OPINION OF MR ADVOCATE GENERAL

VERLOREN VAN THEMAAT

delivered on 10 April 1984 ( *1 )

Mr President,

Members of the Court,

1. Introduction

In this case Murri Frères claims that the Court should order the Commission under the second paragraph of Article 215 of the EEC Treaty to make good the damage suffered by the applicant as a result of a fault committed by Commission officials in the exercise of their duties whilst entrusted with carrying out project 6907/EDF/72. After a public invitation to tender issued on 11 September 1972, that project, which was to be financed by the European Development Fund (hereinafter referred to as ‘the Fund’), resulted in a contract between the applicant and the Republic of Madagascar. The project concerned the improvement and asphalting of part of national highway 5A in Madagascar (see Annexes 1, 2 and 3 respectively to the Commission's Objection of Inadmissibility of 31 March 1982).

At the end of 1973 the applicant realized that, as a result of the sudden rise in the price of petroleum which OPEC had decided upon shortly before, the price of asphalt had more than doubled and the price revision formula contained in Article 313 of the Special Conditions of Tender (Annex 3 to the Commission's Objection) no longer made it possible to cover the real purchase and transportation costs of the asphalt needed. On that ground a first addendum to the contract was signed and approved by the parties on various dates in January 1975. Article 304 of the addendum provided that it could not be relied upon to defeat the claims of the contractor in respect of the increase in the delivery price of asphalt. (‘Le présent avenant ne pourra être invoqué pour éteindre les réclamations du titulaire relatives à la hausse des prix de fourniture du bitume.’) In this regard I refer to Annex 2 to the Application.

On the basis of the division of powers between the Associated States and the Community, the applicant had to assume that such an indemnification of substantial unforeseen additional costs by the Republic of Madagascar could not be charged to the European Development Fund without the prior agreement of the Commission (see in particular Article XX of the General Conditions in Annex 3 to Financing Agreement No 1030/MA, which is reproduced in Annex 1 to the Commission's Objection). I shall consider this division of powers in greater detail at a later stage, as it is important for purposes of the question of admissibility. By way of an initial approach, however, I would like to give the following brief summary of the complaints made by the applicant against the Commission. It alleges that at first the Commission through its local delegate led the applicant to believe that it accepted that an indemnity was in principle payable and agreed to the method supported by the Malagasy authorities for calculating that indemnity. Many months later it referred to the need for further study of the method of calculation. Finally (on 10 August 1976), it expressed definitive objections to the proposed method of calculation, without however approving any other formula. It stated that a formula had first to be worked out by the Malagasy authorities. On 26 September 1978 the Commission simply referred the applicant to the competent Malagasy authorities (without making it clear that it had since reached an agreement with those authorities on the formula to be applied).

In view of the abovementioned requirement of prior approval by the Commission, it seems to me clear that, following the letter of 26 September 1978, the applicant was bound to reach the conclusion that the settlement of its claim for compensation, or at least a settlement on the basis of the method of calculation which it had proposed, was permanently blocked by the Commission. Even arbitration procedure in accordance with Article 316 of the Special Conditions of Tender for the project in question (Annex 3 to the Commission's Objection of 31 March 1982) could produce no further changes. Under those circumstances I consider it logical that the applicant held the Commission liable on the basis of Article 215 of the EEC Treaty for the damage arising from such permanent obstruction. The Commission was therefore, in my view, quite wrong to assert in its written pleadings, and again at the hearing, that the applicant is in fact seeking to recover from the Commission under the second paragraph of Article 215 a contractual claim which it has against the Republic of Madagascar.

The extent to which the applicant's claim can succeed naturally depends upon a further examination of, on the one hand, its admissibility and, on the other hand, its merits. The question of admissibility in turn depends partly on a further examination of the division of responsibilities between the Community and the Republic of Madagascar and partly on the way in which those responsibilities were in fact discharged, that is to say on some of the relevant facts.

The question whether the action is well-founded depends primarily on a more detailed examination of all the relevant facts. As I have already stated, however, those are also important for purposes of a final decision on the question of admissibility. In Section 2 of my opinion I shall therefore further investigate both the division of responsibilities and also all the relevant facts. In Section 3 I shall then further consider the question of admissibility and in Section 4 questions of substance. In the final section, I shall set out my conclusion.

On one point, however, I now wish to anticipate that conclusion. It was not until the hearing that it became clear, from the answers to a series of questions put by the Court, that in practice the Commission, notwithstanding the binding text which clearly indicates otherwise, considers itself bound, either by an agreement which the applicant might reach directly or through the conciliation procedure provided for that purpose with the Malagasy authorities or by an arbitration award. In my following analysis I shall consider further the importance which this somewhat surprising explanation of the Commission's legal position may have for the outcome of the case. However, it seems to me clear in any event that under those circumstances the Commission misled the applicant, both before and during the entire written procedure before the Court, in relation to the legal remedies available to it: the assumption on which the applicant was, as I have already observed, logically bound to proceed in accordance with the binding provisions on the division of financial responsibilities, namely that on 26 September 1978 the Commission permanently blocked an indemnity calculated in accordance with the applicant's proposals, in fact appears in retrospect to be mistaken. Under those circumstances I take the view that, whether the action succeeds or fails, wholly or in part, the Commission should be ordered to pay the costs under Article 69 (2) and under the second paragraph of Article 69 (3) of the Rules of Procedure.

2. The division of responsibilities and the most important facts

2.1. The division of responsibilities

The Report for the Hearing contains an exhaustive review of the provisions laid down by treaty, regulation or contract which are relied upon by the parties. In order to avoid wasting time, I therefore refer the Court to that review. I shall confine myself here to the most important conclusions which may be drawn from those provisions in relation to the division of responsibilities.

It is clear from Article 17 (1) of Protocol No 6 to the Second Yaounde Convention (Official Journal, English Special Edition, Second Series, 1. External Relations (2), p. 5) that the competent authorities of the Associated States are responsible for the execution of the projects submitted by their respective governments and financed by the Community.

With a view to that financing, the Member States adopted an Internal Agreement (Journal Officiel 1970, L 282, p. 47) ( 1 ) setting up a European Development Fund.

Regulation No 71/68/EEC of the Council (Journal Officiel 1971, L 31, p. 1) laid down the Financial Regulation of the Fund, from which it is clear inter alia that responsibility for the financing of projects by the Fund is borne by the Commission (see Articles 1 and 5 inter alia). The responsibility of the Associated States for the implementation of projects is naturally only of limited significance if the financing of those projects is not guaranteed. As responsibilities in this essential area of financing are entrusted to the Commission, it is clear that both in relation to the conclusion of supply contracts for the projects and in relation to all legal transactions or circumstances out of which new financial obligations may arise, coordination is needed between the Associated State and the Commission (see in particular Articles 20 to 23 of the Financial Regulation). Moreover, it is clear that the equal legal status of the Associated States and the Community requires that disputes between those contracting parties should be settled by objective legal decision. Article 64 of the Financial Regulation ensures that an application to the Court may be made for that purpose. It also ensures that disputes on the implementation of contracts concluded by the Associated States in order to carry out projects financed by the Fund may be settled by arbitration. I have already pointed out in my introductory remarks that the chief question in these proceedings is how that arbitration procedure is related to the abovementioned coordination between the Associated State concerned and the Commission.

As regards the answer to the last-mentioned question, the further elaboration of the coordination procedure in Commission Regulation (EEC) No 229/72 of 28 January 1972 (Journal Officiel 1972, L 29, p. 1) is of prime importance. From that Regulation it appears that the following officials inter alios play an important rôle in that coordination after the Commission has concluded a financing agreement with the Associated State concerned (in this case the Financing Agreement between the EEC and the Republic of Madagascar, No 1030/MA of 13 March 1972):

(1)

The chief authorizing officer of the Fund, appointed by the Commission; the Commission's Director General for Development has been so appointed. (For a description of his duties in so far as they are relevant to this case, see in particular Articles 16, 17 and 25, from which it is clear that he is responsible for implementing financing decisions and for adjustments thereof, for commitment and authorization of expenditure and for the solution of problems arising in relation to payment after the contract has been implemented.)

(2)

The local authorizing officer, appointed in the financing agreement (Article 18). In practice an authority of the Associated State concerned is appointed. It is clear from Article 20 of the Regulation that no expenditure in excess of the amount specified in the financing agreement may be charged to the Fund unless a decision has been taken in due time to commit additional funds in accordance with abovementioned provisions of Articles 20 to 23 of the Financial Regulation; the local authorizing officer may, however, enter into commitments of expenditure within the limits of the funds allocated.

(3)

The delegate controller appointed by the Commission for the local financial and technical control of projects and established in situ (Article 27); he is to supervise of the proper conduct of invitations to tender (Article 28 in conjunction with Article 22) and should approve agreements, contracts and specifications and also additions or amendments thereto, before signature by the competent authorities (Article 29); because the scope of such approval is not entirely clear, it is important to note that by virtue of Article 11 of the Financial Regulation only the chief authorizing officer and, within the limits set out above, the local authorizing officer may enter into commitments of expenditure; the local delegate controller is responsible solely for the supervision of the commitment of expenditure by the local authorizing officer and the settlement thereof; in the event of a dispute between the local authorizing officer and the local delegate controller, the Commission is to decide (Financial Regulation, Articles 20 to 23).

At the hearing, the representative of the Commission once again also laid great emphasis on that division of responsibilities.

However, it is clear from the documents put before the Court that, in practice, both in the Associated State concerned and in the Commission, the abovementioned duties are divided among a large number of departments, authorities and officials. Thus in the correspondence one finds views emanating from a directorate and various divisions of the Directorate General for Development but not expressly from the chief authorizing officer. Again, there is little indication in the correspondence of adherence to the principle laid down in Article 11 of the Financial Regulation that the duties of authorizing officer, financial controller and accounting officer are to be carried out by separate individuals. Thus, in the correspondence and also in the Commission's Objection, the local delegate controller of the Fund is systematically described as the delegate of the Fund, which seems to indicate that duties which should in principle be performed by separate individuals are being mixed. That impression is reinforced by the content of his letters.

As regards Financing Agreement No 1030/MA of 13 March 1972, which was concluded on 12 March 1973 between the EEC and the Republic of Madagascar in relation to the project in question, Article XX of the General Conditions, which is set out in the Report for the Hearing, is particularly important. As I observed in my introductory remarks, that article confirms that a claim for compensation for damage suffered by the applicant as a result of the rise in the price of asphalt may be met only after prior approval by the Commission.

Article 316 of the Special Conditions of Tender for the project in question (No 6907/EDF/72) provides that, after exhaustion of local procedures for the amicable settlement of disputes, a ruling will finally be given on remaining differences of opinion by one or more arbitrators in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. At the hearing, in answer to questions put by the Court, the Commission provided further indications of the local procedures for the amicable settlement of disputes. However, the Commission then provided further details in particular of the relationship between the local conciliation procedures and rules of arbitration, on the one hand, and the aforesaid Article XX of the General Conditions of the Financing Agreement in question, on the other. The applicant was clearly surprised and, on the basis of the text of the aforesaid article, I myself was also rather surprised when the Commission's representative then stated that, according to a practice which has been followed for about 10 years, the Commission considered itself bound by an arbitration award. Moreover, it became apparent from a reply to another question put by the Court that, at least in one case in the past, where the Associated State was reluctant to pay compensation awarded by the arbitrator and proceedings were instituted before the Court of Justice, the Fund itself- paid the compensation without waiting for the Court to give judgment. Finally, in answer to questions put by the President of the Court, the Commission explained that it would agree to compensation on which the applicant and the competent Malagasy authorities directly reached agreement, provided that such agreement was based on the method of calculation which the Commission had already proposed to those authorities at an earlier stage.

2.2. The most important facts for purposes of the judgment and the interpretation of those facts

As I observed in my introductory remarks, the factual origin, though not the legal basis, of the present dispute was the increase in the price of oil in 1973 and the resulting doubling of the price of asphalt. It is common ground that the addendum to the works contract adopted in response to that price rise, including Article 304, which I quoted in my introductory remarks, was approved by the delegate controller in accordance with Article 29 of Regulation No 229/72. At the hearing the Commission finally expressly confirmed, in answer to a question put by me, that it in fact thereby recognized that the applicant is in principle entitled to compensation for the loss suffered. In my view, the applicant must have been confident that the Commission recognized that ‘right in principle’ from an earlier stage, in particular as a result of the letter of 19 November 1975 sent to it by the competent chief engineer in Madagascar (Annex 8 to the Application). That letter is clearer than the preceding exchange of telex messages between the applicant and the local delegate controller of the Fund (Annexes 6 and 7 to the Application), which is open to different interpretations; the letter in fact expressly stated that the authorities of Madagascar, in agreement with the Fund, were prepared to compensate for the loss and, after studying the problem, to set out in a second addendum the solution decided upon. It requested the applicant to submit its proposals in that regard. The letter did indeed warn the applicant that the approval of the addendum in question might, because of its unusual nature, give rise to certain problems. That letter was a reply to a letter of 20 September 1975 and thus in my opinion had no connection with the abovementioned exchange of telex messages.

The applicant submitted the proposals requested from it in a letter of 1 December 1975 (Annex 10 to the Application). From the proposal which the Malagasy authorities submitted in that regard to the ‘delegate of the Commission of the European Communities’ in Tananarive for approval (Annex 11 to the Application) it appears that those authorities also agreed to the method of calculation which had been proposed by the applicant and which consisted of the revision of the five unit prices concerned. It does in fact appear from a comparison of their proposals with those of the applicant that although they applied the same method of calculation, the final amounts which they obtained were lower.

By a letter of 29 May 1976 (Annex 12 to the Application) the applicant requested the ‘delegate of the Fund’ in Madagascar to intervene in order to obtain an immediate solution to the problem of the price adjustment and also to give an assurance that that price adjustment would be effected in June 1976. The letter also contained a calculation of the payments due for work already carried out. The delegate's reply to that letter, dated 29 June 1976, (Annex 13 to the Application) confirmed first that the competent Directorate General of the Commission could not deny the existence of the loss suffered (‘ne peut pas contester la réalité du préjudice subi’). Secondly, the letter appears to confirm that the competent Community authorities had reached an agreement at one time with the Malagasy authorities on the applicant's proposal to bring the unit prices of works in which asphalt was used up to the price levels of September 1975. ( 2 ) In referring to the agreement with the administration (of Madgascar), the letter can scarcely mean anything other than approval given by the competent Community authorities. Thus the impression is clearly given that, initially at least, an agreement was in fact reached between the Community and the Republic of Madagascar not only on the principle of compensation but also on the method of calculation and that the applicant's proposal on the matter was adopted. However, the letter added that the Projects Division of the directorate now took the view that a different method of calculation ought to be used and was holding discussions on the matter with the financial departments consulted. The delegate at the same time promised to inform the applicant as quickly as possible of the ultimate position adopted by the competent authorities in Brussels. Lastly, the delegate observed in the three concluding paragraphs of his letter that it would take some time to work out the final solution in a second addendum and obtain approval thereof. However, he stated that he was convinced that a fair solution to the problems raised would soon be found. In any event, it seems to me clear that that letter did not express any definite view as to the method of calculation to be applied.

At any rate, in a letter to the applicant dated 10 August 1976 (Annex 14 to the Application, quoted on page 6 of the Report for the Hearing), the local delegate put an end to any illusion in that regard. In that letter it is clearly stated that the directorate concerned (it is not clear whether that is a reference to the director general and chief authorizing officer) did not agree with the method of calculation. As the previous letter expressly stated that there had been agreement on that and only mentioned discussions which had arisen on that question subsequently, which had not yet borne any result, it is somewhat odd that this clear revocation of the approval previously given is depicted as maintaining the point of view adopted earlier. For further details of that letter, I suggest the Court should refer to the text thereof and to the Report for the Hearing. In a nutshell, the substance of it is that the Malagasy authorities had been informed of the change of attitude and requested to examine new formulae for the revision of prices, and the delegate advised the applicant to collaborate in that examination. It seems to me clear that the problem of compensation was thereby shelved, or at least considerably delayed, and that it was the chief authorizing officer, and thus the Community, rather than the Malagasy authorities (the local authorizing officer), who was responsible for that delay. Moreover, it seems to me clear from the text of the letter that the prescribed internal coordination procedure between the chief authorizing officer and the local authorizing officer had not yet been completed. Indeed, a request is made for other formulae for the revision of prices to be studied. Thus there is still no mention of the approval of the formulae ultimately to be applied. It is correct that the letter of 10 August 1976 no longer contained any commitment on the part of the Community in relation to the applicant (page 6 of the Commission's Objection of 31 March 1982 and pages 6 and 7 of the Rejoinder). However, as I have stated, it also appears from that letter of 10 August 1976 that the prescribed internal coordination procedure between the Community and Madagascar on the calculation of the compensation, which had been agreed to in principle, was proceeding. To this extent there was also no reason for the applicant to hold the Community liable on the basis of that letter. Moreover, the letter remained extremely vague as to the method of calculation actually to be followed; the applicant could still assume that ultimately an amicable solution would be found. The delegate's letter to the applicant dated 29 June 1976, to which the letter of 10 August referred, expressly mentioned that very expectation. Certainly the applicant can scarcely be blamed for continuing to await further progress in the coordination procedure even after the letter of 10 August 1976. Such preliminary coordination between the Community and Madagascar was indeed an express precondition of compensation. That factor seems to me to be important in connection with the question whether the application was lodged in due time.

The precise way in which the coordination procedure developed between 10 August 1976 and 23 June 1978 has not been clarified by the proceedings before the Court. From the Commission's replies to various questions put by the President, at the hearing, I infer that continued consultation between the two authorities then resulted in an agreement on the method of calculation to be adopted. It is not clear when that agreement was reached and why the applicant apparently was not informed of it.

On 23 June 1978 the applicant directly requested the Commission to intervene immediately in order to settle the question of the adjustment of the price of asphalt (Annex 15 to the Application). At the same time it announced that if the matter was not settled very quickly, it would have to submit the case to arbitration.

On 26 September 1978, an official of the Commission, who must be presumed to have been duly authorized, ( 3 ) replied to the applicant, stating that its letter had been sent to the Commission delegate in Madagascar for him to investigate with the Malagasy authorities whether a decision had been taken on the spot. At the same time, it was pointed out in that letter that all correspondence in relation to the dispute should be sent to the Malagasy authorities, since it was their function to decide on the merits of the claim for compensation, whilst the Fund could intervene only at the request of the Malagasy Government (Annex 16 to the Application).

Contrary to statements made by the Commission at the hearing, partly in answer to a series of questions put by the Court, the only conclusion which can in my opinion be drawn from the text of that letter is that the prescribed internal coordination procedure between the two authorities, to which the correspondence set out above was devoted, had not yet yielded any agreement and that the Commission no longer recognized that the claim for compensation for the price rises which had occurred were even well-founded in principle. On that basis, I consider that it is entirely justified that the application challenges that letter in particular. Accordingly, I consider that letter conclusive as regards the question whether the application is out of time. In all the previous letters the result of the prescribed preliminary internal coordination procedure between the two authorities was clearly left open. Purely on the basis of the abovementioned statements made by the Commission at the hearing (inter alia to the effect that it regards itself as bound by an award made by the arbitration board provided for in Article 316 of the Special Conditions of Tender), that letter can in retrospect also be interpreted as stating that the Commission was ultimately leaving the solution of the dispute to the rules laid down for settling disputes between the applicant and the Malagasy authorities and that it regarded itself as bound by a solution arrived at by that means. However, the earlier correspondence, in the light also of the binding provisions set out above, was virtually bound to be interpreted by the applicant as meaning that without the prior approval of the Fund consultation on its part with the Malagasy authorities or even arbitration could never lead to a satisfactory result.

By letter of 21 September 1979 the applicant instituted the arbitration procedure (Annex 13 to the Commission's Objection of 31 March 1982). The arbitrators appointed met in April 1980 and, according to page 8 of the Commission's Objection of 31 March 1982, determined that the prescribed prior conciliation procedure had not been exhausted. ( 4 ) Prior to that, it had become apparent from a letter from the Malagasy authorities to the applicant of 16 January 1979 (Annex 1 to the Rejoinder) and from the applicant's reply of 12 March 1979 (Annex 1 to the Reply) that — doubtless as a result of the correspondence with the Directorate General for Development — a dispute had meanwhile also arisen between the applicant and the Malagasy authorities as to the method of calculation to be applied. Moreover, it is not disputed that, even after the interruption of the arbitration procedure (for which it gives a different explanation), the applicant went on trying, in letters of 8 August 1980, 19 January 1981 and 14 January 1982 (Annexes 9, 10 and 11 to the Commission's Objection of 31 March 1982), to reach an agreement with the Malagasy authorities.

2.3. Against the background of the abovementioned legislative and contractual provisions and the morass of correspondence and other facts which I have set out above, I shall now endeavour to assess the applicant's claim. Certainly, the three-cornered correspondence exchanged between the two authorities concerned and the applicant is no less reminiscent of the novels of Kafka than the coordination between two national institutions in the field of social security described by the Commission as Kafkaesque in Buccini (cited in my opinion preceding the judgment of 23 March 1982 in Case 79/81, [1982] ECR 1063). In TheCastle and The Trial by Kafka, as is well known, it is indeed clear that the citizen is the victim but it is not easy to ascertain who is responsible for that and what provisions are applicable.

3. The question of admissibility

3.1.

In its Objection of 31 March 1982 the Commission challenged the admissibility of the application. By order of 22 September 1982 the Court reserved its decision on that objection until the final judgment.

Chiefly, the Commission alleges in that regard that the applicant is misusing the second paragraph of Article 215 of the EEC Treaty in order to recover from the Community a contractual claim which it has against Madagascar (point 11 of the Objection). That main argument of the Commission will in my opinion have to be rejected. The applicant is, rightly or wrongly, complaining in particular that the Commission did not give the prior approval provided for in Article XX of the Financing Agreement to the claim for compensation which it had lodged with the Malagasy authorities and which those authorities regarded as well-founded. It claims that the Commission thereby ruled out a priori any possibility of the payment of compensation, even if an arbitration award had been made in its favour. The applicant further complains (rightly or wrongly) that the Commission many months later retracted its initial agreement both to the principle that compensation was payable and to the method of calculating it and finally, after almost three years, referred it back to the Malagasy authorities without any clear statement of its final position. The applicant's action is therefore clearly directed against a Commission measure which had detrimental legal consequences for it. The text of the correspondence produced also makes it clear that the Malagasy authorities, the local delegate of the Fund and the officials in Brussels constantly gave the applicant the impression that the the Commission's approval was a precondition for the success of its claim. As I have remarked, that is in complete accordance with the text of Article XX of the Financing Agreement. The Commission alone must be regarded as responsible for the resulting delay in the settlement of the claim for compensation, if not for the rejection of that claim in whole or in part which is alleged by the applicant to have taken place.

3.2.

The reference made by the Commission in that connection to the judgments of the Court in agricultural cases should be rejected forthwith. Those cases differ from the present case inasmuch as the national implementing measures at issue in the judgments on agriculture are not subject to the prior approval of the Commission, as the applicant itself observed in its pleadings. I repeat that both the Malagasy authorities and the Community officials concerned (in particular, the local delegate) constantly referred to that necessity for prior approval and repeatedly requested the applicant to be patient.

Moreover, the judgment in Case 238/79 (Ireks-Arkady v Council and Commission, [1979] ECR 2955), cited in point 15 of the Commission's Objection, recognizes that an action against the Community is in fact admissible where the claim is not for payment of an amount which is (definitely) owed by virtue of the Community provisions (to be applied by the national authorities) and a national court could not award that claim. The fact that the Commission draws a different conclusion from that judgment is undoubtedly connected with its assertion, which as I have already stated is untenable, that the action does not in fact challenge measures adopted by the Community itself (the blocking of the required prior approval and the pressure to await such approval exerted on the applicant until the letter of 26 September 1978). The Commission is also wrong to cite the judgment in Case 99/74, Grands Moulins des Antilles v Commission, [1975] ECR 1531, because paragraph 24 of that judgment expressly states that, in contradistinction to the present case, ‘any rights which it [Grands Moulins] may have against those [national] authorities cannot depend upon a prior financial authorization by the Community’ (emphasis added).

The extent to which prior financial authorization was not in fact required, even though it was stated to be required by the relevant provision, can be determined only from an examination of the substance. From the observations which counsel for the Commission devoted to that question in his first speech at the hearing it appears that the Commission even then regarded the financing of the compensation to be awarded and thus in practice the payment thereof as conditional upon prior approval. In any event, there still remains the question of the Commission's responsibility for giving the impression for almost three years that such prior authorization was in fact required.

3.3.

The Commission's final argument that the claim is out of time must also be rejected. From my analysis of the facts it has already become plain (see paragraph 2.2 of this Opinion) that the applicant's action is, rightly in my view, based in particular on the Commission's letter of 26 September 1978. I therefore confine myself in the main to referring the Court to that analysis. From the previous letters of 29 June and 10 August 1976 the applicant could in any event infer that consultation between the Commission and the Malagasy authorities was not yet concluded. Purely for the sake of clarity, I will repeat that the compensation claimed in the application concerns the damage which the Commission has caused the applicant inasmuch as it first approved and then rejected the method of calculating the loss proposed by the applicant and finally, in the aforesaid letter, referred the applicant back to the Malagasy authorities without making it clear that the coordination procedure between the Commission and Madagascar on a different formula had been concluded. Certainly it was not made clear on what basis that coordination procedure was ultimately concluded, in spite of the fact that previously, as I have already stated, the applicant had constantly been told by Commission officials that it was bound to wait for a clear attitude to be adopted by the Commission, or even a second addendum, before it could conclude the matter with the Malagasy authorities. The action was therefore lodged within the prescribed period of five years after the Commission measure which was ultimately conclusive as regards the damage complained of.

3.4.

The objection of inadmissibility raised by the Commission should therefore, in my opinion, be rejected. That conclusion cannot be altered by the fact that the Commission, in the last stage of the hearing, stated in answer to questions put by the Court that, as I have already described, it regarded itself, in spite of the relevant provisions to the contrary, as bound by an arbitration award. Apart from anything else, that statement does nothing to repair the considerable damage in the form of loss of interest which the applicant incurred as a result of the actions of the Community authorities. However, it is possible that as a result of the delays caused by the Commission it is also no longer possible to take up the internal procedures in Madagascar once again, and in particular to resume the arbitration procedure after exhaustion of the local conciliation procedures. In the course of the proceedings neither of the parties was able to provide an answer to that question.

Moreover, it must in any event be inferred from the Commission's statements at the hearing that, on resuming consultations with the applicant, the Malagasy authorities themselves cannot depart from the position subsequently adopted by the Commission with regard to the method of calculation, if they wish the compensation payable to be financed by the Fund. That legal consequence of the letter of 26 September 1978 from the Commission to the applicant is thus already finally established.

My conclusion that the application is admissible cannot be altered by the fact that the applicant also had certain differences of opinion with the Malagasy authorities both before and after the letter of 26 September 1978. As appears from Annexes 11 and 12 to the Application, before the letter of 26 September 1978 those differences of opinion concerned the amount of compensation payable on the basis of the applicant's method of compensation, which the Malagasy authorities had originally agreed to in principle. After the letter of 25 September 1978, the disagreement related to a different method of calculation then being proposed by those authorities on account of the Commission's objections to the original method of calculation (see the applicant's letter of 12 March 1979, Annex 1 to its Reply). It is logical that, in view of the Commission's objections to the original method of calculation and having regard to the provisions requiring prior approval by the Commission, the applicant ultimately considered that there was no point in continuing the arbitration procedure on the application of that method of calculation after exhaustion of the internal conciliation procedures in Madagascar.

4. The substance of the case

4.1.

From my analysis of the facts (Section 2.2 of this Opinion) it appears that the Commission admits both the existence of damage and the right to compensation in principle. I do not consider that the extent to which the Commission originally also approved the method of calculating the damage proposed by the applicant and the Malagasy authorities is ultimately of decisive importance in these proceedings. In the application the (contested) amount of the damage incurred is in any event adequately set out. Nor do I regard the fact that that amount is disputed by the Commission as relevant to the present proceedings.

4.2.

Basically, the Commission disputes that that damage should be imputed to faults committed by its officials in the exercise of their duties. On that point it is established from my detailed analysis of the facts that the Commission, through the officials by whom the correspondence was conducted, blocked the settlement of the requested compensation at least until 21 September 1978. Moreover, in answer to questions put by the Court towards the end of the hearing, the Commission expressly stated that it honours financial obligations resulting from arbitration awards such as those provided for in the provisions in question. On that ground alone the unlawfulness of the blocking of a settlement is, in my view, established. That the blocking of the consultations between the Malagasy authorities and the applicant was caused by the letters from Commission officials to the applicant is in the final analysis clear from the text of the letters. Also the letters to the applicant of 29 June 1976, 10 August 1976 and 21 September 1978, from which it appears that the Commission withheld its prior approval of the method of calculation proposed by the applicant, at first only provisionally but later definitively, must be regarded as having detrimental and binding legal consequences for the applicant. Indeed, those letters ruled out the possibility, which was important in practice, that the compensation claimed would be paid by the Fund, unless those legal consequences were annulled by means of the aforesaid arbitration procedure, a possibility which did not become apparent until later. In particular, as I have stressed above (Section 3.4), the possibility of direct agreement with the Malagasy authorities on the basis of the applicant's proposal was ruled out. Moreover, neither the letter of 21 September 1978 nor any previous letter furnished the applicant with a definite answer regarding a price-revision formula on the basis of which it could in fact reach an agreement with those authorities, in spite of the Commission's earlier announcement that it would adopt a definite position on that matter. According to the Court's judgment of 15 March 1967 in Joined Cases 8 to 11/66 (Cimenteries v Commission, [1967] ECR 75), on which the Commission wrongly sought to rely, letters with consequences of that kind must be regarded as decisions against which an action may be brought. According to the circumstances, this will either be an application for a declaration of nullity or an action for damages.

4.3.

Finally, there is also a causal connection between the Commission's blocking of consultations and the damage suffered by the applicant (or at least part of it). Not only on the basis of the provisions set out in Section 2.1 of my Opinion, but also on the basis of the letters sent it, which I examined in Section 2.2, the applicant was in fact bound to conclude that the prior approval by the Commission (the chief authorizing officer) of its claim for damages and the method proposed by it for calculating the damage suffered was a precondition of fruitful consultations with the Malagasy authorities {the local authorizing officer, as distinct from the local delegate controller of the Fund, who is an official of the Commission), or of arbitration.

4.4.

If it should appear that the possibilities of consultation, conciliation or arbitration in Madagascar on the basis of the liability admitted in principle under Article 304 of the first addendum to the contract by now no longer exist de facto or de jure (for example, as a result of the extinction of the right to arbitration), the Commission will have to be held liable for the entire damage. If either a settlement is reached with the Malagasy authorities (including the conciliation agencies) or an award is made by the arbitration board, it will still be possible for the applicant to sue the Commission before the Court of Justice for compensation for the loss of interest incurred as a result of the blocking measures and claimed in the application. The award of the arbitration board or any agreement which may have been reached earlier with the Malagasy authorities ( 5 ) will indeed, as appears from the Commission's statements at the hearing, be honoured. However, it does not seem likely that the arbitration board will consider that it has the power to make an award in respect of the applicant's additional costs caused by the Commission.

4.5.

Owing to the uncertainties which I have outlined, I regard an interlocutory judgment as ultimately unavoidable. It will be necessary, partly and provisionally, to leave the ultimate settlement of compensation to be determined by further action to be taken by the applicant in Madgascar. For that reason, but also by reason of the confusion caused by the actions of the Commission in relation to the proper division of responsibilities between the Community and the Republic of Madagascar, the wording of the Court's judgment will be of great importance in that regard for the applicant and also for the authorities of Madagascar and the arbitration board. In particular, it will in my view be possible for all the abovementioned statements of the Commission on that matter made in answer to questions put by the Court at the hearing to be formally recorded in the judgment of the Court. Apart from that, the judgment of the Court may also be important for the solution of similar problems which could arise in the completion of other projects financed by the Fund. It will thus be possible to provide the clarity needed in relation to responsibilities in ‘the castle of Kafka’ which the Commission has constructed.

5. Conclusion

For the reasons which I have set out above, I propose, in conclusion, that the Court should deliver an interlocutory judgment in which:

5.1.	It should declare the application well founded, without however determining the amount of compensation to be paid by the Community;

5.2.

The determination of the amount of compensation to be paid by the Community should be deferred until such a time as the applicant has exhausted the means at its disposal for the settlement of its disputes with the competent Malagasy authorities (direct consultation with those authorities, local conciliation procedures and the arbitration procedure provided for in the works contract);

5.3.

The applicant should be instructed to report to the Commission and the Court every six months on the progress made in the attempt to settle its dispute with the competent authorities of Madagascar and to give an account to the Commission and the Court on the exhaustion of the remedies available for the settlement of that dispute;

5.4.	Both parties should be instructed to deliver to the Court within six months of the last-mentioned account a report on any differences of opinion which may still exist with regard to the remaining scope of the Community's liability;

5.5.	The Commission should be ordered to pay the costs of the action to date.

Finally, I further observe that, in connection with the residuary liability of the Community which I have recognized in principle, the Commission also has an obvious interest in promoting a speedy settlement of the dispute between the applicant and the competent authorities of the Republic of Madagascar. I consider it desirable to order the Commission at this point to pay the costs to date because the proposed solution will certaintly require considerable time. I therefore do not regard it as reasonable to require the applicant to bear its own costs provisionally, pending the Court's final judgment.

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( *1 ) Translated from the Dutch.

( 1 ) Translator's note: An English version has been published ín ‘Collection of the Agreements concluded by the European Communities’, Volume 5, p. 468.

( 2 ) The last paragraph of page 2 of lhe letter in fact reads as follows: ‘Comme vous le savez, l'accord s'était établi avec l'administation, sur la proposition d'actualiser les prix unitaires des travaux dans lesquels intervient le bitume, à la date de septembre 1975’. On the basis of the abovementioned division of powers, on which the Commission has placed so much emphasis during the proceedings, the applicant could certainly assume that the agreement was reached by the competent Community authorities. In this respect the inerpretation given to that passage by the Commission on page 7 of the Defence and page 6 of the Rejoinder is not plausible.

( 3 ) In any event, his authority has never been disputed by the Commission during the proceedings before the Court; on the contrary, it has been implicitly acknowledged.

( 4 ) The accuracy of those assertions on the part of the Commission could neither be confirmed nor denied by the applicant's representative at the hearing, as he had not been adequately instructed as to the outcome of the arbitration procedure.

( 5 ) Such an agreement will thus be within the conditions laid down by the Commission for the method of calculation.

SUPPLEMENTARY OPINION OF MR ADVOCATE GENERAL

VERLOREN VAN THEMAAT

delivered on 26 February 1985 ( *1 )

Mr President,

Members of the Court,

1. Introduction

In view of the written and oral observations made by the parties following the reopening of the oral procedure, I wish to make the following remarks to supplement my Opinion of 10 April 1984. When the Court reopened the oral procedure it sent a letter to the parties, asking the following five questions:

‘(1)

Can the Commission give even an approximate estimate of the loss which in its view was suffered as a result of “the difficulties which arose with regard to payment for the work involving asphalt products after the dramatic rises in the price of asphalt in November 1973 and March 1974”, of which the Directorate General for Development, was, as is clear from the letter of 29 June 1976 from the delegate of the European Development Fund, “fully aware”?

(2)

Apart from the letter from the Commission's delegate dated 29 June 1976, are there any other facts supporting the claim that the Commission acknowledged that compensation should be paid?

(3)

Do the Malagasy authorities accept that the prices in question should in principle be revised, and have they reached an agreement on that point with the European Development Fund?

(4)

Can the Commission explain to the Court why the problem of the price of asphalt, which arose at the end of 1973, had still not been solved when an application was made to the Court on 20 January 1982, nine years later?

(5)

During the negotiations on the revision of prices, did the applicant state that pending such revision it intended to discontinue the work, and did it decide to continue the work following promises and assurances given by the Commission's delegate?’

The most important new facts are to be found in the replies to the second and third questions. As they are also relevant to the replies given to the other questions, I shall consider the new facts first.

2. The applicant's replies to the second, third and fourth questions

2.1.

The documents contained in Annexes 8 to 15 to the applicant's replies (which were lodged before the Court on 20 September 1984) had not been submitted to the Court previously. They show that after receiving the letter from the delegate of the European Development Fund (hereinafter referred to as ‘the Fund’) dated 10 August 1976 the applicant was not inactive but until 21 January 1978 tried to reach an agreement directly with the Malagasy authorities. That is of particular importance in connection with the Court's fourth question on the reasons for the long delay in settling the claim for a price revision. The only other important new fact (relevant to the Court's second and third questions) that I have found in those letters is the statement made by the Malagasy authorities in an interview on 2 September 1977, referred to on page 4 of Annex 13, showing that even then they still maintained their position on the method to be adopted in recalculating prices (that is over a year after the letter of 10 August 1976, in which the delegates informed the applicant inter alia that the Commission had requested the Malagasy authorities to examine the price revision formally proposed by the Commission). Apart from that nothing in the new document leads me to alter or add to my original opinion.

2.2.

Of more importance in connection with the second and third questions are the new documents (which were stated at the hearing to have been received from the Malagasy authorities) annexed to the applicant's supplementary reply dated 9 October 1984. The letter dated 26 March 1976 from the delegate of the Fund to the Secretary-General of the Ministry of Public Works (Annex 1 to the supplementary reply) confirmed that the delegate had no objection to the revised unit prices for asphalt which had been submitted to him, except in relation to a consignment of 2400 tonnes of asphalt which, according to the contract, should have been received before December 1973 and should therefore have been purchased before the rises in the price of petroleum products. That letter also set out the method of price revision on the basis of the new unit prices which in the delegate's opinion should be adopted and which should subsequently be laid down in an administrative order concerning the asphalt to be used after the aforesaid date. Finally, the attention of the Malagasy authorities was drawn to the delay in the execution of the works which, owing to the limited funds available, would be the result of an immediate application of the price revision. The next letter from the delegate to the Secretary-General, dated 15 April 1976 and contained in Annex 2, confirmed that such a price revision was clearly needed. However, it added that the department concerned in Brussels preferred a general reassessment of the price-revision formula, on the ground that it wished to eliminate the effect of two factors in that formula which were favourable to the applicant. The delegate requested the Malagasy authorities to submit new proposals to him on that basis. From the Secretary-General's reply, dated 18 May 1976 (Annex 3), it is clear that he regarded the alternative solution proposed as contrary to the original conditions of tender. He also challenged the Commission's claim that a revision solely of unit prices for asphalt would place the applicant at an unfair advantage compared with other tenderers. He repeated that the price-revision formula agreed with the applicant seemed to him the only proper formula and recalled that the delegate had himself agreed to it, except in relation to the 2400 tonnes already referred to, the price of which he agreed should not be revised. The letter writen on 2 December 1976 to the delegate of the Fund by the chief engineer of the project in Madagascar (Annex 4 to the supplementary order) confirmed that it had been agreed that all the applicant's claims (in particular, the asphalt problem and compensation for damage suffered as a result of cyclones) would be settled on completion of the work ‘conformément aux chiffes arrêtés lors de la dernière mission de programmation FED’.

3. The Commission's replies to the second and third questions

The new information set out above forms part of the applicant's replies to the second and third questions asked by the Court. The Commission states in reply to the second question that, in its view, there is no factual basis for that contention. In the light of the facts to which I have referred in my first Opinion and the new information submitted by the applicant, that reply must be regarded as a repudiation of the letters which the Commission's delegate wrote to the applicant and to the competent Malagasy authorities. In giving that reply, the Commission also appears to repudiate the statements made by its representatives at the first hearing, to which I referred in my previous Opinion. It can hardly be denied that the letters referred to acknowledged that the applicant was entitled to compensation for the loss suffered as a result of the rise in the price of asphalt.

So far as the third question put by the Court is concerned, the Commission recognized in its written reply that the Malagasy authorities were originally inclined to seek a solution in the adjustment of the unit prices, as had been requested by the applicant. As regards the second part of that question, asking whether an agreement was reached on that point between the Fund and the Malagasy authorities, the Commission is somewhat evasive in its written reply, stating that after consultations between the Commission and the Malagasy authorities the latter opted for the complete amendment of the price- revision formula, as had already been set out in the letter from the delegate to the applicant dated 10 August 1976. The Commission also recalls in its reply that the Malagasy authorities invited the applicant by a letter of 16 January 1979 to collaborate in the application of that formula.

With regard to that reply, I would comment first that it is absolutely clear from the letters from the Malagasy authorities which have been put in evidence by the applicant that they did in fact recognize that a price revision was necessary and also that the method of revision proposed by the applicant was in principle correct. Secondly, I would observe that from the letter of 10 August 1976 it does not appear, as the Commission suggests in its reply, that the Malagasy authorities had at that time agreed to the general method proposed by the Commission. As I have already stated in my previous Opinion, it appears from that letter only that the Commission had requested the authorities to examine the new price-revision formula which it regarded as more correct and that the delegate advised the applicant to cooperate in that examination. On the basis of Annex 13 to the applicant's reply, to which I have already referred, it seems to me likely that even in September 1977 the Malagasy authorities still maintained their original position on the price-revision method to be applied.

Lastly, it is clear from the Commission's reply to a question which I asked at the hearing that, contrary to the assumption which I made in my original Opinion, no agreement has ever been reached between the Fund and the Malagasy authorities on the implementation of the method of price revision, which it is clear from the letter of 10 August 1976, was favoured by the Commission (in the form of a draft addendum to the contract, for example). The Commission merely inferred from the letter written to the applicant by the Malagasy authorities on 16 January 1979 that they had finally agreed to its preferred method of price revision. It should therefore in fact have answered the second part of the third question asked by the Court in the negative. Consequently, I maintain my previous conclusion (set out in paragraph 4.2 of my Opinion of 10 April 1984) that at least until 26 September 1978 the Commission unlawfully blocked the settlement of the claim for compensation. In reply to my question at the hearing the Commission was unable to give any indication of the result of its consultations with the Malagasy authorities after 10 August 1976.

4. The Commission's reply to the first question

With regard to the first question asked by the Court, the Commission stated in its written reply that it was unable to indicate the amount resulting from any adjustment of the prices specified in the contract to take account of the rise in the price of asphalt between November 1973 and March 1974. It added that the applicant could have avoided the consequences of those price rises if, as it ought to have done, it had ordered the required quantity of asphalt before the last few months of 1973.

On the basis of the correspondence put before the Court by the applicant, I consider that view tenable at most in relation to the 2400 tonnes of asphalt which, according to the contract, the applicant ought to have used before the end of 1973. Without deciding whether the applicant is correct in stating that for technical reasons supplies of asphalt should not be obtained more than one month before use, I consider that it is in any case unjustifiable to claim, with the benefit of hindsight, that the applicant should, in making its purchases, have taken account of rises in the price of petroleum products which were at that time unforeseeable, and that it ought therefore to have purchased all the asphalt which it would need before those price rises occurred. As I stated in my previous Opinion, that question would in any event have to be determined by the arbitration board before the Court gives a final judgment. However, in relation to the reply as a whole, I regard it as more significant that the Commission (again at the hearing) did not dispute the passage cited earlier from the letter written by the chief project engineeer in Madagascar, which stated that agreement had been reached on the amount of compensation. On that point it simply stated at the hearing that it regarded the submission of the correspondence annexed to the applicant's supplementary replies as questionable. As I have already pointed out, it stated in reply to a question which I asked that it had no information concerning the result of the consultations held between the Commission and Madagascar after August 1976.

5. The Commission's reply to the fourth question

The Commission attributes the delay in a settlement to the inertia of the Malagasy authorities between August 1976 and January 1979 and to the complete absence of any cooperation from the applicant, which preferred first to initiate, and subsequently to abandon, the arbitration procedures. It denies all responsibility for that delay, stating that action on its part was dependent upon a proposal from the associated State and that it had invited that State to examine such a proposal as early as August 1976. Finally, it stresses that, according to Article 25 of Regulation No 229/72 of 28 January 1972 establishing the rules of operation of the European Development Fund, it is obliged to intervene only in cases where the chief authorizing officer replaces the local authorizing officer owing to delay in payment of an uncontested debt.

My first comment on that reply is that it only concerns the delays which arose after 10 August 1976. Secondly, I will recall my previous conclusion, that the Commission must be regarded as responsible at least for (in my view unlawfully) blocking the settlement of the claim up to 26 September 1978.

6. The parties' replies to the fifth question

It seems to me that the letters which have just been put in evidence by the applicant provide further grounds, in addition to the documents which I examined in my Opinion of 20 April 1984, for challenging the Commission's reply to the fifth question, and in particular its claim that the delegate did not agree to correct the unit prices concerned.

7. Final remarks and conclusion

The arguments put forward by the parties at the hearing give me little cause for further comment. The applicant's arguments reinforce the factual foundation of my conclusions. The Commission was certainly right in stating at the hearing that the Fund had not itself incurred any binding obligation towards the applicant. As I have already shown, however, I do not consider that the Commission's responsibility must be founded on obligations of that kind. Moreover, as the Commission rightly remarked in its subsequent argument, that would not be conceivable in the framework of the division of responsibilities between the Fund and Madagascar. It seems to me, however, that the Commission's reference in that connection to the judgment of the Court of 10 July 1984 in Case 126/83 (STS Consorzio v Commission, [1984] ECR p. 2769) is especially misconceived, since paragraph 20 of that judgment expressly leaves open inter alia the question whether an application may be made under the second paragraph of Article 215 of the EEC Treaty. As I have already stated, I still consider that the Commission is responsible by reason of its wrongful blocking of an agreement between the applicant and the Malagasy authorities. Subject to the supplementary observations which I have made today, I thus maintain the view set out in paragraph 4.2 of my Opinion of 20 April 1984.

Finally, I regard as of some importance the explanation provided at the sitting, in reply to questions put by the Court, as to the grounds on which the Commission could not accept the method of price revision proposed by Madagascar. I do not feel that I am in a position to determine whether those arguments are tenable in the light of the counterarguments of the Malagasy authorities which were put forward by the applicant. I remain of the opinion, however, that in view of the division of powers between the Community and Madagascar only the arbitration board can give a ruling — which, as I established in my original opinion, would also be binding on the Community — on that critical issue.

In conclusion, I therefore consider that the new information — some of which is important — obtained following the reopening of the oral procedure gives me no reason to alter the Opinion which I delivered on 10 April 1984. The grounds on which that Opinion was based are, however, to be supplemented and amended in accordance with this Supplementary Opinion.

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( *1 ) Translated from the Dutch.