Opinion of the Advocate-General
1 The question on which the Court is asked to give a ruling is the exact extent to which a tenderer who has been awarded a contract to deliver skimmed-milk powder as food aid is liable for the financial consequences of his failure to fulfil his obligations.
I - The relevant Community provisions
2 Commission Regulation (EEC) No 1354/83 of 17 May 1983 (1) (`the Regulation') lays down general rules for the mobilisation and supply of skimmed-milk powder as food aid.
3 Article 9(1) of the Regulation provides for a tendering procedure to determine the costs of supply, including, where appropriate, the price for the purchase or the manufacture and packaging of the skimmed-milk powder.
4 According to Article 11(6)(b), no tender is to be valid unless it is also accompanied by proof that the tendering security referred to in Article 12 has been lodged before the final date for submission of tenders.
5 Under Article 12(1), second indent, in the case of milk purchased on the Community market, the tendering security is to be 3% of the intervention price for skimmed-milk powder applicable to the quantity to which the tender relates.
6 Article 11(7) provides that tenders may not be withdrawn.
7 Under Article 14(1), the contract is to be awarded to the tenderer whose tender is the lowest.
8 Article 16(2) provides that the successful tenderer may not unilaterally cancel the operation for which he has been awarded the contract. Article 16(4) requires the successful tenderer to provide the competent bodies concerned with the necessary information as promptly as possible for immediate transmission to the Commission.
9 Article 25 of the Regulation provides that:
`1. The successful tenderer shall bear all the financial consequences of a failure to supply some or all of the goods on the terms stipulated, if the recipient has made supply possible on such terms.
If, for reasons attributable to the successful tenderer, shipment has not been made within three months of the expiry date of the shipment period as specified in the notice of invitation to tender ... the body responsible for payment shall release the successful tenderer from his obligations. In such cases the Commission shall take appropriate action.
2. The costs arising from a failure to supply the goods as a result of a case of force majeure shall be borne by the body responsible for payment.' (2)
10 Article 26(5) and (6) of the Regulation provides:
`5. Where, for reasons attributable to the successful tenderer, the shipment period as specified in the notice of invitation to tender ... has not been observed, the body concerned shall withhold, for each day's delay, in proportion to the quantities not shipped:
- 1% of the amount of the tendering security in the case of goods purchased on the Community market or goods manufactured therefrom,
...
6. All the securities shall be forfeit in the event of the successful tenderer's being released from his obligations in accordance with the second subparagraph of Article 25(1).' (3)
11 Commission Decision 87/203/EEC of 10 March 1987 fixed at a maximum of 94 100 tonnes the quantity of milk powder to be supplied as food aid for 1987. (4)
II - The facts and proceedings before the national court
12 Two Commission Regulations provided for the supply by intervention bodies (in the case of Belgium, the Belgisch Interventie- en Restitutiebureau, hereinafter referred to as `the Agency') of various lots of skimmed-milk powder as food aid. (5)
The first tendering procedure
13 Prolacto NV, a company governed by Belgian law (hereinafter `Prolacto' or `the tendering company'), submitted tenders for two lots on the final date for submission of tenders, 23 February 1987, under Regulation No 345/87. The skimmed-milk powder was to be purchased by Prolacto on the Community market.
14 On 5 March 1987, the Agency notified Prolacto that its tenders had been accepted, with the reminder that the milk had to be supplied in accordance with the Regulation. The milk had to be shipped by 30 April 1987 on vessels supplied by the recipient of the food aid.
15 On 7 August 1987, Prolacto advised the Agency that it was unable to carry out the deliveries.
16 By registered letter of 20 August 1987, the Agency informed Prolacto that, as the result of the failure to supply, the tendering securities, amounting to BFR 573 330 and BFR 667 238, would be declared forfeit, unless Prolacto paid the corresponding amounts, which it did.
The second tendering procedure
17 Prolacto submitted tenders for four lots under Regulation No 1358/87 on the final date for submission of tenders, 20 May 1987. The skimmed-milk powder was to be purchased by Prolacto on the Community market.
18 On 22 May 1987, the Agency notified Prolacto that its tenders had been accepted, with the reminder that the supply had to be made in accordance with the Regulation. The milk was to be shipped by 30 June 1987 in ships provided by the recipient of food aid.
19 Prolacto failed to effect the delivery which it had undertaken to make. On 13 October 1987, it notified the Agency that it was unable to make delivery.
20 By letter of 16 October 1987, the Agency notified Prolacto that it was obliged to declare forfeit the securities lodged for the four lots in question.
21 In accordance with the last sentence of the second subparagraph of Article 25(1), the Commission decided to hold new tendering procedures for the lots which Prolacto had failed to deliver.
22 Although the award for the lots was made to the tenderer submitting the lowest tender, the total additional costs amounted to BFR 50 781 099, being the difference between the total cost of the new tendering procedures for the six lots which had not been delivered and the price which Prolacto had originally tendered for those lots.
23 According to a letter from the Commission of 17 July 1991, that sum has been charged to the Belgian State, which was asked to recover it from Prolacto.
24 By registered letter of 3 October 1991, the Agency served notice on Prolacto to pay it the sum of BFR 50 781 099 in pursuance of Article 25 of the Regulation, together with default interest from 1 November 1991, before initiating recovering proceedings, on 15 April 1992, before the Rechtbank van Eerste Aanleg (Court of First Instance), Brussels.
III - The question submitted by the national court
25 Being in doubt as to the extent of the obligations placed on the tendering company under the Regulation following its failure to supply, the national court stayed the proceedings and submitted the following question to the Court for a preliminary ruling:
`In the context of a tender for the supply of skimmed-milk powder as food aid on the basis of Commission Regulations (EEC) Nos 345/87 and 1358/87, of 3 February 1987 and 15 May 1987 respectively, and the associated tendering securities lodged pursuant to Article 12 of Commission Regulation (EEC) No 1354/83 of 17 May 1983, may a legal person who subsequently failed to fulfil its obligations and did not effect delivery be also the subject of a claim for payment of compensation on the part of the Belgisch Interventie- en Restitutiebureau pursuant to Article 25(1) of Regulation (EEC) No 1354/83 when all the tendering securities have been declared forfeit to that agency?'
26 The question of the national court is essentially whether the Regulation should be interpreted as meaning that a successful tenderer who fails to carry out the contract to supply goods awarded as food aid is still liable for all the financial consequences, pursuant to Article 25(1) of the Regulation, when the tendering securities have been declared forfeit under Article 26(6) of the Regulation.
27 In my opinion, the reply to the question should address two separate issues.
28 First, it should be clarified whether or not the lodging of securities excludes the liability of the successful tenderer for the whole of the `financial consequences' of his failure to supply the goods. Secondly, if the successful tenderer is liable for both obligations, it should be clarified whether the two amounts have to be aggregated or whether the tendering security must be deducted from the `financial consequences' incumbent upon the successful tenderer.
The coexistence of both obligations
29 The right to recover from the defaulting successful tenderer the sum representing the `financial consequences' referred to in Article 25(1) of the Regulation in addition to the tendering securities declared forfeit is clear from the wording.
30 By providing that: `The successful tenderer shall bear all the financial consequences of a failure to supply ... the goods on the terms stipulated', the Community legislature clearly postulates the successful tenderer's liability for additional costs arising from the failure to carry out the operation.
31 There is an exception to the rule in that the costs are borne by the body responsible for payment (6) where the failure to carry out the operation is the result of force majeure. (7)
32 In this case, however, such a possibility was expressly ruled out by the national court, which declared that `the defendant was not a victim of force majeure'. (8)
33 Prolacto argues that the effect of Article 25 and Article 26(6) of the Regulation read together is that when a successful tenderer who has defaulted is released from his obligations, only the tendering security is forfeit. The tendering security is to be substituted for the financial consequences of Article 25(1). It operates as a type of penalty clause, the purpose of the substitution being to protect the position of the intervention bodies, which will be compensated without having to show proof of the extent of the damage. (9)
34 Even read together, those texts do not admit such an interpretation.
35 Article 26(6) of the Regulation provides for the security to be forfeit in the event of the successful tenderer's being `released from his obligations in accordance with the second subparagraph of Article 25(1)'. The primary obligation of the successful tenderer is to supply goods to the recipient, and accordingly the obligation from which the successful tenderer is released and which determines the outcome regarding the security is not, as Prolacto would have it, the obligation to assume the `financial consequences' of the failure to supply referred to in Article 25(1). When the body responsible for payment finds that the delay of the successful tenderer has exceeded a reasonable period, set in this case at three months, it will abandon its cooperation with that tenderer for the operation. New tendering procedures may thus be initiated in order to remedy the omissions of the tenderer. That is when the security is forfeit; but the successful tenderer remains liable to pay the financial consequences under Article 25(1), as both obligations arise from the failure to carry out the operation.
36 As the Commission points out, (10) under the Regulation, tenders may not be withdrawn (11) and the successful tenderer may not unilaterally cancel the operation for which he has been awarded the contract. (12) In this context, it is evident that he cannot be released from his obligations unless the body responsible for payment makes a formal decision to that effect, within the meaning of the second subparagraph of Article 25(1). It is, however, inconceivable that the same decision would at the same time release him from his obligation to compensate for the financial consequences of his failure to supply.
37 It should, moreover, be emphasised that the procedure in the second subparagraph of Article 25(1) does not allow any margin of discretion on the part of the body responsible for payment, which must release the successful tenderer from his obligations as soon as a period of three months has elapsed, with the result that the security is forfeit whenever there is a delay of that length. It is therefore unclear whether the forfeiture of the security was to exclude compensation for the `financial consequences' of the failure to supply, which would explain the existence of the first subparagraph of Article 25(1), which covers exclusively compensation for the financial consequences of delays of under three months.
38 I note too that the compensation payable under the above legislation arises only where there is failure to supply goods on the terms stipulated, which signifies ultimate failure to supply, of the kind attributable to Prolacto, rather than short delays.
39 It is, moreover, hard to conceive that an intervention body, in order to avoid long or complex calculations, would be content with a security, and forgo compensation for the whole of the additional costs which it has incurred, where the amounts in question bear no relation to one another.
40 The costs in question may, in fact, prove to be considerable, as in the present case where variations in market rates and new tendering procedures have given rise to an additional cost of BFR 50 781 099, whereas the tendering security was set at 3% of the intervention price for skimmed-milk powder applicable for the quantity to which the tender related, namely BFR 5 400 000.
41 The two provisions are not mutually exclusive and the forfeiture of the security appears to me to be compatible with liability for the additional costs arising from the failure to supply.
The aggregation of the amounts
42 Aggregation may be either total, so that the successful tenderer who has defaulted is to be liable both for the security and for the `financial consequences' of the failure to supply the goods, or limited to the amount of damage suffered, which would entail deducting from that amount the forfeited security.
43 The extent of the aggregation would, in my view, depend upon the objective of each of the two provisions. As the Commission has rightly observed, those objectives differ. (13)
44 Under the first subparagraph of Article 25(1) of the Regulation the successful tenderer is liable in the event of a failure to supply goods. As the Court has found, such liability in relation to food aid is of a contractual nature. (14)
45 The successful tenderer becomes liable for additional costs arising from his default where he fails to fulfil his obligation to supply goods on the terms stipulated.
46 The securities which have been declared forfeit by the Agency can only be deducted from the amount of the claim made under Article 25(1) of the Regulation if they are compensatory in nature. In such a case, the application of the security towards compensation for the damage would justify a corresponding reduction in the compensation sought, the compensation due to the Agency being in part recovered by forfeiture of the securities.
47 That, however, is not the purpose of the security.
48 The security is, first of all, a guarantee. (15) In a similar case the Court held that the security `[was] solely to ensure that the trader receiving the refund honours his undertakings'. (16) It ensures, initially, the good faith of tenderers in submitting their tender to supply by making its validity subject to proof that the security `has been lodged before the final date for submission of tenders'. (17) Secondly, it guarantees that the tendering company will adhere to the terms of the contract awarded.
49 Above all, the security becomes a penalty when the obligation which it guarantees has not been fulfilled. (18) Many agricultural regulations, in particular those relating to Community food aid for third countries, use a system of securities. (19) The Court is therefore frequently asked for a ruling on the compatibility with the principle of proportionality of the forfeiture of a security following a breach of obligations laid down by the regulations in question. On such occasions it has consistently found, at least implicitly, that the forfeiture of the security constituted a penalty for a failure to fulfil those obligations. (20)
50 This characterisation is still more apparent in the Maizena case, referred to earlier. The Court was asked for a ruling on the validity of a Community regulation requiring the provision of a fresh security in order to guarantee compliance with the obligation imposed on the holder of an export licence to export products within the period of validity of the licence. Under the relevant system `... the security is released, at the request of the person concerned, even though the obligation to export has not been fulfilled and thus continues to exist, [and] ... the fresh security must be provided, and is forfeited if it subsequently emerges that the obligation to export was not complied with during the period of validity of the export licence'. (21)
51 The Court held that `... the provision of fresh security in the place of security which was intended to ensure the performance of a certain undertaking but which has been released ceases to be a guarantee and becomes a penalty when the undertaking has not been complied with and no longer can be complied with'. (22) This reasoning, in my opinion, is perfectly capable of being applied here, as in this case the security is only forfeit if the successful tenderer has previously, and finally, been released from his obligations following a delay in loading attributable to him. (23)
52 Consequently, Prolacto's qualification of the security as a penalty clause, in particular because it is a fixed sum of money by way of indemnity, cannot be upheld. The fact that, nevertheless, as in a penalty clause, the security is fixed at a standard rate (24) indicates that it is a penalty, a penalty being by definition a sum bearing no relation to the extent of the damage.
53 On the contrary, the first subparagraph of Article 25(1) of the Regulation indicates the intention of the Community legislature to guarantee compensation for the whole of the damage suffered as the result of failure to deliver food aid.
54 I would add that the deterrent function of the security would be undermined if its forfeiture was subject to proof of damage. What is more, such a view would lead the intervention body simply to reimburse the amount of the security to the successful tenderer, even where the operation had not been carried out, were a new tendering process to be carried out with price levels such as to compensate for the additional costs arising from the failure of the original successful tenderer to deliver. In such a case, in fact, no damage could be shown. According to Article 26(6) of the Regulation, for securities to be forfeit, it is sufficient for the successful tenderer, having failed to deliver the goods within three months, to be released from his obligations and for the operation consequently not to be carried out.
55 Accordingly, the difference in the nature and function of the security mechanism and that of compensation for the `financial consequences' of failure to supply would indicate that account should not be taken of the amount of the security in calculating the sum due from Prolacto by way of compensation to the Agency. I find that it should, on the contrary, be added to the total assessment of damages arising from the failure by the successful tenderer to carry out his undertaking.
IV - Conclusion
56 In the light of the foregoing, I propose that the Court give the following reply to the question put by the Rechtbank van Eerste Aanleg, Brussels:
Commission Regulation (EEC) No 1354/83 of 17 May 1983 laying down general rules for the mobilisation and supply of skimmed-milk powder, butter and butteroil as food aid, should be understood as meaning that the undertaking awarded a contract through a tendering procedure to make a supply of goods and which does not fulfil its obligation must bear all the financial consequences of that failure to supply, in accordance with the first subparagraph of Article 25(1) of the Regulation, even where the tendering security has been declared forfeit under Article 26(6) of the Regulation, and the amount of the security may not be deducted from the sums due under the head of financial consequences within the meaning of Article 25.
(1) - Regulation laying down general rules for the mobilisation and supply of skimmed-milk powder, butter and butteroil as food aid (OJ 1983 L 142, p. 1).
(2) - My emphasis.
(3) - Ibidem.
(4) - Decision fixing the overall quantities of food aid and establishing a list of products to be supplied as aid for 1987 (OJ 1987 L 80, p. 32).
(5) - Commission Regulations (EEC) No 345/87 of 3 February 1987 and (EEC) No 1358/87 of 15 May 1987 on the supply of various lots of skimmed-milk powder as food aid (OJ 1987 L 34, p. 8 and L 131, p. 1).
(6) - The body responsible for payment is, under Article 23 of the Regulation, the intervention agency to which the tender was submitted.
(7) - Article 25(2) of the Regulation.
(8) - Page 7 of the English translation of the reference document. See also pp. 5 and 6.
(9) - Pages 9 and 10 of the French translation of the Commission's written observations.
(10) - Point 39 of the Commission's written observations.
(11) - Article 11(7).
(12) - Article 16(2).
(13) - Paragraphs 60 to 67 of the Commission's observations.
(14) - See, in particular, Case 109/83 Eurico [1984] ECR 3581, paragraph 19, and Case C-142/91 Cebag v Commission [1993] ECR I-553, paragraphs 11 and 12). The judgment in the second case was based on regulations adopted after Regulation No 1354/83, but the factors enabling the Court to reach its finding as to the contractual nature of the relations between the Commission and tenderers is to be found in the present relevant legislation. As in the first case cited, the determination of the supply price in terms of the tenderer's tender and its acceptance by the Commission within the meaning of Article 11(4)(e), Article 13(1) and Article 14(1) of the Regulation is consistent with contractual relations.
(15) - See W. Alexander, `Perte de la caution (ou acquisition de la garantie) en droit agricole communautaire', Cahiers de droit européen, 1988, No 4, p. 384, I B.
(16) - Case 288/95 Plange Kraftfutterwerke [1987] ECR 611, paragraph 10. See also, for example, Case 11/70 Internationale Handelsgesellschaft [1970] ECR 1125, paragraph 6, and Case 137/85 Maizena [1987] ECR 4587, paragraph 22.
(17) - Article 11(6)(b) of the Regulation.
(18) - See W. Alexander, cited above, III H.
(19) - See Case C-2/93 Exportslachterijen van Oordegem [1994] ECR I-2283, paragraph 22.
(20) - See in particular Case C-326/94 Maas [1996] ECR I-2643, paragraph 36.
(21) - Paragraph 11.
(22) - Paragraph 12.
(23) - The application of this characterisation here is not affected by the fact that the security was forfeited after fresh security had been provided, the situation where a fresh security is provided being no different from the situation where a security has never been released.
(24) - It should be noted that the security is fixed and calculated beforehand as a proportion of the intervention price of the goods in question.
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