohol may be put in the fuel sector is as an additive to petrol known as ETBE. This can be substituted for other fuel additives such as MTBE, which is based on methanol. Fuel additives are marketed as a distinct product, which according to the Commission makes their production simpler to monitor. The Commission therefore considers it easier to ensure that the alcohol involved is not diverted to improper purposes.
24. The applicant maintains, however, that the risk of illicit diversion of alcohol within the Community is minimal, and certainly much smaller than outside the Community, since it says that in the Community no alcohol can be sold for human consumption without accompanying documentation establishing its origin. The applicant also takes issue with the Commission' s assertion that it is more difficult to monitor the use of alcohol when it is blended with petrol than when it is used in the production of additives. The applicant challenges that assertion on the ground that, in the course of blending alcohol with petrol, no chemical reaction occurs. The blend therefore contains exactly the same quantity of alcohol that has been added and this can easily be checked. When alcohol is used to produce the additive ETBE, however, a chemical reaction occurs which is said to make it difficult to determine how much alcohol has been used to produce it. The applicant maintains that, in practice, the cost of processing alcohol into petrol additives is too high for it to be of serious interest to undertakings contemplating the purchase of alcohol from intervention.
25. The Commission has been trying since 1986 to dispose of large stocks of distilled alcohol, the storage of which presents continuing financial and logistical problems, by way of the special tender procedure. A first round of tenders was organized in 1986 pursuant to Commission Regulation No 1915/86 (OJ 1986 L 165, p. 14), under Article 8(4) of which successful tenderers were to be required to lodge security equal to ECU 80 per hectolitre of alcohol at 100 per cent volume. No contracts were awarded in respect of that round. In 1989, the Commission organized three rounds of tenders. This time, a single guarantee, covering both performance and removal, of ECU 40 per hectolitre was imposed for each lot. For various reasons, the Commission took no action on any of the tenders submitted.
26. In mid-1990, a fresh round of tenders was prepared. On 5 September 1990, the Commission adopted two regulations opening special sales by tender of vinous alcohol held by intervention agencies for use as motor fuel within the Community. Regulation No 2575/90 made provision for a special sale by tender No 5/90 to be held. The total quantity involved was 3 200 000 hectolitres, expressed in terms of hectolitres of alcohol at 100 per cent volume, consisting of five lots of 640 000 hectolitres. The alcohol in question was held by the Spanish, French and Italian intervention agencies. Commission Regulation No 2576/90 made provision for a special sale by tender No 6/90 to be held. The total quantity involved this time was 1 600 000 hectolitres, expressed in terms of hectolitres of alcohol at 100 per cent volume, consisting of five lots of 320 000 hectolitres. The alcohol involved was held by the French and Italian intervention agencies.
27. The alcohol offered for sale was in both cases to be used as motor fuel within the Community. All processing of the alcohol for this purpose was to take place within the Community. The sales were to take place in accordance with the provisions of Regulation No 1780/89, as amended by Regulation No 2568/90, and the performance guarantee laid down in Article 24(2) of that regulation was to be replaced in both cases by an obligation for the successful tenderers to submit to checks by an international surveillance firm. The deadline for the submission of tenders was in both cases 12 noon (Brussels time) on 25 September 1990. The notices of invitation to tender were published in the Official Journal on 8 September 1990: see OJ 1990 C 224, pp. 10 and 15 respectively. The successful tenderers were to be required to lodge removal guarantees of ECU 40 per hectolitre of alcohol at 100 per cent volume for the removal of the alcohol constituting the first lot.
28. The applicant submitted tenders in respect of both special sales Nos 5/90 and 6/90 before the expiry of the deadline. Its tender for special sale No 6/90 was subsequently found to be invalid, as I shall explain. Nevertheless, both tenders were considered on their merits. Although in each case the applicant' s tender was the highest received, the Commission decided, in accordance with the view expressed by a large majority of the Management Committee for Wine, not to take action on the tenders received. Formal decisions to that effect, addressed to the Member States concerned, were adopted by the Commission on 18 October 1990. Those decisions were notified to the applicant by registered letters dated 21 November 1990, which seem to have been received by the applicant on 28 November.
29. The Commission then decided to organize a second round of tenders in respect of the same lots of alcohol. On 26 November 1990, it adopted Regulations Nos 3389/90 and 3390/90 (OJ 1990 L 327, pp. 19 and 21) relating to special sales by tender Nos 7/90 and 8/90. Again the alcohol offered for sale was to be used as motor fuel within the Community and all processing of the alcohol for this purpose was to take place within the Community. The notices of invitation to tender in respect of special sales No 7/90 and 8/90 were published in the Official Journal on 27 November 1990: see OJ 1990 C 296, pp. 5 and 10 respectively.
30. On 26 November 1990, the Commission also adopted Regulation No 3391/90 (OJ 1990 L 327, p. 23) amending once again Regulation No 1780/89. One of the effects of the new regulation was to alter the system of guarantees. Its first recital states:
"Whereas, for special sales of alcohol by tender, a single performance guarantee should be required for the purpose of ensuring that the alcohol awarded is removed and put to the intended use, in particular in the fuel sector in the Community, to be released in proportion as the successful tenderer supplies the proof of use for the intended purpose with a view to simplifying the system of guarantees required."
31. In accordance with these objectives, Regulation No 3391/90 amended inter alia Articles 24 and 26 of Regulation No 1780/89. It will be recalled that those provisions had previously been amended by Regulation No 2568/90, although there is no reference to the latter regulation in the preamble to Regulation No 3391/90. Under the new version of Article 24(2), the performance guarantee which had to be lodged by successful tenderers with the intervention agencies concerned could no longer be replaced by the obligation for the successful tenderer to submit to an inspection by an international surveillance firm, a possibility introduced by Regulation No 2568/90. However, under the new version of Article 26, the successful tenderer is no longer required to lodge a removal guarantee with the intervention agency concerned. Regulation No 3391/90 also introduced amendments to Regulation No 1780/89 to enable the price paid for the alcohol involved to "follow more closely the fluctuation of fuel prices on international markets" (second recital).
32. The notices of invitation to tender in respect of special sales Nos 7/90 and 8/90 both stated (see their third introductory paragraphs) that tenderers had to comply inter alia with the provisions of Regulation No 1780/89, as last amended by Regulation No 3391/90. The applicant points out, however, that the regulations opening those special sales, Regulations Nos 3389/90 and 3390/90, both stated (see their first recitals) that Regulation No 1780/89 was last amended by Regulation No 2568/90. The Commission says that the reference to the latter regulation was an error and that all the tenderers acted on the basis that special sales Nos 7/90 and 8/90 were subject to the amendments to the guarantee system introduced by Regulation No 3391/90. In my view, nothing turns on this discrepancy.
33. The successful tenderers under special sales Nos 7/90 and 8/90 were to be required to lodge performance guarantees of ECU 90 per hectolitre of alcohol at 100 per cent volume for the total quantity awarded. The applicant states that it was unable to supply a guarantee of that magnitude and did not therefore submit tenders in respect of those special sales.
The issues before the Court
34. Before I turn to the substance of the parties' claims, there are two preliminary matters which need to be addressed. First, it appears from the application that the applicant seeks the annulment of the Commission decisions of 18 October 1990 not to take action in respect of special sales Nos 5/90 and 6/90 and it seems to be in this sense that the application was understood by the Commission. Although not addressed to the applicant, those decisions were clearly of direct and individual concern to it, thus giving it standing under Article 173 of the Treaty, and the Commission does not contest the admissibility of the application.
35. However, the applicant suggests in its reply that the application is in fact directed at the letters sent by the Commission to the applicant on 21 November 1990, which the applicant considers embody decisions addressed to it. If those letters were really the subject of the application, the action would in my view be inadmissible, for they merely informed the applicant of the contents of decisions which had already been adopted. The letters did not in themselves produce any legal effects on the applicant and are not therefore susceptible to review under Article 173.
36. Nevertheless, since the application can certainly be read as directed against the Commission' s decisions of 18 October 1990 and since that is how it has been treated by the Commission, I consider that it should be regarded as so directed. There is accordingly no doubt that the application is admissible.
37. Secondly, the Commission contends in its defence that the tender submitted by the applicant in respect of special sale No 6/90 was invalid, on the ground that it was not accompanied by proof that a tendering security had been lodged with one of the intervention agencies involved, as required by the notice of invitation to tender. In its reply, the applicant accepts the Commission' s contention and withdraws its claim in respect of the decision relating to special sale No 6/90. The only issue with which the Court is concerned is therefore the legality of the decision relating to special sale No 5/90 and the consequences should that decision be quashed.
38. The essence of the applicant' s case is that the Commission was obliged to award special sale No 5/90 to the highest bidder. It alleges that the reason the Commission declined to do so was that it wanted to award the contract to another company. According to the applicant, the Commission therefore rejected the applicant' s tender and then set conditions which the applicant was unable to satisfy and which excluded it from being able to submit a tender for special sale No 7/90. The applicant argues that, once the tender conditions have been set, the Commission is obliged to award the contract to the highest bidder complying with those conditions. Furthermore, the applicant maintains that the Commission' s unlawful refusal to award a contract to the highest tenderer under special procedure No 5/90 means that it could not legally proceed to organize a second round of tenders for the same lot of alcohol. In the applicant' s view, special procedure No 7/90 is therefore also tainted with illegality.
39. The applicant made an application to the Court for interim measures suspending the application of the regulations opening special sales Nos 7/90 and 8/90 until judgment had been given in the main action. That application was rejected by order of the President dated 19 December 1990.
40. The essence of the Commission' s case is that it took the steps it considered necessary in good faith in the light of the conditions prevailing on the relevant markets. It claims that it is in some circumstances entitled not to take action on bids received even where the conditions laid down in the notices of invitation to tender are satisfied. It argues that it must sometimes err on the side of caution. In this case, it maintains that it was objectively justified in taking no action in respect of special sale No 5/90 and in subjecting special sale No 7/90 to more stringent conditions.
41. The applicant is a joint venture whose main shareholders are Palfin SpA, of Naples, Italy, parent company of the Palma group, and Distilleria del Salento SpA, of Gallipoli, Italy, a company belonging to the Marrone group. Companies from both groups are active in the alcohol business and participate regularly, and sometimes successfully, in tenders for the sale of alcohol from the Community' s intervention stocks. The applicant was set up because neither the Palma group nor the Marrone group had sufficient resources to participate independently in the large special sales by tender which are the subject of these proceedings. The applicant entered into an agreement with a United States firm called Tropicana Investments, which is based in Irving, Texas, in order to assist it in processing and disposing of the alcohol involved.
42. The applicant says that it became aware in the course of 1990 that the Commission had come to an arrangement with Union Carbide, a large chemical company, under which Union Carbide would build a plant for the processing of alcohol for use in the fuel sector if the Commission agreed to supply it on an exclusive basis with all the alcohol sold out of intervention for that use over a five year period. According to the applicant, it was to give effect to that arrangement that special sales Nos 5/90 and 6/90 were opened. Indeed, the applicant alleges that, after it had submitted its tenders, it was told by the competent Commission official that those special sales had been specifically designed to give effect to the arrangement with Union Carbide.
43. The applicant alleges that the Commission expected the tenders submitted by Union Carbide to be the highest and was somewhat taken aback when the highest tenders turned out to have been submitted by the applicant. The Commission is said to have displayed some reluctance to award the contracts to the applicant. Accordingly, in late September 1990 a director of the applicant travelled to Brussels to provide the Commission with further information about the applicant and to dispel any doubts the Commission may have had about the applicant' s credentials. Notwithstanding the applicant' s endeavours, the Commission decided not to take any action on the tenders submitted, but instead to open a second round of tenders under stricter guarantee conditions. The applicant claims that the purpose of the new guarantee conditions was to make it more difficult for smaller companies like itself to submit tenders and thereby to leave the way clear for larger companies like Union Carbide.
44. The applicant argues that the Commission' s decision of 18 October 1990 is unlawful for two reasons. First, the Commission is alleged to have acted in breach of the requirements of Regulations Nos 822/87 and 3877/88, and in particular the provisions of those regulations requiring equality of access to the merchandise and equality of treatment of prospective purchasers to be guaranteed (see Article 40(3) of Regulation No 822/87 and Article 1(2) of Regulation No 3877/88). According to the applicant, the approach taken by the Commission can only be explained by a desire to exclude smaller companies like the applicant from access to the quantities of alcohol involved. Secondly, it is said that the reasoning of the contested decision is inadequate to satisfy the requirements of Article 190 of the Treaty.
45. The Commission points out in response that, under the legislation relating to the disposal of alcohol obtained from distillation, it is not obliged to make an award in respect of special tender procedures. In any event, it claims that special sales Nos 5/90 and 6/90 were in fact designed to attract new tenderers which planned to produce additives, the conditions to which those tenders were subject making it easier for traders to enter the market but ensuring that there would in practice be proper performance. As I have explained, the Commission takes the view that the use of alcohol as an additive to petrol is easier to monitor than its use for blending. It also considers that undertakings which have made a significant investment in new plant in anticipation of being awarded a tender have a strong economic incentive to take up the whole quantity of alcohol involved even if fuel prices subsequently drop.
46. Moreover, the Commission contends that the context in which decisions on special sales Nos 5/90 and 6/90 had to be taken was altered by the intervention of the Gulf crisis. The Commission claims that the resulting uncertainty over fuel stocks made fuel prices extremely volatile and created a real possibility that prices might increase dramatically. As a result, it claims that alcohol fuel substitutes became much more marketable. Thus, the Commission took the view that, in the short term at least, prices for fuel substitutes might continue to rise and that a second round of bids might produce better offers.
47. Over the longer term, however, the Commission believed that there was a danger that fuel prices would fall, particularly when Iraqi and Kuwaiti oil re-entered the market. A successful tenderer would then be faced with reduced profits and would have an incentive not to take up the whole quantity involved or to divert the alcohol illicitly to other markets. It was for these reasons that the Commission says it decided to take no action on special sales Nos 5/90 and 6/90 and to open a fresh round of tenders, in the meantime making certain alterations to the guarantee system to take account of the instability created by the Gulf crisis.
48. The applicant points out that any expectation the Commission might have had that a second round of tenders would produce higher prices proved unfounded. The highest bid received for special sale No 5/90 was the applicant' s bid of ECU 4.52 per hectolitre. The successful tenderer for special sale No 7/90 bid only ECU 3 per hectolitre. The applicant adds that the Gulf crisis cannot in any event have played a part in the Commission' s thinking, since the crisis had already started when the notice in respect of special sale No 5/90 was published and had been going on for some time by the time the contested decision was adopted. Moreover, the applicant points out that the Commission was prepared to accept bids of ECU 3 per hectolitre in January 1991, when the Gulf war had just started and the climate was, if anything, even more uncertain than it had been the previous October. In any event, according to the applicant, any short-term effect which events in the Gulf might have had on fuel prices could not reasonably have been expected to have a significant influence on the level of the tenders, since the lifetime of the contract envisaged by special tender No 5/90 was, at five years, relatively long.
49. The Commission maintains that it was entitled to take account of factors which were not specifically mentioned in the tender conditions, particularly changes in market conditions. It insists that it had a reasonable expectation that a second round of tenders would produce better offers and that it was not able to predict the future course of events, in particular that the oil-exporting countries would succeed in making good the shortfall due to the withdrawal of Iraqi and Kuwaiti oil from the market. In any event, the Commission points out that, although the tender which was ultimately accepted was lower than the applicant' s tender for special sale No 5/90, it was accompanied by stricter guarantee conditions and a more detailed automatic price increase mechanism.
50. The Commission adds that it was not convinced that the contract for special sale No 5/90 could safely be awarded to the applicant, which had been specially set up to submit tenders for special sales Nos 5/90 and 6/90. The Commission maintains that, in view of the large amounts at stake, the financial standing of the applicant might have proved inadequate, given the limited liability of its shareholders, if the contract was not properly performed. The new investment envisaged by the applicant was considered modest, so that the threshold at which it would have been profitable for it to abandon the market would have been lower than for a new entrant which had made a more substantial investment. The Commission insists that the product proposed by the applicant would have been difficult to monitor and recalls that its approach was approved by a substantial majority of the Management Committee for Wine.
The responsibilities of the Commission
51. Before I consider these arguments, there are certain factual matters which should in my view be emphasized. First, although the applicant claims that special sales Nos 5/90 and 6/90 were opened to enable the quantities of alcohol involved to be sold to Union Carbide, the applicant acknowledges in its reply that Union Carbide did not actually submit a valid tender for either special sale. I shall return to this aspect of the case below. Secondly, members of both the Palma and the Marrone groups of companies submitted tenders for special sale No 8/90 and the contract was in fact awarded to a member of the former group. This suggests that the Commission had no particular objection to awarding contracts to either group under appropriate conditions.
52. The Commission goes further and argues that the fact that both groups submitted tenders for special sale No 8/90 shows that they could have submitted a joint tender for special sale No 7/90, which was for twice the quantity of alcohol. However, the applicant has made it clear that companies from the Palma and Marrone groups were only able to submit tenders for special sale No 8/90 by agreeing with their guarantors to secure the performance of each other' s obligations. Thus, the total exposure of the guarantors never exceeded the limits relating to special tender No 8/90. I therefore accept the applicant' s statement that neither group was able to obtain the guarantees required to participate in special sale No 7/90.
53. The essential question is therefore whether, having validly submitted the highest tender for special sale No 5/90, the applicant had a right to be awarded the contract, or whether the Commission was entitled, having regard to all the circumstances, to take no action on the sale and to launch a new sale under stricter conditions. The answer to that question must be sought in the first instance in the legislation relating to the disposal of alcohol obtained from the distillation operations referred to in Regulation No 822/87.
54. The Commission' s overriding duty, laid down in the preamble to Regulation No 3877/88, is to avoid disturbance of the markets in alcohol and spirituous beverages produced in the Community. The Commission has a subsidiary duty to avoid creating difficulties in other sectors where alcohol is used. It is for these reasons that, under Article 2 of Regulation No 3877/88, tendering procedures may be subject to special conditions "to avoid market disruptions". The need to avoid market disruption takes precedence over the objective of obtaining the highest price. This is clear from the provisions of Regulation No 1780/89, the preamble to which (see paragraph 11 above) explains that it is only when the Commission decides to take action in respect of tenders that it must award the contract to the party which has submitted the highest valid bid.
55. In my view, it follows that the Commission is only required to make an award where it is satisfied that to do so would not disturb the markets, particularly those in alcohol and spirituous beverages produced in the Community, and that, at the time it takes its decision, the price offered by the highest bidder is the highest that can reasonably be expected. In this case, neither of those conditions was satisfied. The Commission took the view that the amount of investment in new plant which was to be made by the applicant offered insufficient certainty that it would complete the contract if it was awarded to it and that the use to which the applicant intended to put the quantity of alcohol involved would be difficult to monitor. It also took the view that the situation in the Gulf at the time it took its decision was such that a second round of tenders might produce higher bids.
56. The applicant says that the Commission was wrong on all these matters, but in my view the difference between the parties is largely a matter of opinion. Even if the applicant is right and the Commission was wrong, that would not suffice to enable the applicant to succeed, for it is clear that the legislation relating to the disposal of alcohol obtained from distillation allows the Commission a margin of discretion. In order to establish that the Commission abused that discretion, it is not enough to show that it made errors of judgment. I am not in any event convinced that any such error was made in the present case. The only factor that might be so described is the Commission' s decision not to accept a tender which, at ECU 4.52 per hectolitre, was substantially higher than the tender of ECU 3 per hectolitre it subsequently accepted. It will be observed, however, that the successful tender was accompanied by stricter guarantee conditions offering greater safeguards that the contract would be properly performed. As I have already pointed out, under the relevant legislation the need to ensure proper performance takes priority over the need to achieve the best price. Moreover, the lower price can be partly explained by the higher cost of meeting the stricter guarantee requirements. Seen in this light, it is by no means self-evident that an award to the applicant under special sale No 5/90 would have served the interests of the Community better than the awards made under special sales Nos 7/90 and 8/90.
57. Of course, if it could be shown that the Commission had exercised its discretion improperly, for example by taking into account factors which it ought not to have taken into account or by failing to take account of something it should have borne in mind, then any resulting decision would be unlawful. The only specific allegation made by the applicant that this was the case, however, relates to the Commission' s supposed wish to award the contract to Union Carbide and its concomitant reluctance to make an award to the applicant. The applicant has not, however, put forward any direct evidence of the Commission' s alleged arrangement with Union Carbide. Although Union Carbide submitted tenders in respect of both special sale No 5/90 and special sale No 6/90, those tenders were inadmissible since they were out of time. Thus, even if the applicant had not submitted a tender, the contract could not have been awarded to Union Carbide. This is not in itself inconsistent with the applicant' s version of events. However, it is significant that Union Carbide did not take part in the second round of tenders. Moreover, the suggestion that the Commission was unwilling to contemplate the award of a contract to the applicant is undermined by the applicant' s own admission that sister companies of the applicant' s main shareholders regularly obtain contracts for the sale of alcohol from the Community' s intervention stocks. Indeed, as I have pointed out, one of those companies was awarded the contract in respect of tender No 8/90.
58. I would therefore reject the applicant' s complaint that, by deciding to take no action in respect of special sale No 5/90, the Commission acted in breach of the legislation relating to the disposal of alcohol obtained from distillation and that it misused the powers conferred on it.
The requirement of reasoning
59. It remains for me to consider whether the reasoning of the contested decision was adequate to satisfy Article 190 of the Treaty, which provides that "... decisions of the Council and of the Commission shall state the reasons on which they are based ...".
60. The preamble to the contested decision, which the Commission describes as "telegraphic", states: "au vu des offres reçues pour le premier lot et compte tenu de la situation actuelle du marché mondial des carburants, il y a lieu de ne pas donner suite aux offres concernant l' adjudication particulière no. 5/90 CE" [In the light of the tenders submitted for the first lot and having regard to the present situation in the world fuel market, no action should be taken in respect of the tenders submitted for special sale No 5/90]. The letter sent to the applicant by the Commission on 21 November 1990 was in substantially the same terms, stating that the Commission had decided not to accept the applicant' s tender "au vu des offres reçues et compte tenu de la situation du marché mondial des carburants".
61. The Court has emphasized on a number of occasions that "In imposing upon the Commission the obligation to state reasons for its decisions, Article 190 is not taking mere formal considerations into account but seeks to give an opportunity to the parties of defending their rights, to the Court of exercising its supervisory functions and to Member States and to all interested nationals of ascertaining the circumstances in which the Commission has applied the Treaty": see e.g. Case 24/62 Germany v Commission [1963] ECR 63, at p. 69; Case 294/81 Control Data v Commission [1983] ECR 911, at paragraph 14. Moreover, the Court has made it clear that the statement of reasons required by Article 190 must disclose in a clear and unequivocal fashion the reasoning followed by the institution concerned : see Germany v Commission, supra; Case 203/85 Nicolet Instrument v Hauptzollamt Frankfurt am Main-Flughafen [1986] ECR 2049, paragraph 10; Case C-269/90 Hauptzollamt Muenchen-Mitte v Technische Universitaet Muenchen [1991] ECR I-5469, paragraph 26. Nevertheless, the Court accepted in Case C-350/88 Delacre and Others v Commission [1990] ECR I-395, at paragraph 16, that:
"It is not necessary, however, for details of all relevant factual and legal aspects to be given. The Court has consistently held that the question whether the statement of the grounds for a decision meets the requirements of Article 190 of the Treaty must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question ... Moreover, the degree of precision of the statement of the reasons for a decision must be weighed against practical realities and the time and technical facilities available for making the decision."
62. The present case has a number of features which in my view justified a less detailed statement of reasons than might otherwise have been necessary. First, it seems probable that the applicant was broadly aware of the reasons underlying the approach adopted by the Commission. The applicant acknowledges that it was in contact with the competent Commission officials on a number of occasions after it had submitted its tender but before the contested decision was adopted. Indeed, the applicant has itself produced a letter dated 8 October 1990 from the managing director of the Palma group to the Commission in which the writer refers to a meeting in Brussels on 28 September and seeks to reassure the Commission of the solidity of the guarantees offered by the applicant and of its intention to carry out the contract in full. The Court has acknowledged that, where an undertaking takes part in the discussions which lead up to the adoption of a measure and is therefore aware of the main reasons on which that measure is based, a brief statement of those reasons may be acceptable: see Joined Cases 172/83 and 226/83 Hoogovens Groep v Commission [1985] ECR 2831, paragraph 27. Moreover, the applicant' s main shareholders are specialist undertakings with considerable experience of the fuel market and the disposal of distilled alcohol. As the Commission points out, their knowledge of the context in which the contested decision was adopted cannot be compared with that of a lay person.
63. Secondly, the contested decision, which was not published in the Official Journal, was of little interest to anyone other than the applicant and the Member States to which it was addressed. All the Member States were fully aware of the reasons for the Commission' s decision because they took part in the discussions on the matter in the Management Committee for Wine.
64. Thus, the brevity of the statement of reasons contained in the contested decision cannot in my view be said to have prejudiced the right of the applicant to defend its position or the opportunity for interested third parties to ascertain the circumstances in which the Commission had applied the Treaty. The question remains, however, whether that statement is detailed enough to enable the Court to verify whether the reasons given are valid. This is one of the purposes of Article 190, but it will be frustrated if the statement of reasons is too vague, for such a statement might cover a number of possible reasons, leaving the Commission free to choose the ones which seem to it to be the most convincing if the measure is challenged. It is for this reason that "the statement of reasons must in principle be notified to the person concerned at the same time as the decision adversely affecting him": Case 195/80 Michel v Parliament [1981] ECR 2861, paragraph 22. Only where this is impracticable does the Court permit a full statement of reasons to be communicated to interested parties at a later stage: see Case 16/65 Schwarze v Einfuhr- und Vorratsstelle Getreide [1965] ECR 877, at p. 888.
65. The reasons given in the present case ° the offers received and the situation in the world fuel market ° are broad enough to justify virtually any decision not to take action in respect of special sales of vinous alcohol for use as motor fuel. Indeed, the Commission has at various stages of the procedure emphasized different reasons. The proposal put by the Commission to the Management Committee referred to the need for transparency and the instability of the international markets. The reference to transparency appears to mean verifiability that the alcohol will in fact be used for the authorized purpose and not diverted. However, a reservation by one representative on the Management Committee, recorded in the minutes, suggests that an additional reason for taking no action may have been doubt about the reliability of the guarantees. In its response to the application for interim measures, the Commission stressed (p. 3) that "the reason it failed to accept any of the offers made under these tenders is that the price was not high enough" (emphasis in the original), although admittedly it referred subsequently to the importance of adequate guarantees. In its defence, however, it is the absence of satisfactory guarantees on which the Commission lays the greatest emphasis. Moreover, according to the Commission, there was a special factor which justified its decision not to take action in respect of special sale No 5/90, namely the effect of the Gulf crisis on the price it thought could be obtained and on the adequacy of the guarantee arrangements. However, the Gulf crisis is not mentioned in the preamble to the contested decision.
66. Even if all these factors are regarded as capable of being covered by the statement of reasons contained in the contested decision, it is impossible to establish the extent to which, if at all, they each influenced the Commission at the time that decision was adopted. I therefore consider the reasoning inadequate to satisfy Article 190 of the Treaty, for it is too vague to enable the Court to check that the reasons which induced the Commission to act as it did were lawful. The reference to the offers received gives no indication why they were felt to be unacceptable. The reference to the state of the market is particularly uninformative, since it can hardly be supposed that the Commission would have taken a decision such as this without having regard to market conditions. I note that, in Germany v Commission, supra, at p. 79, Advocate General Roemer considered a reference to "the existing market situation" inadequate in the context of that case. The same is true here. It was in my view incumbent on the Commission to explain what particular features of the prevailing market conditions it thought justified its decision and why it considered that a new round of tenders might produce higher bids.
67. It is true, as I have mentioned, that the Court accepted in Hoogovens that a brief statement of reasons may be given where those affected by a measure have been involved in the discussions preceding its adoption. The statement of reasons contained in the act contested in that case, however, was a good deal more detailed than that contained in the decision at issue in these proceedings. In my view, the preamble to that decision is inadequate to satisfy even the more relaxed test laid down in Hoogovens.
68. There were no practical considerations which might have made it difficult for the Commission to produce a more detailed statement of reasons by the time the contested decision was adopted. The deadline for submitting tenders expired on 25 September 1990 and the contested decision was not adopted until 18 October. Moreover, it appears that the applicant was the only undertaking to submit a valid tender in respect of special sale No 5/90. In any event, the reasons for the Commission' s decision must have been fully discussed in the Management Committee for Wine. I do not therefore consider that the Commission could in this case justify the terseness of the preamble to the contested decision by reference to the speed with which it had to be drafted.
Conclusion
69. I conclude that the statement of reasons contained in the preamble to the contested decision is inadequate to satisfy Article 190 of the Treaty and that that decision should therefore be declared void. In the circumstances of the present case, however, the nullity of the contested decision does not in my view have any practical consequences. In particular, it would be futile to require the Commission to adopt a new decision having the same effect, but setting out in more detail the reasons, since I consider that these were in any event already known to the applicant. Since the Commission was in my view entitled not to take any action in respect of special sale No 5/90, the invalidity of the contested decision has no bearing on the legality of the second round of tenders, which the Commission was free to organize under conditions it considered appropriate.
70. I consider that the applicant' s claim for damages should be dismissed. Any loss which the applicant may have suffered results from the Commission' s failure to take action in respect of special sale No 5/90, yet on the view I take that was an option which the Commission could lawfully choose. There is no causal link between any such loss and the inadequacy of the statement of reasons, since the applicant was well aware of the reasons behind the contested decision. In any event, it may be doubted whether there can ever be such a link between a failure to give adequate reasons and loss attributable to a measure which is otherwise lawful. This may have been one of the reasons for the Court' s decision in Case 106/81 Kind v EEC [1982] ECR 2885, to the effect that an inadequacy in the statement of the reasons on which a measure is based is not sufficient to make the Community liable under the second paragraph of Article 215.
71. Since the applicant has succeeded in an important part of its claim, I consider that the Commission should be ordered to pay the costs.
72. Accordingly, I am of the opinion that the Court should:
(1) declare void the decision adopted by the Commission on 18 October 1990, by which it decided not to take action in respect of special sale No 5/90;
(2) dismiss the rest of the application;
(3) order the Commission to pay the costs, including the costs of the application for interim measures.
(*) Original language: English.
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