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Article 228 EC - Portugal Ordered to Pay Penalty Payment: Case C-70/06

By Bartolus

The Court of Justice in Case C-70/06 Commission v. Portugal ordered Portugal to pay a periodic penalty payment of ?19,392 (US$ 28,493.64) per day for failing to comply with its previous judgment in Case C-275/03 Commission v. Portugal.

In its judgment in Case C-275/03 Commission v. Portugal the Court of Justice had held that Portugal had failed to comply with Article 1 §1 and Article 2 §1(c) of Directive 89/665 on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts by making the award of damages to persons harmed by a breach of Community law relating to public contracts, or the national laws implementing it, conditional on proof of fault or fraud.

Portugal did not repeal the offending national legislation and so the Commission brought fresh proceedings under Article 228 EC. The Commission asked the Court to impose a penalty payment until such time as Portugal complied with the judgment in Case C-275/03. It did not ask for a lump sum, however, because it brought the action under its Communication 96/C 242/07 of August 21st 1996 on applying Article [228] of the EC Treaty, and Communication 97/C 63/02 of February 28th 1997 concerning the method of calculating the penalty payments provided for pursuant to Article [228] of the EC Treaty which provided for periodic penalty payments only, unlike its Communication of December 2005 (SEC (2005) 1658) which takes account of the judgment of the Court of Justice in Case C-177/04 Commission v. France.

In Case C-70/06 - the first in which Portugal was ordered to pay a penalty payment - the Court found for the Commission.

But a close reading of the judgment shows how surprisingly interesting it is. The Court repeated its traditional case law according to which it must assess in each case, in the light of the circumstances of the case, the financial penalties to be imposed (Case C?304/02 Commission v France, paragraph 86, and Case C?177/04 Commission v. France, paragraph 58). The Commission?s suggestions do bind the Court but are a useful point of reference (see Case C-387/97 Commission v. Greece, paragraph 80, and Case C-278/01 Commission v. Spain, paragraph 41). Similarly, guidelines such as those contained in the communications of the Commission do not bind the Court but contribute to ensuring that the action brought by that institution is transparent, foreseeable and consistent with legal certainty (see, Case C?304/02 Commission v France, paragraph 85, and Case C?177/04 Commission v France, paragraph 70).

It restated that the basic criteria to be taken into account to ensure that penalty payments have coercive force and Community law is applied uniformly and effectively are, in principle, the duration of the infringement, its degree of seriousness and the ability of the Member State to pay. In applying those criteria, regard should be had in particular to the effects of failure to comply on private and public interests and to the urgency of inducing the member State concerned to fulfill its obligations (see, inter alia, Case C?304/02 Commission v France, paragraph 104, and Case C?177/04 Commission v France, paragraph 62). What happens is that a basic amount per day is multiplied by coefficients representing the gravity of the infringement, its duration and the ability of the member State to pay.

In this case, the Court held that the Commission had assessed the degree of seriousness of the infringement too severely.

On the other hand, the Court was more severe than the Commission in other respects. The Court sort of indexed linked the ability of Portugal to pay. The coefficient of 3.9 suggested by the Commission did not adequately reflect the evolution of the factors which are at the basis of the evaluation of Portugal?s ability to pay, in particular, as regards the growth of its gross domestic product. Therefore, the Court looked at point 18.1 of the Commission's Communication of 2005 for inspiration and raised it from 3.9 to 4.04. Similarly, the basic amount to which the multiplier coefficients are applied must be fixed at ?600, in accordance with the indexing of the amount of ?500 set by the Commission in point 15 of that communication, in order to take account of movements in inflation since the publication of the Communication of 1997. The Court also held that the Commission's calculation of the duration of the infringement did not take proper account of its full duration from the moment the Court handed down its judgment in Case C-275/03 and should not include some grace period as suggested by the Commission.

That's how the Court arrived at a figure of ?19,392 for every day of delay in implementing the measures necessary to comply with the judgment in Case C?275/03 whereas the Commission had suggested a figure of ?21,450 (US$31,517.56) per day.

Full post as published by EU Law Blog on January 28, 2008 (boomark / email).