Dear Mr G.,

On 24 January 2000, you lodged a complaint with the European Ombudsman concerning the interruption of a contract BD/SM (272) R/2893 by the EAC (European Association for Co-operation - in liquidation).

On 31 January 2000, I forwarded the complaint to the President of the European Commission. The European Commission sent its opinion on 17 May 2000 and I forwarded it to you with an invitation to make observations, if you so wished. I did not receive any observations from you.

I am now writing to let you know the results of the inquiries that have been made.

THE COMPLAINT

Background

The EAC (European Association for Co-operation) was an association created under Belgian law aiming at concluding contracts for Directorate General Development (DG VIII) of the European Commission. The EAC's administrative board was composed of Commission officials. At some stage, given the tight links between the EAC and the Commission, this way of awarding community funds was found to be inappropriate. On 31 December 1998, EAC ceased its activities and was put in liquidation.

Complaint

In 1998, C2G Conseil was contracted by the EAC to carry out an audit in Guinea-Bissau. An advance payment amounting to 25,000.00 ECU was made. Because of a civil war in Guinea-Bissau, the mission foreseen in the contract had to be interrupted two days after it begun. At that time, it appeared that the EAC had the intention to carry on with the contract after the normalisation of the situation in Guinea-Bissau. In October 1999, C2G Conseil was informed that the situation had changed and that the World Bank had not taken over the contract. In the meantime, the EAC requested C2G Conseil to pay back the advance it had received, except the 5,148.00 € which corresponded to the costs of the aborted mission.

C2G Conseil considered that the it should also be paid for the loss of earnings resulting from the refusal to carry on with the contract further to the normalisation in Guinea-Bissau. It therefore considered that an appropriate reimbursement would amount to 1,652.00 € and that it was entitled to withhold 18,200.00 € as a compensation for the loss of earnings. C2G Conseil's efforts to negotiate with the EAC's liquidator led to no agreement. C2G Conseil therefore lodged a complaint with the European Ombudsman against the European Commission.

In summary C2G Conseil made following allegations:

1. The political situation in Guinea-Bissau which motivated the interruption of the contract is now consolidated and the contract could be carried out as foreseen.
2. The EAC refuses to compensate for C2G Conseil's loss of earnings.

THE INQUIRY

The European Commission's opinion

The opinion of the European Commission on the complaint was in summary the following:

The Community accepted to participate in an internationally supported structural adjustment programme led by the International Monetary Fund (IMF) and agreed to support the restructuring of the domestic debt in Guinea-Bissau. On the Commission's request, the EAC therefore contracted C2G Conseil to carry out an audit.

Shortly after the beginning of the contract, a civil war broke out in Guinea-Bissau and the settlement of domestic arrears was no longer a priority. The funds were later used to assist the country to overcome the consequences of the civil war. When the situation normalised, the World Bank took over to help the local government in addressing the domestic debt problem. Upon the Commission's suggestion, C2G Conseil was among three consultants proposed by the World Bank to the government for conducting an audit financed by the World Bank. C2G Conseil was not selected.

Despite the events of force majeure which had led to the interruption of the audit, C2G Conseil decided to ask EAC to keep the contract open in view of a possible normalisation of the situation. On 31 December 1998, EAC was put in liquidation. In September 1999, the liquidator, considering that the basis of the contract concluded with C2G Conseil had disappeared without fault of any of the parties, asked for the reimbursement of 19,852.00 €, corresponding to the part of the advance payment for which no work had been done. C2G Conseil in turn accepted to reimburse only 1,652.00 € insisting on keeping 18,200.00 € as net profit.

The Commission believes that it has acted in good faith and acted reasonably. Furthermore, "[it] considers that it is its duty to recover advance payments for which no countervalue is received because of circumstances beyond its control and outside its own sphere of liability and it is its responsibility to refuse payments of unearned profits to which C2G Conseil has no claim under these circumstances."

The complainant's observations

The complainant did not hand in any observations.

THE DECISION

1 Continuation of the contract

1.1 According to the complainant, the political situation in Guinea-Bissau which motivated the interruption of the contract is now consolidated and the contract could be carried out as foreseen.

1.2 The Commission argued that although it had been maintained open during a long period of time after the interruption of the works, the contract had ceased by frustration.

1.3 The Ombudsman notes that in the present case the contract was interrupted by exceptional circumstances, i.e. a civil war. The funds foreseen for the contract were used for more urgent matters. Furthermore, after the civil war, the new Guinea-Bissau government decided to award a similar auditing contract financed by the World Bank to a competitor of C2G Conseil. There is no indication in the file that it would still have been possible to carry on with the contract despite Guinea-Bissau's decision to have its domestic debt audited by another company.

1.4 The reasons which made the Commission consider that the contract had ceased by frustration appear to be reasonable. The inquiry has therefore revealed no instance of maladministration as regards this aspect of the case.

2 Compensation for the loss of earnings

2.1 The EAC refuses to compensate for C2G Conseil's loss of earnings.

2.2 The Commission argued that the contract had ceased by frustration and that the EAC bore no responsibility in the cessation of the contract. Therefore there was no reason to pay for work which the company had not carried out or to pay a compensation.

2.3 According to the Treaty establishing the European Community, the Community may pay damages on the basis of contractual or non-contractual liability(1).

2.4 Nothing in the file indicates that the complainant had any contractual rights to compensation in case of cessation of the contract by frustration. Nor is there any indication as to the EAC's or the Commission's responsibility in the cessation of the contract. Neither contractual, nor non-contractual liability applies in the present situation.

2.5 The Commission's refusal to compensate the complainant's alleged loss of earnings appears to be reasonable. The Ombudsman therefore considers that this aspect of the case has revealed no instance of maladministration by the European Commission.

3 Conclusion

On the basis of the European Ombudsman's inquiries into this complaint, there appears to have been no maladministration by the European Commission. The Ombudsman has therefore decided to close the case.

The President of the European Commission will also be informed of this decision.

Yours sincerely,

 

Jacob SÖDERMAN

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(1) Article 288 EC.