C-70/74

3. Officials — Remuneration — Pensions — Adjustment — Calculation — Methods — Recourse to two indices — Lower index — Choice — Admissibility — Criteria (Decision of the Council of 20 and 21 March 1972)

1. The Council cannot, to escape an public remuneration in respect of the obligation, plead a discretion, the period when these factors had not yet exercise of which it has itself been included in the salaries. determined. 3. If, in a permanent system of 2. The criteria of generality and adjustment of salaries in which the permanence of the salaries and measure of the variation in the allowances to be taken into account in national salaries must result from the the specific index used for the joint consideration of two indices, the purpose of calculating the adjustment Council systematically and without of salaries, mean that only valid reason adopts the lower index, it emoluments paid regularly and on a would be disregarding an essential legal basis or under fixed rules to all factor in the system to which it had public officials of Member States intended to commit itself. It is lawful should be included in this index. No to do this however for a limited account was therefore required to be period in the context of a system of taken of additional factors in the appraisal adopted on a trial basis.

In Case 70/74

COMMISSION OF THE EUROPEAN COMMUNITIES, represented by Jean-Pierre Delahousse, Principal Adviser in the Legal Department of the Commission

1 — Language of the Case: French.

JUDGMENT OF 26. 6. 1975 — CASE 70/74

THE COURT

composed of: R. Lecourt, President, J. Mertens de Wilmars (Rapporteur) and A. J. Mackenzie Stuart, Presidents of Chambers, A. M. Donner, R. Monaco, P. Pescatore, H. Kutscher, M. Sørensen and A. O'Keeffe, Judges,

Advocate-General: G. Reischl

Registrar: A. Van Houtte

gives the following

COMMISSION v COUNCIL

average increase in purchasing power in of calculation applied by the various the Community, in such a way as to national administrations; ensure for officials not only the — Apportionment of the various maintenance of their purchasing power statistical factors into four categories but also any increase, in real terms, in A, B, C and D; their salaries, justified by and parallel to — Each delegation informing the the rise in the general standard of living Commission of the factors of the in the Community. Since, in the absence system of remuneration in the public of a recognized method which would sector and of every alteration in these have allowed the variation in the factors; purchasing power to be measured, the — The Commission shall be informed determination of the criteria to be taken of all the details of the calculation of

into account gave rise each year to the annual indices of salaries in the discussions and difficulties, the Council public service; at its 192nd meeting on 20 and 21 March — In all cases where the Commission 1972 adopted a resolution by which it has doubts on any factor to be taken undertook, for a trial period of 3 years into account in the index of salaries

JUDGMENT OF 26. 6. 1975 — CASE 70/74

during 1972/1973. When the cause of a bracket of 1.2 % (Community specific this disparity was sought, it appeared that index) — 3.2 % (Community index of the Italian specific index had made a the total salary) and proposed an increase considerable leap of 30.4 % from one of salary equivalent to 2.8 %. Since the period to the next, which had had Council insisted on receiving proposals repercussions on the Community specific taking into account the Italian specific

additional advantages previously not taken into account were incorporated in 4. In transmitting its amended proposal the salaries. It appears from the to the Council by letter of 10 December documents and two notes from the 1973, the Commission expressed the Ministero del Tesoro that before view that this proposal 'does not 1 December 1972 and 1 January 1973 constitute complete compensation for public officials in Italy enjoyed a whole the prejudice caused by the distortions series of items of remuneration described shown by the correction of the Italian as 'allowances, compensation, premiums, specific index' and asked that note be vouchers, bonuses, grants and taken of its intention to submit to the emoluments, however described' charged Council proposals 'to make up for the on the State budget relating to special loss suffered'. public accounts or administration independent of the budget, for work At its meeting on 18 December 1973 the done as officials of the State. Council, while fixing the increase of 3.3 % as stated, expressed the intention All these items of remuneration which of examining any proposals by the contributed to the variation in the Commission with an open mind'. purchasing power of remunerations in the Italian public administration and 5. Negotiations followed during which which, for this reason, entered into the Council requested and obtained the account in the calculation of the total opinions of Messrs Jean Rey and salary were not taken into account in Raymond Barre, former President and preparing the specific index, which was Vice-President of the Commission, and limited to taking into account basic during which the Commission submitted salaries and part only of the additional a proposal for a regulation fixing advantages. retrospectively a new scale of salaries,

The Council claims that the Court It observes in this respect that the sole should: obligation which it has under this provision is to review the remunerations 'dismissthe action of the Commission each year and the conclusions to be and order it to bear the costs'. drawn from this review are left to its discretion. It is not disputed that it in fact carried out this review in December III — Submissions and argu­ 1973. This submission must therefore be ments of the parties rejected.

According to the Commission the Proceeding then to consideration of the decision challenged infringed on the one submission based on violation of the rule hand Article 65 of the Staff Regulations, on the protection of legitimate which requires the Council to take into expectation of the application of Article account any increases in national salaries 65 of the Staff Regulations in that the in the public service, and on the other Council refused to make the necessary hand the rule on the protection of adjustments when it appeared that the legitimate expectation of the application specific index was vitiated by errors, the of Article 65 of the Regulations, as a defendant claims basically that the result of a wrong application of the specific index does not contain the Decision of 20 and 21 March 1972. This alleged errors.

JUDGMENT OF 26. 6. 1975 — CASE 70/74

According to the Council this was not so. The calculation of the Italian index was In criticizing the Community specific done correctly and in accordance with index as insufficiently representative, the the resolution of 20 and 21 March 1972 Commission is in fact criticizing the because this resolution provides that the system established by the Decision of 20 and 21 March 1972 and not the manner (Community) specific index has to be in which the Council, as an executive drawn up by the statistical office of the European Communities 'in accordance body, applies the system. This criticism with the method used until now' which cannot be met except by a political decision which would be taken at the referred to a report by the Working Party on Staff Regulations of the Council end of the trial period. approved on 25 and 27 July 1966 by the It was on the basis of such considerations Permanent Representatives, according to that Mr Raymond Barre, when consulted which, in the application of Article 65 of by the President of the Council, was able the Staff Regulations, the concept of to state, rightly, in his report of 14 June 'salaries' in the sense of public salaries of 1974 that 'it is not possible to say that Member States must comprise 'all the Italian specific index was vitiated by emoluments in the nature of error before 1973, since until the reform remuneration which are generally and of Law No 734 it could not have been permanently paid on the basis of fixed drawn up in any other way'. rules'.

It is not possible to go farther and States. Since this relates to a finding of interpret the rule on the protection of fact, there is no place for the exercise of legitimate expectation as imposing on discretion. The Council is bound by the the defendant the obligation obligation to take account of an actual fact, and if it fails to do so its decision is retrospectively to substitute an index regarded as more representative for the vitiated by illegality. If the calculation of the increases in Member States was index considered defective, for this would defective, the Commission should be greatly to exceed the' intentions which re-examine the facts on which its the Council had in issuing its Decision decision was based and take the of 20 and 21 March 1972. necessary steps to adjust the salaries. The reasoning of the Court of Justice in This said, the Commission recognizes the judgment of 5 June 1973 (Case that it remains to be established whether 81/72, Commission v Council [1973] ECR the increases in the fringe benefits 575) is based on the intention of the should be taken into account in the Council to be bound to observe specific calculation of the specific index. criteria in the application of Article 65 of the Staff Regulations. When specifying After having analysed the report of Mr the trial nature of the system and Barre and having stressed that the latter indicating that it would reconsider the recognized that it was beyond dispute matter after it had been tried for 3 years, that the Italian specific index had not in the Council could not have had the the past reflected the actual variation in intention at the same time of correcting the salaries of the Italian public service, the system during the trial period each the applicant states in this respect that it time an 'improvement' in the would be incorrect to say that the representative character of the indices Decision of 20 and 21 March 1972 appeared possible. The argument put implies that account must be taken only forward by the Commission means of allowances received by all officials reducing to practically nothing the (criterion of generality) which are not of discretion which the judgment of the an occasional nature (criterion of Court recognized the Council as having. permanence). The Report R/468/66' of the Council's Working Party on Staff Finally the Council states that the fact Regulations of 17 May 1966, according to that it has always fixed the increase 'at which the concept of 'salaries' comprises the bottom of the bracket' cannot be all emoluments in the nature of held against it in view of its discretion. remuneration which are generally and permanently paid on the basis of fixed In its reply the Commission states that it rules, stated that this only laid down a agrees with the Council when the method of working for the purpose of Council says that the question in dispute reviewing the variation in public salaries' is whether and to what extent the index and that it could not prevent committees used has had regard to the rule laid down 'from taking into account, where in the Decision of 20 and 21 March appropriate, factors other than those 1972. It does not challenge either the referred to in the said method'.

The applicant considers, therefore, that the desire not to neglect increases found even before the Decision of 20 and 21 in fringe benefits. March 1972 a total representing 30 % of the purchasing power of public salaries Finding that for two consecutive years of a Member State could not have been the annual decisions adjusting the left out of the calculation of the variation remuneration of officials and other in national public salaries, since it must servants of the Communities had been at the very least be regarded as an 'other taken on the basis of indices which had factor'. been incorrectly calculated resulting in an overestimate of the Italian data for Further, even if the system of 1966 had 1973 and an underestimate for 1972, the been based exclusively on emoluments of Council should, according to the a general permanent nature, it would Commission, readjust the remuneration have been more correct to interpret the for the periods in question on the basis criterion of generality as referring to the of corrected indices. average amount of the total of these emoluments received by each national The Commission joins issue with the official. The result obtained would Council's argument that the information indeed have been much nearer to reality given to the Working Party on Staff since the constant disparity between the Regulations by the Italian delegation specific index and the total emoluments shows that the 30.4 % increase in the index shows that for several years the Italian index for 1973 is 55 % due to the Member State in question has caused the effects of 'restructuring' the Italian public variation in the purchasing power in the service and 44 % to the increase in the public service to be reflected through the cost of living and to the introduction of fringe benefits rather than the basic the new equalization allowance, an salary. apportionment which the Council itself admitted that it had been impossible to Moreover the object of the Decision of verify. The rate of 30.4 % does in fact 20 and 21 March 1972 was to develop reflect the real variation in the the system in relation to what it was purchasing power of Italian public previously, for it had been the tendency salaries, for the increase in the cost of of the Council to take into account only living has already been deducted. the basic emoluments of the national salaries which was at the origin of the The Commission concludes by stating tensions between the institutions and the that the fact that the Council had always staff. It is for this reason that the former fixed the increases at the lower limit of heading 'variation in public salaries' the bracket of the two indices, showed its became 'variation in the purchasing constant tendency to depart from the power of remuneration' and that an spirit of the compromise recognized in obligation was introduced requiring each the Decision of 20 and 21 March 1972 as delegation to inform the Commission of well as the objectives which it had sought the factors in the system of remuneration to achieve.

specific index prior to the reform of the As for the amendment of the heading system of remuneration of Italian 'variation in public salaries' to 'variation officials. in the purchasing power of salaries', this shows only that in future the annual The Council states that the paragraph of decision of the Council is to be based this document to which the Commission not only on the specific index of public refers and according to which 'other salaries, but also on the total emoluments factors' may be taken into account, index, the basis of which is wider. simply shows that the Council recognized a certain discretion on the The Commission is thus in error in part of the Commission with regard to taking a part for the whole when it the grounds of its proposals. It had claims that the specific index should certainly not intended to bind itself in alone show the variation in the advance beyond what was expressly purchasing power. stated in the document. Finally, the Council rejects the argument that it had taken its decision without The Commission's claim that an amount representing some 30 % of the having recourse to the necessary purchasing power of public salaries of a explanations.

The The first question asked whether the obligation on each delegation to inform parties did or did not agree that the the Commission does not in any way defect claimed in the specific index imply an undertaking by the Council to would not affect the determination of the take account of all the items of salaries for the period 1973/1974 since a remuneration notified to the Com correction of the index could only reduce mission. Further, no conclusion may be the specific index from 7.3 to a lower drawn from the introduction of the total

JUDGMENT OF 26. 6. 1975 — CASE 70/74

decision relating to the adjustment of the A second question by the Court asks the salaries for 1973/1974. Commission to state the items of casual remuneration left out of account in the In answer the Commission says that the calculation of the Italian specific index object of the action is not the correction before the reform introduced by the of the specific indices relating to the Decree of the President of the Republic determination of the salaries for No 748 of 30 June 1972 and the Law No 1972/1973 and 1973/1974, but the 734 of 15 November 1973 and which are annulment of the Decision of the included as a consequence of this reform. Council of 22/23 July 1974 in so far as it In reply to this question the Commission is based on the sole and incorrect ground refers to the difficulties of identifying, in that the said indices conform with the the legislation now in force, the items of rules laid down in the Decisions of 20/21 remuneration and the fringe benefits March 1972. The Commission has an which have been included in the interest in having a finding that the calculation of the specific index. For this index of 7.3 % is inaccurate in order to reason it has supplied the Court with a challenge the Council's claim that the list, based on the Italian budget, of the same specific index for 1972/1973 had classes of fringe benefits paid in the been correctly calculated. The various Italian ministries before the Commission admits however that a reform. reduction of the index from 7.3 % to a lower figure would not necessarily bring into question the increase of 3.3 % The Advocate-General delivered his decided on 18 December 1973. opinion on 28 May 1975.

the officials and other servants of the Communities whether, as part of economic and social policy of the Communities, remuneration should be adjusted, taking particular account of any increases in salaries in the public service and the needs of recruitment.

4 It is admitted that these adjustments must seek not only to adjust salaries in relation to the increase in the cost of living, but also to give officials and servants the benefits of the increase in the level of incomes recorded in the

Community.

5 Under the first paragraph of Article 65 (1) this review has to take place on the basis of a joint index prepared by the Statistical Office of the European Communities in agreement with the national statistical offices of the Member States.

6 Until 1972 a Community specific index was used for this purpose, prepared according to a weighted average, on the basis of national specific indices which were required to reflect, in respect of a particular sample of officials, the alteration of the average nominal salary in relation to the increase in the cost of living.

7 For the purpose of eliminating the differences of view caused by this review, in particular as regards the measure of the increase in the purchasing power of national salaries, the Council on 20 and 21 March 1972 adopted a 'system of adjustment of salaries' in which it undertook, for a trial period of 3 years from 1 July 1972 to 30 June 1975, to fix the level of increase in Community remuneration within a bracket formed on the one hand by the specific index already previously used, but improved, and on the other hand by an index called 'total emoluments per head in public administration', as published in national accounts, which index had to reflect the variation in the total salary and other benefits afforded to the national officials in each Member State.

13 The Commission infers that the total of casual remuneration which, according to the Commission, represents an average amount of 30 % of the basic salaries, should have been taken into account before the 1972-1973 reform in preparing the Italian specific index and hence in preparing the Community specific index.

14 Such correction would mean a reduction in the specific index (7.3) used to fix the level of salaries from 1 July 1973 but an increase in the specific index (3.6) used for the level of remuneration as from 1 July 1972.

15 According to the applicant this correction does not affect the level of remuneration for the 1973/1974 salary period but must lead to an adjustment for the 1972/1973 period.

16 On being informed of these items to be appraised, the Council undertook on 18 December 1973, at the time when it was fixing the salary for the 1973/1974 period, to 'consider with an open mind' the proposals which the Commission intended to put to it in this respect.

COMMISSION v COUNCIL

17 However, by the decision challenged the Council decided not to undertake the correction proposed by the Commission.

24 This decision provides that the index shall be constituted by the 'index of the variation of public salaries in Member States during the past year prepared by the Statistical Office of the European Communities in accordance with the method used until now, but with certain improvements'.

25 This method had previously been fixed by the Council's Working Party on Staff Regulations in a report approved by the Committee of Permanent Representatives at its meeting on 25-27 July 1966.

JUDGMENT OF 26. 6. 1975 — CASE 70/74

26 According to this report the concept of salaries 'should take account of all emoluments in the nature of remuneration which are generally and permanently paid on the basis of fixed rules'.

27 The improvements envisaged by the Decision of 20 and 21 March 1972 have as their object an improved harmonization of the calculating methods applied by the various national administrations and to ensure that the Commission is more completely informed, but do not bring into question the basis of the method previously laid down.

28 No doubt this same report provided for the possibility of the Commission putting forward, where appropriate, factors for consideration other than those resulting from the method adopted, but it left the Council free with regard to taking them into account.

34 It appears moreover from the documents supplied by the Commission that these allowances, grants, vouchers and other benefits in addition to the salaries represented, depending on the administrations which made them, a percentage varying from 11 to 49 % and amounting in one case even to 92 % of the basic salary.

35 Their incorporation, by the expedient of a mean, in a specific index, the object of which is precisely to reflect the variation of one of more particular samples among the careers in the public service, was thus to be viewed with reserve and in any event could not in any sense be regarded as constituting the sole correct interpretation of the concept of specific index.

36 No doubt in so far as the adjustment of salaries in the Italian public service is done by casual allowances rather than by basic salaries, the specific index does not completely reflect — but to an unascertainable extent since it varies from one administration to another — the increase in the purchasing power which Italian officials enjoyed.

37 However, the fact should not be lost sight of that the joint index referred to in Article 65 of the Staff Regulations has not since 1972 been constituted only by the specific index.

38 On the contrary, the main factor in the Decision of 20 and 21 March 1972 consists of conceiving this joint index as formed by a bracket of two indices, the second of which, the total emoluments per head index, has precisely the caracteristic of taking into account all the factors constituting, either as basic or additional, the total remuneration which officials in the public service in the Member States enjoy.

44 It follows from the foregoing considerations that the calculation of the Community specific index in respect of the periods in question has been done in accordance with the criteria laid down in the Decision of 20 and 21 March 1972.

45 Further, it has not been established that the joint index of salaries referred to in Article 65 of the Staff Regulations resulting from the joint use of the two indices provided for by this decision is so unrepresentative as to make it incompatible with the said article.

46 The action must therefore be dismissed.

Costs

47 Article 69 (2) of the Rules of Procedure provides that the unsuccessful party shall be ordered to pay the costs.

48 The applicant has failed in its submissions.

Lecourt Mertens de Wilmars Mackenzie Stuart Donner Monaco

Pescatore Kutscher Sørensen O'Keeffe

Delivered in open court in Luxembourg on 26 June 1975.

A. Van Houtte R. Lecourt

Registrar President

OPINION OF MR ADVOCATE-GENERAL REISCHL DELIVERED ON 28 MAY 1975 1