Case C-340/04, Carbotermo & Consorzio v. Comune di Busto Arsizio

The Court last Thursday further defined the Teckal and Parking Brixen criteria.

In Case C-340/04, the Comune di Busto Arsizio had, on 22 September 2003, issued a call for tenders for the supply of fuel and for the maintenance and upgrading of the heating installations if its buildings.

A month later, the municipality decided to suspend the call for tenders in the light of a judgment from the Consiglio di Stato.

In December 2003, the municipality withdrew the call for tenders and awarded the contract in question directly to AGESP.

On its turn, AGESP, after a call for tenders, inter alia for the supply of diesel oil and for technical upgrading, awarded contracts to several undertakings.

Carbotermo and Consorzio Alisei were not among the successful tenderers and brought actions against the municipality's decisions to suspend the call for tenders and to award the contract to AGESP.

The national court referred two questions to the European Court of Justice, asking essentially about the compatibility with and applicability of
Directive 93/36/EEC.

The start with the latter; the Court has already held that the Directive applies when there is an agreement between two separate persons. It has held that it is, in principle, sufficient if the contract was concluded between, on the one hand, a local authority and, on the other, a person legally distinct from that local authority.

In Teckal, the Court stated that “the position can be otherwise only in the case where the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments and, at the same time, that person carries out the essential part of its activities with the controlling local authority or authorities." (para. 50, link below)

In the present case, the referring Court asked whether the latter requirement may be regarded as being fulfilled when such an undertaking carries out the essential part of its activities with the controlling authority or when it carries out the essential part of its activities in the territory of that authority.

The Court of Justice held that "the undertaking in question can be viewed as carrying out the essential part of its activities with the controlling authority within the meaning of Teckal only if that undertaking’s activities are devoted principally to that authority and any other activities are only of marginal significance." (para. 63)

To determine whether this is the case, the competent court must take into account all the facts of the case, both qualitative and quantitative.

The Court held that the activities of the successful undertaking which must be taken into account are all those activities which that undertaking carries out as part of a contract awarded by the contracting authority.

This is regardless of:

  • who the beneficiary is, whether it be the contracting authority itself or the user of the services provided
  • who pays the undertaking in question, whether it be the controlling authority or third-party users of the services provided under concessions or other legal relationships established by that authority.
  • the territory where the activities are carried out.

The referring Court also asked - in its first question - whether the direct award of the public supply contract to AGESP was compatible with Directive 93/36, considering that the Comune di Busto Arsizio holds 99.98% of the share capital of AGESP Holding, which holds 100% of the share capital of AG

The Court argued that at first glance it hence seemed that the municipality exercises over AGESP a control similar to that which it exercises over its own departments.

The Court however reiterated in order to establish whether this condition is fulfilled it is necessary to take account of all the legislative provisions and relevant circumstances. The contracting authority must hold a decisive influence over both strategic objectives and significant decisions of the successful tenderer (see Parking Brixen, paragraph 65).

The Court held that the statutes of AGESP Holding and AGESP conferred on the Board of Directors of each of those companies “the broadest possible powers for the ordinary and extraordinary management of the company”.

According to the statutes, the municipality had no control or specific voting powers for restricting the freedom of action conferred on those Boards of Directors.

The Court argued that the control exercised by the Comune di Busto Arsizio could be described “as consisting essentially of the latitude conferred by company law on the majority of the shareholders, which places considerable limits on its power to influence the decisions of those companies.” (para.38)

The Court furthermore argued that any possible control on AGESP could only be exercised through a holding company. It held that “the intervention of such an intermediary may, depending on the circumstances of the case, weaken any control possibly exercised by the contracting authority over a joint stock company merely because it holds shares in that company.” (para.39)

Therefore, the Comune di Busto Arsizio did not exercise over AGESP a control similar to that which it exercises over its own departments. The direct award of the contract to AGESP was hence incompatible with Directive 93/36/EEC.

Text of Judgment

See also my post on C-410/04, ANAV v. Bari and AMTAB

Relevant case law:

Case C-107/98 Teckal [1999] ECR I‑8121

C-458/03 Parking Brixen, nyr