Dorsch Consult Ingenieurgesellschaft mbH v EU Council (Case C-237/98 P)

• Jurisdiction: European Union
• Court: Court of First Instance
• Date: 28 April 1998

Court of First Instance of the European Communities (Second Chamber)

(Bellamy, President; Kalogeropoulos and Tili, Judges)1

Dorsch Consult Ingenieurgesellschaft mbH

and

Council of the European Union and Commission of the European Communities

Economics, trade and finance — Economic sanctions — Consequences — Responsibility for damage resulting from sanctions — European Community law — Imposition of sanctions upon Iraq — Iraqi counter-measures — Whether causing loss — Whether loss attributable to Community measures or to United Nations Security Council resolution requiring imposition of sanctions

International organizations — United Nations — Security Council — Enforcement action — Resolution 661 (1990) — Imposition of economic sanctions upon Iraq following Iraqi invasion of Kuwait — Purpose of sanctions — European Community — Legislation implementing United Nations sanctions upon Iraq — Whether serving justifiable general interest — Whether Community institutions liable to compensate company suffering loss through Iraqi non-payment of debts

War and armed conflict — Aggression — Consequences — Iraqi invasion of Kuwait — Economic warfare — Imposition of economic sanctions by United Nations Security Council — The law of the European Community

Summary: The facts: —The applicant, Dorsch Consult Ingenieurgesellschaft mbH (‘Dorsch’), a German company, was owed approximately 2.3 million Deutschmarks by a department of the Government of Iraq in respect of construction work. In February 1990, the Iraqi Government department had acknowledged the debt and instructed an Iraqi bank to transfer the amount to Dorsch's account. On 2 August 1990, Iraq invaded Kuwait. The United Nations Security Council determined that the invasion constituted a breach of international peace and, on 6 August 1990, adopted Resolution 661 (1990) which required all States to impose economic sanctions upon Iraq. Resolution 661 was implemented in the European Community (‘the Community’) in part by Council Regulation (EEC) 2340/90 adopted on 8 August 1990 on the basis of a proposal from the Commission of the European Communities. On 16 September 1990 the Higher Revolutionary Council of Iraq adopted Law No 57 which froze all property and assets and the income from them held at material times by the governments, undertakings, companies and banks of those States which had adopted ‘arbitrary decisions’ against Iraq. Dorsch maintained that it had not received payment of the sums owed to it, because of the Iraqi reaction to the sanctions imposed by Regulation 2340/90, which, according to Dorsch, was a direct and foreseeable counter-measure. It therefore brought proceedings against the Council and the Commission under Article 215 of the European Economic Community Treaty, claiming compensation for the loss of the sums which it should have received from Iraq. The principal claim was based on the principles of Community law regarding compensation for losses caused by a lawful act. An alternative claim was made, however, on the basis of an argument that Regulation 2340/90 was unlawful.

Held: —The application was dismissed.

(1) Dorsch had failed to demonstrate that it had suffered actual and certain damage. Although Dorsch had not been paid, it had not shown that the Iraqi authorities had definitively refused to pay or that Dorsch had availed itself of all available remedies. Law No 57 had been repealed by Iraq on 3 March 1991, following the end of hostilities, and after that date there should have been no legal obstacle to the recovery by Dorsch of the sums due to it (pp. 383–6).

(2) Even if Dorsch had established that it had suffered actual and certain damage, that damage would not have been caused by the Regulation. The preamble to Law No 57 referred to the ‘arbitrary decisions’ of certain governments but made no reference to the Community. Law No 57 could not, therefore, be regarded as a direct and foreseeable counter-measure occasioned by the Regulation. Moreover, even if Law No 57 was a counter-measure, it had to be attributed to Security Council Resolution 661, not to the Regulation. Although Article 25 of the United Nations Charter imposed obligations to implement Resolution 661 only upon the members of the United Nations, those members which were also members of the Community were able to implement Resolution 661 only under the European Community treaties, because the imposition of a trade embargo fell within the exclusive competence of the Community under Article 113 of the European Economic Community Treaty. Regulation 2340/90 was adopted in order to give effect to Resolution 661 and any alleged damage which resulted could be attributed only to the Resolution and not to the Community implementing measures (pp. 386–8).

(3) Under Community law, there was a duty to compensate for the consequences of a lawful act only if the act affected a particular circle of economic operators in a manner disproportionate by comparison with others (‘unusual damage’) and the injury thus occasioned exceeded the limits of the economic risks inherent in operating in the particular sector without the legislative measure in question being justified by a general economic interest. Neither of these requirements had been satisfied. Law No 57 and other Iraqi measures affected all Community undertakings which were owed money by Iraq at 6 August 1990. The amounts involved were estimated at US $18 billion. The damage allegedly suffered by Dorsch was not, therefore, unusual. Nor was it special damage, since the Iran-Iraq War had demonstrated the high risk of doing business in Iraq. Moreover, the imposition of sanctions in response to the Security Council resolution was designed to serve the important general interest in bringing to an end the occupation of Kuwait and restoring international peace and security (pp. 388–93).

(4) The alternative claim for damage for an unlawful act had to be rejected for the same reasons (pp. 393–7).

The following is the text of the judgment of the Court:

Judgment

Facts

1 The applicant, Dorsch Consult Ingenieurgesellschaft mbH, is a German limited company established in Munich (Germany) whose principal activity is engineering consultancy in various countries.

2 On 30 January 1975 the applicant concluded with the Ministry of Works and Housing of the Republic of Iraq (hereinafter “the Iraqi Ministry”) a contract for services relating to the organisation and supervision of works on the construction of Iraqi Expressway No. 1. The contract, which was for a minimum period of six years, was subsequently renewed several times for the purposes of execution and supervision of the abovementioned works. Article X of the contract provided inter alia that, in the event of differences arising as to the interpretation of the contract or non-performance of contractual obligations, the contracting parties were to endeavour to find an acceptable solution by conciliation (Article X(1)). In the event of the differences persisting, the matter was to be referred to the Planning Board, whose decision would be final and binding. However, no decision taken in relation to the contract could prevent the contracting parties from bringing a dispute before the competent Iraqi courts (Article X(2)).

3 According to the documents before the Court, outstanding debts owed to the applicant by the Iraqi authorities at the beginning of 1990 for services rendered under the abovementioned contract were acknowledged in two letters, dated 5 and 6 February 1990, from the Iraqi Ministry to an Iraqi bank, Rafidian Bank, directing it to transfer the sums due to the applicant to the latter's bank account.

4 On 2 August 1990 the United Nations Security Council adopted Resolution No 660 (1990) to the effect that there had been a breach of international peace and security resulting from Iraq's invasion of Kuwait and that Iraqi forces should withdraw immediately and unconditionally from the territory of Kuwait.

5 On 6 August 1990 the United Nations Security Council adopted Resolution No 661 (1990) in which, declaring that it was “mindful of its responsibilities under the Charter of the United Nations for the maintenance of international peace and security” and noting that the Republic of Iraq (hereinafter “Iraq”) had not complied with Resolution No 660 (1990), decided to impose an embargo on trade with Iraq and Kuwait.

6 On 8 August 1990 the Council, referring to the “serious situation resulting from the invasion of Kuwait by Iraq” and to United Nations Security Council Resolution No 661 (1990), adopted, on a proposal from the Commission, Council Regulation (EEC) No 2340/90 of 8 August 1990 preventing trade by the Community as regards Iraq and Kuwait (OJ 1990 L 213, p. 1, hereinafter “Regulation No 2340/90”).

7 Article 1 of Regulation No 2340/90 prohibits as from 7 August 1990 the introduction into the territory of the Community of all commodities or products originating in, or coming from, Iraq or Kuwait and the export to those countries of all commodities or products originating in, or coming from, the Community. Article 2 of the same regulation prohibits as from 7 August 1990 (a) all activities or commercial transactions, including all operations connected with transactions which have already been concluded or partially carried out, the object or effect of which is to promote the export of any commodity or product originating in, or coming from, Iraq or Kuwait; (b) the sale or supply of any commodity or product, wherever it originates or comes from, to any natural or legal person in Iraq or Kuwait or to any other natural or legal person for the purposes of any commercial activity carried out in or from the territory of Iraq or Kuwait; and (c) any activity the object or effect of which is to promote such sales or supplies.

8 According to the documents before the Court, on 16 September 1990 the “Higher Revolutionary Council of the Republic of Iraq”, referring to “arbitrary decisions by...