REPORT FOR THE HEARING — CASE C-358/90
duty imposed on the Commission by
Regulation No 3877/88 to ensure that
the disposal of vinous alcohol does not
disturb the markets in alcohol and
spirituous beverages, or create additional
difficulties in other sectors or affect
competition with the products for which
alcohol may serve as a substitute.
If it is not to be in breach of the duty to
state reasons laid down in Article 190 of
the Treaty, a Commission decision
refusing to take action on a special
tender procedure in which valid tenders
have been submitted may not be confined
to stating mere factual observations
which influenced it but must also, in a
field in which the Commission has a
wide power for the assessment of
complex economic situations, state the
REPORT FOR THE HEARING
in Case C - 3 5 8 / 9 0 *
I — Facts
1. The legislation applicable
1. Council Regulation (EEC) No 822/87 of
16 March 1987 (OJ 1987 L 84, p. 1) lays
down rules on the common organization of
the market in wine. Articles 35 and 36 of
that regulation concern the distillation of
* Language of the case: English.
I - 2458
effect which they had on the evaluation
of the risk of market disturbances.
;2. Since the Commission is placed under a
duty by Regulation No 3877/88 to
ensure that the disposal of vinous alcohol
does not disturb the markets, it is normal
for it to require strict guarantees from
the undertakings wishing to participate in
tender procedures organized for such
disposal. The fact that those guarantee
conditions exclude from the procedure
undertakings which are unable to satisfy
those conditions does not constitute a
breach of the principle of equal treatment
as laid down in Article 40(3) of Regu-
lation No 822/87 and Article 1(2) of
Regulation No 3877/88. Such an
exclusionary effect is inherent in any
guarantee condition.
certain wine products. Article 37 provides
that the disposal of the products of such
distillation which are held by the inter-
vention agencies must not cause any
disturbance of the market in alcohol and
spiritual beverages produced in the
Community and that, to that end, they are
to be disposed of in other sectors, and in
particular in the fuel sector, each time
disposal is likely to bring about such
disturbance.
 COMPAGNIA ITALIANA ALCOOL v COMMISSION
2. Article 39 of Regulation No 822/87
deals with the compulsory distillation of
table wine. In that regard, Article 40(3)
provides that:
'Products taken over by the intervention
agency or products derived from their
processing shall be disposed of either by
public auction or by a tendering procedure.
They shall be disposed of in a manner
which ensures that:
— the alcohol can be sold on the market in
the normal way for the various uses,
— any disturbance of the markets in
alcohol and spiritual beverages is
avoided,
— equality of access to the merchandise
and equality of treatment of prospective
purchasers if guaranteed.'
3. The general rules on the disposal of
alcohol obtained from the distillation
operations referred to in Articles 35, 36 and
39 of Regulation (EEC) No 822/87 and
held by intervention agencies are laid down
in Council Regulation (EEC) No 3877/88
of 12 December 1988 (OJ 1987 L 346,
p. 7). According to those rules, such alcohol
is to be disposed of in tender procedures
since such procedures offer the advantage of
being generally more accessible to operators
in the alcohol sector than auction
procedures.
4. According to Article 1(2) of Regulation
No 3877/88, the conditions governing invi-
tations to tender must ensure equality of
treatment for all interested parties wherever
they are established in the Community.
Admission to tender procedures is, however,
restricted by Article 1(4) to interested
parties who have guaranteed compliance
with their obligations by putting up a
security.
5. Article 2 of the same regulation provides
that the Commission may, in accordance
with the Management Committee procedure
provided for in Article 83 of Regulation No
822/87, either take action on the tenders
received or take no action, for each
tendering procedure, which may be subject
to special conditions, particularly to avoid
market disruptions.
6. Commission Regulation (EEC) No
1780/89 of 21 June 1989 lays down detailed
rules for the disposal of alcohol obtained
from the distillation operations referred to
in Articles 35, 36 and 39 of Regulation No
822/87 and held by intervention agencies
(OJ 1989 L 178, p. 1). It provides for three
types of invitation to tender for the disposal
of such alcohol: standing invitations to
tender, individual invitations to tender and
special invitations to tender. Article 1(2) of
the regulation provides that 'invitation to
tender' is to mean the organization of a
competition among interested parties in the
form of a call for bids, the contract being
awarded to the party submitting the most
advantageous bid complying with the rules
laid clown in the regulation.
7. The fifth recital of the preamble to that
regulation states in this regard that the
objective of invitations to tender is to obtain
I - 2459
 REPORT FOR THE HEARING — CASE C-358/90
the most favourable price, the contract
having to be awarded to the tenderer
offering the highest price where the
Commission decides to take action in
respect of tenders. According to the next
recital, the Commission may also decide not
to take action in respect of tenders received
in order not to affect competition with
products which the alcohol may replace.
8. Title III of Regulation No 1780/89
contains provisions relating to special invi-
tations to tenders. Each invitation to tender
is to be published in the Official Journal of
the European Communities. Notices issuing
special invitations to tender are to state the
conditions of tender and to fix a time-limit
for the submission of tenders. Article 18 of
Regulation No 1780/89 provides in this
regard that each invitation to tender is to
relate to two lots which are to be covered
by one removal order and that tenders are
to be invited for the price of the first lot, the
price of the second lot being determined
according to the price agreed for the first
lot, as adjusted by a coefficient to be
specified in the notice issuing the invitation
to tender.
9. Article 23(1) of the regulation provides
that within 15 working days of the last date
for the submission of tenders the
Commission may decide either to award a
contract or to make no award. Article 23(3)
requires the Commission immediately to
notify tenderers in writing and against a
receipt of the decision taken on their tender
and similarly to notify the intervention
agencies holding the alcohol.
10. If the Commission decides to award a
contract, it must, according to Article 23(2)
of Regulation No 1780/89, accept the
highest tender. Article 24 provides that the
I - 2460
successful tenderer is then to obtain, within
the 20 days following receipt of the notifi-
cation referred to in Article 23(3), a
statement of award from each of the inter-
vention agencies concerned and provide at
the same time proof that a performance
guarantee has been lodged with that agency
to ensure that the alcohol constituting the
first lot is in fact used for the purposes
specified in the notice of invitation to
tender.
11. Articles 25 to 28 of Regulation No
1780/89 concern the times and
arrangements for the removal of the
alcohol. According to Article 26(1), the
removal of the second lot must not begin
until after the removal of the first lot.
Article 26(2) provides that before the second
lot is removed successful tenderers are to
provide proof that a performance guarantee
relating to that lot has been lodged.
2. The contested measures
12. The Commission organized a first series
of special tender procedures in 1986, for
which the performance guarantee had been
fixed at ECU 80 per hectolitre of alcohol.
No contract was awarded pursuant to those
procedures.
13. In 1989, the Commission again
organized a number of special sales by
tender for large quantities of alcohol for use
as motor fuel within the Community. A
single guarantee of ECU 40 per hectolitre
was required, lot by lot, to serve as both
performance guarantee and removal
guarantee. Those procedures did not lead to
any actual awards.
 COMPAGNIA ITALIANA ALCOOL v COMMISSION
14. On 5 September 1990 the Commission
decided, by Regulation (EEC) No 2575/90
(OJ 1990 L 243, p. 22) and Regulation
(EEC) No 2576/90 (OJ 1990 L 243,
p. 24), to open two tender procedures
concerning alcohol held by the Italian and
French intervention agencies. The provisions
of Regulation No 1780/89, as amended by
Commission Regulation (EEC) No 2568/90
of 5 September 1990 (OJ 1990 L 243,
p. 11), were applicable to those procedures.
15. The amendments made by Regulation
No 2568/90 concern, inter alia, Articles 24
and 26 of Regulation No 1780/89. The
amended version of the second indent of
Article 24(2) provides that the successful
tenderer must provide proof of the lodging
of a performance guarantee to ensure that
the total quantity of alcohol for which a
contract is awarded is in fact used for the
purposes specified in the notice of invitation
to tender unless the Commission has
decided to replace such guarantee by the
obligation for the successful tenderer to
submit until final use to an inspection by an
international surveillance firm as well as
proof of the lodging of a removal guarantee
to ensure that the alcohol constituting the
first lot is removed within the time-limit
stipulated. The amended Article 26 provides
that the successful tenderer must also
provide proof that the removal guarantee
has been lodged in respect of the second lot
before the removal of that lot, which may
not take place before the first lot has been
removed.
16. Those new provisions are both more
stringent and more flexible than the original
provisions. They are more stringent for two
reasons: the performance guarantee must be
provided in respect of the total quantity of
alcohol for which a contract is awarded and
the _ successful tenderer must provide
additional guarantees for removal. They arc
more flexible inasmuch as the performance
guarantee may be replaced by surveillance.
17. The reasons for those changes are
explained in the fifth and sixth recitals of
the preamble to Regulation No 2568/90:
'Whereas, in the case of special sale by
tender, a lower performance guarantee, the
purpose of which is to ensure that the
alcohol awarded is put to the intended use,
should be required than for other types of
tendering procedure given the possibility for
supervising and checking the use of the
alcohol concerned within the Community;
whereas the said performance guarantee
may even be replaced by inspection by an
international surveillance firm until the
alcohol in question has been put to its final
use;
Whereas the successful tenderer should be
obliged to lodge a removal guarantee in
respect of each lot in a special sale to ensure
that the alcohol is physically removed within
the time-limits laid down so as to reduce the
financial costs associated with the storage of
certain alcohols; whereas the timetable for
the physical removal of the alcohol awarded
should be revised accordingly.'
18. As regards the replacement of the
performance guarantee by surveillance, it is
also necessary to point out that the third
recital in the preamble to Regulation No
2568/90 refers to the need to give tenderers
I-2461
 REPORT FOR THE HEARING — CASE C-358/90
certain assurances as regards supplies and to
take account of the cost of the investments
that need to be made in processing plants
for the use of vinous alcohol for use as
motor fuel within the Community.
19. For special tender procedures Nos 5/90
EC and 6/90 EC, provided for by Regu-
lations Nos 2575/90 and 2576/90
respectively, the Commission decided to
replace the performance guarantee by
inspection by an international surveillance
firm. It fixed the removal guarantee for the
first lot at ECU 40 per hectolitre of alcohol
at 100% vol. for both procedures (OJ 1990
C 224, p. 10).
20. The Commission took no action on the
tenders received in special tender
procedures Nos 5/90 and 6/90. On 26
November 1990, it decided, by Regulation
(EEC) No 3389/90 (OJ 1990 L 327, p. 19)
and Regulation (EEC) No 3390/90 (OJ
1990 L 327, p. 21), to organize two new
special tender procedures for the same
quantities of alcohol as those involved in
procedures Nos 5/90 and 6/90. The rules
applicable to those new procedures,
numbered respectively 7/90 EC and 8/90
EC, are those laid down by Regulation
No 1780/89. Those rules were amended by
the Commission in Regulation (EEC) No
3391/90 of 26 November 1990 (OJ 1990
L 327, p. 23).
21. The fresh amendments made by Regu-
lation No 3391/90 also concern Articles 24
and 26 of Regulation No 1780/89.
According to the new version of Article 24,
the performance guarantee, which must be
I - 2462
provided in respect of the total quantity of
alcohol awarded, may no longer be replaced
by inspection by an international
surveillance firm. On the other hand, the
provision of a removal guarantee is no
longer required by the amended Article 26.
Those amendments are explained as follows
in the first recital of the preamble to Regu-
lation No 3391/90:
'Whereas, for special sales of alcohol by
tender, a single performance guarantee
should be required for the purpose of
ensuring that the alcohol awarded is
removed and put to the intended use, in
particular in the fuel sector in the
Community, to be released in proportion as
the successful tenderer supplies the proof of
use for the intended purpose with the view
to simplifying the system of guarantees
required.'
22. The second recital goes on to state that
the prices to be paid for the alcohol
awarded should follow more closely the
fluctuation of fuel prices on international
markets.
23. For the two new special tendering
procedures, the Commission fixed the level
of the performance guarantee at ECU 90
per hectolitre of alcohol for the total
quantities put up for sale, namely 3 200 000
hectolitres in procedure No 7/90 EC and
1 600 000 hectolitres in procedure No 8/90
EC (OJ 1990 C 296, p. 9).
 COMPAGNIA ITALIANA ALCOOL v COMMISSION
3. Facts
(a) The product in question
24. In Europe there is no demand for
alcohol as a substitute for petrol. However,
there is some demand for alcohol from oil
companies for blending with petrol. Alcohol
may also be used as a petrol additive.
(b) The applicant
25. Compagnia Italiana Alcool SaS di
Mario Mariano & Co. (hereinafter 'CIA')
is a company incorporated under Italian law
having its registered office in Naples. It is a
joint venture, whose two major shareholders
are Palfin SpA, of Naples, the parent
company of the Palma group, and Distilleria
del Salerno SpA, of Gallipoli, a company
belonging to the Marrone group. The two
parent companies of CLA. are both active in
the alcohol business and regularly
participate in tenders organized by the
Community.
26. Those two companies decided to create
CIA which brings together the production
capacity required for the processing of
alcohol for use in the fuel sector within the
Community from the quantities sold by the
Commission out of intervention stocks. For
that purpose CIA has entered into a
co-operation agreement with the American
company La Tropicana, of Irving, Texas,
concerning technology and know-how in
the use of alcohol in the fuel sector.
(c) The course of the contested tendering
procedures
27. On 8 September 1990, the Commission
published the notices of invitation to tender
for procedures Nos 5/90 EC and 6/90 EC
(OJ 1990 C 224, p. 10 and p. 15). For
procedure No 5/90 EC, the Commission
received a tender from CIA at ECU 4.52
per hectolitre. For procedure No 6/90 EC,
several tenders were submitted. CIA's tender
at ECU 4.40 per hectolitre, submitted for
that procedure, was not valid, however,
since it had not observed the time-limit for
the submission of tenders.
28. On 28 September 1990, a director of
CIA, Mr A. Palma, went to Brussels in
order to discuss tenders submitted by CIA
under the two tendering procedures.
29. On 11 October 1990, the Commission
proposed to the Management Committee
for Wine that no action be taken on bids
received under the two special tendering
procedures on the ground that the inter-
national markets needed transparency and
the situation of the international markets at
that time was unstable. Those proposals
were accepted by the Committee.
30. On 18 October 1990, the Commission
adopted two decisions in conformity with
the opinions given by the Management
Committee. It considered that no action
should be taken on the special tendering
procedures in view of the offers received for
the first lot and taking into account the
situation on the world market for fuel at
that time.
I - 2463
 REPORT FOR THE HEARING — CASE C-358/90
31. Those decisions were notified to CIA in
November 1990 by registered letters. The
letter concerning procedure No 5/90 EC,
signed by a director of Director-General VI
of the Commission, is worded as follows:
'In conformity with Article 23 of Regulation
(EEC) No. 1780/89, I inform you that the
Commission has decided not to retain your
offer for the sale by tender referred to
above in view of the offers received and
taking into account the situation on the
world market in fuel.
The Commission will decide on a reopening
of the special sales of the vinous alcohol
concerned within the shortest possible
delay.'
32. The letter concerning procedure 6/90
EC was worded in the same way except that
it was stated that the decision was taken
independently of the admissibility of the
tender received from CIA.
33. On 27 November 1990, the
Commission published the notices of invi-
tation to tender relating to procedures Nos
7/90 EC and 8/90 EC (OJ 1990 C 296,
p. 9 and p. 14). In respect of those two
procedures, the Commission decided on 22
January 1991 to accept two tenders each at
ECU 3 per hectolitre. The tender accepted
for procedure No 8/90 EC was made by the
company Palma, the company controlled by
Palfin, which is one of the parent companies
of CIA. The Commission had also received
for that procedure a tender from the other
group controlling CIA. However, that
tender was not valid.
I - 2464
II — Procedure and forms of order sought
by the parties
34. CIA's application was received at the
Registry of the Court on 7 December 1990.
35. By a separate document, lodged at the
Registry of the Court on the same day, the
applicant also applied, under Article 186 of
the EEC Treaty, for interim measures
suspending the application of Regulations
(EEC) Nos 3389/90 and 3390/90 until the
Court had given judgment in the main
action.
36. By order of 19 December 1990, the
President of the Court dismissed that
application.
37. Originally, CIA's application concerned
both the sale of the quantities of alcohol
governed by procedure No 5/90 EC and
the sale of the quantities governed by
procedure No 6/90 EC. In its reply lodged
at the Registry of the Court on 6 May 1991,
the applicant stated that it was withdrawing
that part of its application relating to the
Commission's decision not to take action on
tenders submitted under procedure No 6/90
EC.
38. The applicant, CIA claims that the
Court should:
(i) declare void the decision of the
Commission not to take action on
 COMPAGNIA ITALIANA ALCOOL v COMMISSION
tenders submitted under special tender-
procedure No 5/90 EC concerning the
sale of vinous alcohol held by inter-
vention agencies;
(ii) order the Commission to award
contracts on the basis of tenders
submitted under special tender
procedure No 5/90 EC concerning the
sale of vinous alcohol held by inter-
vention agencies, applying the criteria
set out in Article 23(2) of Regulation
(EEC) No 1780/89;
(iii) order the European Economic
Community to compensate fully all
damage suffered by the applicant as a
result of the decision to be declared
void pursuant to the claim set out above
and as a result of the Commission
selling the same lots of alcohol initially
covered by special tender procedure No
5/90 EC, through special tender
procedure No 7/90 EC, such damages
still to be specified by the applicant;
(iv) take any further measures which the
Court may deem necessary or appro-
priate;
(v) order the Commission to pay the costs
of the applicant.
39. The Commission, the defendant,
contends that the Court should:
(i) dismiss the application as unfounded;
(ii) order the applicant to pay the costs of
the proceedings.
40. Upon hearing the report of the Judge-
Rapporteur and the views of the Advocate
General the Court decided to open the oral
procedure without any preparatory inquiry.
Pursuant to Article 95(1) and (2) of the
Rules of Procedure, the Court, by decision
of 24 September 1991, assigned the case to
the Sixth Chamber.
III —Pleas in law and arguments of the
parties
41. The first part of CIA's application seeks
the annulment of the Commissions's
decision of 18 October 1990 not to accept
CIA's tender under special tender procedure
No 5/90 EC and a declaration that the
organization by the Commission of special
tender procedure No 7/90 EC covering the
same lots of alcohol as procedure No 5/90
EC is illegal. The second part of CIA's
application seeks compensation for the
damage which it claims to have suffered as a
result of the Commission's unlawful conduct
in relation to the two abovementioncd
special tender procedures.
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 REPORT FOR THE HEARING — CASE C-358/90
1. The first part of the application: The claim
for annulment and for a declaration of
illegality
(a) The claim for the annulment of the
Commission's decision of 18 October 1990
42. CIA considers that the Commission's
decision of 18 October 1990 is unlawful on
two grounds: it (i) does not meet the
reasoning requirements laid down in Article
190 of the EEC Treaty and (ii) contravenes
Regulations Nos 822/87 and 3877/88.
(i) The reasoning of the decision
43. CIA considers that the reasoning of the
decision rejecting the tender, as notified in
November 1990, is incomprehensible and
does not enable either CIA or the Court to
verify whether the Commission took into
account the limits to its discretion laid down
in Regulations Nos 822/87 and 3877/88. In
particular, it fails to explain in any way why
the award of contracts in question could
lead to a disturbance of the market.
44. That defect is particularly flagrant since
the contested decision concerns a relatively
infrequent special tender procedure relating
to very large quantities of alcohol and there
was no circumstance or urgent reason
compelling the Commission to put forward
such rudimentary reasoning for its decision.
I - 2466
45. Consequently, the decision does not
satisfy the requirements of Article 190 of the
EEC Treaty, as laid down by the Court in
its judgment in Case 294/81 {Control Data
Belgium v Commission [1983] ECR 911,
paragraphs 12 to 15). In the present case,
that infringement of Article 190 constitutes
a breach of essential procedural
requirements, entailing the nullity of the
contested decision as a whole, since it does
not state in any way at all the reasons which
led the Commission to reject CIA's tender.
46. According to the Commission, it is clear
from the case-law of the Court of Justice
that the requirement to give reasons laid
down by Article 190 of the EEC Treaty is
practical rather than purely formal
(judgment in Case C-350/88 Biscuits
Delacre v Commission [1990] ECR I-395,
paragraph 29). That requirement is satisfied
if a sufficiently clear statement of the
objectives pursued is given (judgment in
Case C-331/88 Fedesa [1990] ECR 1-4023,
paragraph 29). In the present case, the
preamble to the contested decision
specifically refers to the regulation
governing its terms and procedures.
47. Moreover, the contested decision
provides two reasons: the 'offers received'
and the 'current situation on the world
market in fuel'. Those reasons, and the
general context in which the decision was
adopted made it possible for CIA, as a
specialized undertaking in the sector
concerned, to discern clearly the reasons for
the decision not to award a contract under
procedure No 5/90 EC. Whether the
reasoning of a decision is sufficient does not
depend only on its wording but also on its
context (judgment in Biscuit Delacre, cited
above, paragraph 16).
 COMPAGNIA ITALIANA ALCOOL v COMMISSION
48. The Commission contends alternatively
that any incompleteness in reasoning in the
present case does not constitute an
infringement of essential procedural
requirements. It refers in this regard to the
Opinion of Advocate General Lenz in Case
45/86 (Council v Commission [1987] ECR
1494), according to which the expression
'infringement of essential procedural
requirements' cannot mean that every
imprecision or incompleteness in reasoning
constitutes a failure to state reasons such as
to entail the nullity of the legal instrument
as a whole. In the present case, however,
the obligation to state reasons was not
essential since CIA could ascertain all of the
reasons by referring to the entire legal
context and non-observance of that obli-
gation did not therefore cause it any actual
damage.
(ii) The requirements of Regulations Nos
822/87 and 3877/88
49. CIA contends that the Commission's
decision rejecting CIA's tender for the
contract is contrary to the principle of equal
treatment, as laid down in Article 40(3) of
Regulation No 822/87 and in Article 1(2)
of Regulation No 3877/88. That principle
requires that the tender procedure must be
conducted according to objective criteria
announced in advance.
50. In the present case, however, the
Commission took its decision according to
subjective criteria which were determined by
the nature of the undertaking to which it
wished to award a contract for the lots of
alcohol covered by tender procedure No
5/90 EC. That undertaking was the
American company Union Carbide. During
informal talks with the Commission, that
undertaking had stated that it was prepared
to make the necessary investments for the
use of vinous alcohol in the fuel sector,
provided that supplies were assured. That
guarantee of supplies was likely to be jeop-
ardized since it turned out that CIA had
submitted the best bid under special tender
procedure No 5/90 EC. CIA believes that it
was this circumstance which led the
Commission to decide not to award a
contract under that procedure.
51. CIA considers that the Commission
cannot justify that discriminatory conduct
by referring to the third recital of the
preamble to Regulation No 2568/90, which
mentions the need to give tenderers certain
assurances as regards supplies and to take
account of the cost of the investments that
need to be made in processing plants for the
use of vinous alcohol in the fuel sector
within the Community. There is no indi-
cation in that recital that the contract in
question was to be reserved for under-
takings such as Union Carbide which had
made such investments. Furthermore, such a
condition was not laid down either in Regu-
lation No 2575/90 or in the notice of invi-
tation to tender in procedure No 5/90 EC.
52. CIA therefore considers that the
Commission could not decline to award it
contracts for the lots in question because its
tender fulfilled all the objective conditions
which the Commission had announced. It
also considers that the other reasons which
the Commission put forward during these
proceedings in order to justify its decision
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 REPORT FOR THE HEARING — CASE C-358/90
are contradictory, unfounded and advanced
too late.
53. In that regard, CIA considers first of all
that the Commission's arguments advanced
during the proceedings are contradictory.
During the proceedings for interim relief,
the Commission attempted to justify its
negative decision by claiming that the price
tendered by CIA was not sufficiently high
and that it could legitimately expect to
obtain a better price on account of the
events in the Gulf. However, after the war
in that region had in fact started, the
Commission awarded the contracts for the
lots of alcohol in question at a price
considerably lower than that which CIA
initially bid.
54. The crisis in the Gulf had no impact at
all on tender procedure No 5/90 EC.
Indeed, the decision to open that procedure
was taken one month after hostilities had
broken out. Furthermore, it is difficult to
see how the effects of those hostilities on
the development of petrol prices in the short
term could have any significant effect on the
level of a tender contract having a lifetime
of five years.
55. CIA contends, secondly, that the
Commission could not claim that there was
any risk that the sale of the lots of alcohol
concerned would disturb competition with
products which may be replaced by such
alcohol and that the terms of tender relating
to the guarantees ought therefore to have
been reviewed. While it is true that the
Commission must take care that such a risk
does not occur, nevertheless it must lay
I - 2468
down tendering conditions designed to
avoid such a risk at the time when the
tender procedure is being organized and
may not decline to award contracts to
tenderers which have observed them.
56. CIA further considers that in the
present case there was no risk that the
alcohol for which a contract was to be
awarded would be used for purposes other
than those laid down and that therefore
there was no reason to replace the super-
vision of performance, provided for by
Regulation No 2568/90, by a performance
guarantee of ECU 90 per hectolitre. That
kind of risk is certainly no greater in the
case of sale for the use of alcohol within the
Community than in the case of sale relating
to use outside the Community. Nor can it
be argued that the use of alcohol as an
additive presents less risk of fraud than the
use of alcohol for blending with petrol.
57. Finally, there were no grounds in this
case for considering that CIA would not
take up the total quantity of alcohol
awarded and that it was therefore necessary
to extend the guarantee to all the alcohol
for which a contract was to be awarded.
CIA points out in this regard that it has
made investments so as to have the
production capacity needed to process all
the lots and that these long-term measures
would have enabled it to comply with its
contractual obligations. Moreover, it is
wrong to argue that an undertaking such as
Union Carbide, which has installed new
production facilities, would observe its
take-up obligations more scrupulously than
an undertaking already on the market since
 COMPAGNIA ITALIANA ALCOOL v COMMISSION
both types of undertaking must cope with
problems of return on their investments.
58. The Commission contends that the
discretion conferred upon it by Article 23(1)
of Regulation No 1780/89 allowed it to
take into account factors not expressly
referred to in the tender conditions. In the
present case, it took into consideration the
following factual circumstances.
59. Tender procedure No 5/90 EC had
been designed so as to attract undertakings
which would invest in the production plant
necessary for processing alcohol into
additives. Such investment provides a real
guarantee that those undertakings will take
up all the quantity awarded. Furthermore,
supervision of the use of the alcohol as an
additive is less complicated than supervising
the blending of alcohol with petrol.
Consequently, the guarantee conditions
could be less stringent. The bid received
from CIA under procedure No 5/90 EC did
not meet the considerations which brought
about those more flexible guarantee
conditions. CIA was neither a new entrant
on the market which had invested in the
necessary production plant nor an under-
taking having as its purpose the use of the
alcohol awarded as an additive.
60. Another factor to be taken into
consideration was the Gulf crisis. At the
beginning of the crisis it was quite justifiable
to take the view that the sale of alcohol for
use as fuel could be achieved at a price
higher than the ECU 4.52 per hectolitre
actually bid by CIA. The Commission could
not foresee at that time that petrol prices
would stabilize some months later.
However, it could anticipate that the level
of petrol prices would not remain as high
throughout the period of the removal of the
alcohol awarded. It was therefore necessary
to review the guarantee conditions.
61. Besides those considerations relating to
the market in question, the Commission also
took account of the fact that CIA had not
tendered a price substantially higher than
that it had bid in previous sales by tender
and of the fact that the effectiveness of the
guarantees was not assured if the lots were
awarded to CIA. As regards this last factor,
the Commission points out that the liability
of the parent companies with regard to CIA
is limited, that the CIA's modest investments
would have allowed it to abandon the
project without great losses, that the super-
vision of performance of CIA's obligations
would have been complicated because it
intended to use the alcohol for blending
with petrol and, finally, that CIA did not
have the experience necessary for operating
in the fuel sector.
62. The Commission considers that a
decision taken on the basis of such objective
criteria cannot be regarded as being
contrary to the principle of equal treatment.
Consequently, the identity of the tenderers
did not influence that decision in any way.
That wholly objective approach is,
moreover, borne out by the fact that the lots
of alcohol covered by procedure No 8/90
EC were awarded to the Palma group and
that the parent companies of CIA are
generally successful in other tender
procedures organized by the Commission.
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 REPORT FOR THE HEARING — CASE C-358/90
(b) The organization by the Commission of
special tender procedure No 7/90 EC
63. CIA considers that special tender
procedure No 7/90 EC is illegal for several
reasons. First, since procedure No 7/90 EC
relates to the same lots of alcohol as
procedure No 5/90 EC, the nullity of the
decision not to take action on procedure No
5/90 automatically entails the nullity of the
consecutive decision. CIA refers in this
regard to the judgment of the Court of First
Instance in Case T-37/89 (Harming v
Parliament [1990] ECR II-463).
64. Secondly, the conditions of tender for
procedure No 7/90 EC and in particular the
condition relating to a guarantee of
ECU 90 per hectolitre are contrary to
Regulation No 2568/90 and in particular to
the fifth recital of its preamble, which refers
to the requirement for a lower guarantee.
CIA points out in this regard that it is that
regulation which applies to procedure No
7/90 EC, provided for by Regulation No
3389/90, and not Regulation No 3391/90,
because the latter regulation is subsequent
to Regulation No 3389/90 whose first
recital makes express reference to Regu-
lation No 2568/90. In any case, Regulation
No 3391/90 contains no indication as to the
appropriate level of guarantee.
65. Thirdly, the tender conditions for
procedure No 7/90 EC are quite dispropor-
tionate compared with those for previous
procedures, in particular those governing
procedure No 5/90 EC, which applied two
months before the opening of sale by tender
No 7/90 EC. It is astonishing that the
Commission should decide to change its
policy on guarantee conditions in such a
I - 2470
drastic way and in such a short period of
time.
66. Fourthly, the new guarantee conditions
are contrary to Article 40(3) of Regulation
No 822/87 and Article 1(2) of Regulation
No 3877/88 because in practice they do not
allow small and medium-size undertakings
to participate in the tender procedures
concerned. Such exclusion is manifestly
contrary to the principle of equal treatment
guaranteed by those articles.
67. As regards the first ground relied on by
CIA, the Commission considers that the
reference to the judgment of the Court of
First Instance in Manning v Parliament, cited
above, is not relevant because that case
concerned a series of decisions relating to a
single post to be filled by an official. In the
present case, however, the Commission is
well able to honour its obligations relating
to tender procedure No 7/90 EC even if the
decision concerning tender procedure No
5/90 EC were to be annulled.
68. As regards the second ground advanced
by CIA in its reply, the Commission submits
that Article 42(2) of the Rules of Procedure
of the Court preclude the raising of fresh
issues during the proceedings. In any event,
the fresh argument is unfounded because it
is clear that it is Regulation No 3391/90
which applies to the procedures opened by
Regulations Nos 3389/90 and 3390/90.
Those three regulations were published on
the same day and the notice of invitation to
tender published for tender procedure No
7/90 EC expressly refers to Regulation No
 COMPAGNIA ITALIANA ALCOOL v COMMISSION
3391/90. The reference to Regulation No
2568/90 in the first recital of the preamble
to Regulation No 3389/90 is only a simple
drafting error which in no case could
mislead those affected (judgment in Case
C-27/90 SITPA v Oniflhor [1991] ECR
I-133, paragraph 13).
69. With regard to the third ground, the
Commission explains first of all that in
drawing up the new guarantee conditions it
took account of the market instability
caused by the Gulf crisis and considerations
of simplification. The guarantee of ECU 90
per hectolitre for all the lots for which a
contract was to be awarded guaranteed
proper performance of the contract and
take-up of all the quantity awarded. The
Commission acknowledges that the new
conditions were likely to lead to slightly
reduced bids. It denies, however, that the
conditions were disproportionate in relation
to the objectives pursued and that they
represented a radical change of policy. It
points out in this regard that the guarantee
of ECU 90 was not substantially bigger
than the performance guarantee of ECU 80
required in 1986.
70. As regards the fourth ground, the
Commission contends that the guarantee
conditions were certainly not impossible to
meet by undertakings such as CIA. That
undertaking is a joint venture between two
large groups which regularly undertake the
distillation of large quantities of alcohol.
Nothing prevented those two groups from
making a joint bid under procedure No
7/90 EC.
71. Finally, the Commission considers that
CIA ought in any case to have attempted to
win contract No 7/90 EC even if it was
opposed to the guarantee conditions. Such
action would probably have mitigated its
losses.
2. The second part of the application: The
claim for compensation for the damage
suffered
72. CIA considers that all the conditions
laid down by the Court with regard to the
non-contractual liability of the Community
are fulfilled. In adopting its negative
decision of 18 October 1990 and organizing
tender procedure No 7/90 EC, the
Commission committed a misuse of power
and contravened the fundamental principle
of equal treatment. Those infringements
constitute a sufficiently serious infringement
of superior rules of law for the protection of
individuals.
73. The effect of those infringements was
that CIA was excluded from obtaining lots
of alcohol put up for sale under tender
procedures Nos 5/90 EC and 7/90 EC. The
guarantee conditions for procedure No
7/90 EC were so onerous that it was
impossible for CIA to obtain the necessary
bank cover. Nor could such cover be
obtained by CIA's parent companies which
had already taken part in procedure No
8/90 EC concerning a smaller quantity of
alcohol and could therefore no longer
afford to participate, individually or jointly,
in procedure No 7/90 EC.
74. CIA is not yet in a position to
determine exactly the damage resulting from
that exclusion since the exact amount of the
damages depends on the sale price of the
finished product during the life of the
contract awarded and the purchase prices
I - 2471
 REPORT FOR THE HEARING — CASE C-358/90
with respect to lots for which a price has
not yet been fixed. However, according to a
provisional estimate, the loss of profits
amounts to ECU 16 576 000 (green).
75. The Commission contests in the first
place the reality of the damage which CIA
claims to have suffered and challenges CIA's
estimates of the amount of that damage. It
points out that the sale price of the finished
product is lower than that advanced by CIA
so that any loss of profit is also lower.
76. The Commission considers next that
there is no casual link between the damage
and its own conduct. CIA could have
mitigated the damage if it had submitted
tenders under procedures Nos 7/90 EC and
8/90 EC. The guarantee conditions for
procedure No 7/90 EC were not prohibitive
for the participation of CIA, which is a joint
venture specifically created in order to
participate in large tenders of this type and
whose parent companies are major
distilleries. If those companies had so
desired, CIA could have participated. This is
borne out by the fact that those companies
could afford to submit competing bids in
procedure No 8/90 EC (1.6 million hecto-
litres). Together, they could therefore have
submitted a bid in procedure No 7/90 EC
(3.2 million hectolitres).
77. The Commission also takes the view
that CIA cannot be considered to have
suffered or to be about to suffer any real
damage because it could have passed on any
losses to the Commission by lowering its
offer price in the following tender
procedure in order to take account of the
additional cost of the guarantee.
78. Finally, the Commission contends that
there has been no sufficiently flagrant
I - 2472
breach of a superior rule of law in the
present case. CIA's allegation of a lack of
reasoning for the decision not to award
contracts concerns only a procedural rule; it
is not sufficient to constitute a manifest and
grave disregard by the Commission of the
limits on its powers. As regards the alle-
gation that it acted in breach of the prin-
ciples of proportionality and equal
treatment in organizing procedure No 7/90
EC, the Commission explains that it simply
adopted the guarantee measures which were
necessary in the case (judgment in Case
C-331/88 Fedesa, cited above, paragraph
14) and that this did not constitute a sudden
and unexpected change of policy.
79. The Commission also refers to the
judgment in Joined Cases 83/76 and 94/76,
4/77, 15/77 and 40/77 (HNL v Council and
Commission [1978] ECR 1209), according
to which individuals may be required to
accept within reasonable limits certain
harmful effects on their economic interests
caused by a legislative measure even if that
measure has been declared null and void.
The Commission recognizes that the new
guarantee conditions might cause financial
problems to small distributors. It states
however that in order to participate in
special tender procedures governing large
quantities of alcohol, an undertaking must
possess either the necessary plant and
know-how for processing alcohol into fuel
or the means to acquire such plant and
technology. Those conditions can neces-
sarily be fulfilled only by an undertaking of
a certain size.
P. J. G Kapteyn
Judge-Rapporteur