C-1205/79

JUDGMENT OF 1. 7. 1982 — CASE 1205/79

In the performance of a loan agreement to the monthly repayments falling due concluded before the entry into force of after the entry into force of the regu- Regulations Nos 3085/78 and 3086/78 lations in question the exchange rate amending inter alia the provisions of resulting from application of the updated Article 63 of the Staff Regulations and parities and of the new version of of Article 17 of Annex VII thereto, the Article 17. Commission is therefore correct to apply

In Case 1205/79

ROBERT ADAM, an official of the Commission of the European Communities at the Ispra Joint Research Centre, Varese, Italy, represented by Cesare Ribolzi, of the Milan Bar, with an address for service in Luxembourg at the Chambers of Victor Biel of the Luxembourg Bar, 18a Rue des Glacis, applicant, v

COMMISSION OF THE EUROPEAN COMMUNITIES, represented by Oreste Montako, a member of its Legal Department, acting as Agent, assisted by Luigi Biamonti, of the Rome Bar, with an address for service in Luxembourg at the Jean Monnet Building, Kirchberg,

defendant,

JUDGMENT

Facts and Issues

The facts of the case and the conclusions case). The sums lent were repaid and arguments of the parties put forward (likewise on the basis of the exchange during the written procedure may be rate indicated above) by means of summarized as follows: deductions made by the Commission, in its capacity as lender, from the monthly remuneration of officials.

I — Facts and written p r o c e d u r e The system operated as follows: the official's monthly salary, to which the By decision of 2 March 1970 concerning weighting was applied (for example BFR the use of the sums available under the 100 000 Italian weighting of 157.8 in European Coal and Steel Community March 1979) was reduced by the amount budget item "Pension Funds" the of the building instalment (for example Council authorized the Commission to BFR 5 000), the net remuneration then set aside 40% of the said sums for the becoming, in the example given, BFR grant of building loans to officials of the 152 800, which was converted into Communities. Italian Lire at the rate of BFR 1 = LIT 12.50.

On 21 December 1978 the Council Henceforth, by decision of the Director- adopted Regulation No 3085/78 General for Personnel and Admin- amending, with particular reference to istration, conversion will be based on the monetary parities to be used, Regu- "updated" exchange rates. However, lation No 259/68 laying down the Staff staff may request that the deductions be Regulations of Officials of the European made at the parities communicated to the Communities and the Conditions of International Monetary Fund, with Employment of Other Servants of the reference to and within the scope of the Communities, Regulation N o 2530/72 provisions giving effect to Article 17 of and Regulation No 1543/73 concerning Annex VII to the Staff Regulations. certain special measures (Official Journal 1978, L 369, p. 6) and Regulation No 3086/78 adjusting the weightings applicable to the remuneration and The parity of BFR 1 = LIT 12.50 pensions of officials and other servants continued to be applied to the applicant of the European Communities following until 31 March 1979, no request having the amendment of the provisions of Stan been made by him. Regulations concerning the monetary parities to be used in implementing the Staff Regulations (Official Journal 1978, L 369, p. 8). By means of those regu- On 22 December 1972 the applicant had lations the Council amended in entered into agreement with the particular Article 63 of the Staff Regu- Commission under which he received lations of Officials and updated the from the Commission a loan of BFR exchange rates. The IMF parity was 392 000 intended to finance in part the abandoned and for transfers in a construction of a dwelling house in the currency other than that in which Municipality of Barza (Province of remuneration was paid the exchange rate Varese). Article 15 of the standard used for implementation of the general agreement provided that: budget of the European Communities on 1 July 1978 (reviewable) was imposed by the application of weightings which varied according to the country of "Any transfers by the borrower to the destination. lender by way of early repayment or in payment of monthly instalments shall be made in Belgian francs or in the currency of the country in which the property to At the same time as other officials, be financed is situated and in which the Mr Adam lodged a complaint in July funds arising from this loan were 1979 against the application of the advanced. The funds in question shall be above-mentioned regulations, referring converted into Belgian francs on the specifically to his position as the basis of the parity ruling as at the date of recipient of a building loan. That the transfer." complaint was met with an implied

decision on the part of the Commission applicant a monetary parity other rejecting it. than that agreed on by the parties and invariably employed in the The Commission rejected the complaint mutual payments throughout the on 28 September 1979. entire previous period when the contract was in force; This application, dated 10 December 1979, was received at the Court Registry (d) declare in exercise if its unlimited on 21 December 1979, at the same time jurisdiction in this case that the as some 40 other applications of a similar Commission is responsible for all the nature (Cases 1206 to 1248/79). consequences arising from the above- mentioned annulment and the above- mentioned declaration, namely It was subsequently decided that this case should be treated as a test case. The obligation to agree to the monthly repayments and early Upon hearing the report of the Judge- completion of the repayment of the Rapporteur and the views of the loan at the original parity; or Advocate General, the Court (First The obligation to agree to the direct Chamber) decided to open the oral payment in Italian lire of the procedure without any preparatory monthly repayment instalments and inquiry. any early completion of repayment of the loan by means of direct payment in lire; Proceeding in both cases to an II — C o n c l u s i o n of t h e p a r t i e s amendment of the payments made in the meantime from 1 April 1979 and to the recovery on the part of the The applicant claims that the Court borrowers of the amounts of the so- should: called "reduction" of the principal debt which occurred in 1975; (a) annul the implied decision of rejection of the complaint submitted (e) order the defendant to pay the costs. in good time by the applicant on the grounds of breach of general principles of law, infringement The Commission contends that the Court of legal rules adopted in should : implementation of the Treaty and misuse of powers; Dismiss the action brought by Robert (b) in the alternative, annul the Adam as unfounded; individual decision of rejection dated 28 September 1979 on all the above Order the applicant to pay the costs. grounds and in addition on the ground of infringement of essential In his reply, the applicant states that if his prodecural requirements; claims are upheld he will waive the amount which the Commission credited (c) declare that the Commission has to him when the so-called "reduction" of acted unlawfully in applying from the principal amount of the loan took April 1979 to repayments of the place and is willing also to waive it if, in building loan granted to the the alternative, he is authorized to repay

in advance — on the basis of the official The Commission has also misused its IMF parity which he claims should be powers in so far as it pursued an applied — the principal of the loan still objective (to ensure for itself an outstanding within a reasonable period exchange guarantee and thereby a to be fixed by the Court. repayment in lire considerably in excess of the principal advanced in lire) different from that which it ought to seek to achieve in the field in question (social purpose of building loans). The Ill — Submissions and argu- applicant acknowledges that he ments of the parties undertook in the agreement that the payments would be made by means of automatic deductions from his monthly remuneration but regards that merely as an implementing procedure which cannot The applicant considers that there has justify the unlawful application to the been a clear breach of the principle of repayments in question of the "ceiling" the protection of legitimate expectation. and the "transfer" machinery created by In view of the methodical nature of the Regulations Nos 3085 and 3086/78. transaction progressively carried out by the Commission — which took care not to arouse the slightest concern and took pains not to draw the attention of the The misuse of powers is also evident in persons concerned to the objectives relation to the difference in treatment which it was intending to pursue which has arisen as between officials indirectly — the applicant cannot be who concluded the loan contract on accused of not paying "normal" different dates. Those who contracted attention. Indeed, the adverse effects of the loan a considerable time ago received the only factor likely to provoke any a loan expressed in lire in a modest reflexion about the transaction — amount based on the rate of BFR 1 = namely the reduction offered to the LIT 12.50. Now those officials are borrowers in 1975 — did not become obliged to repay the loan on more apparent until later. onerous terms by reason of the system introduced by Regulation Nos 3085 and 3086/78, repaying the Commission, by way of reduction of the principal, a sum The transaction is unlawful since it is in considerably greater than that which breach of the contractual conditions, in they received. On the other hand, veiw of the interpretation which the officials who contracted loans after 1977 Commission itself attributed to . the received a considerably higher principal concept of "official parity" referred to in amount in lire as a result of the the contract and because it breaches the application of the exchange rate ruling principle, which the institutions are on the money market between the bound to observe, that contracts must be Belgian franc and the Italian lira. interpreted and implemented in good faith. That situation is also contrary to the implementing provisions which the Commission itself adopted on 17 June Until April 1979 they were able to make 1971, according to which "any monthly repayments based on the rate of amendment to these provisions shall not exchange of LIT 12.50 = BFR 1 and jeopardize the rights conferred upon therefore, by reason of the system officials who have already been granted introduced by Regulations N o 3085 and loans". 3086/78, on the basis of a ratio which

was still as advantageous for a borrower 1 250 000 would have cost not BFR who received the principal in lire at the 100 000 but BFR 83 400, that is to say a rate of exchange ruling in the ordinary "reduction" of BFR 16 600. From 1972 market between the Belgian franc and to 1975, the borrower would have paid, the Italian lira. on the basis of BFR 1 000 per month, BFR 36 000 in three years, converted at the rate of BFR 1 = LIT 12.50, calculated after the Commission decision at the rate ruling on the day of payment The applicant considers that if the note (BFR 1 = LIT 15). The gain obtained of 28 September 1979 were to be by the borrower as a result of the regarded as an individual decision "reduction" might be slightly lower than rejecting his complaint, it would clearly that which he expected but nevertheless be vitiated by flagrant non-compliance undeniably and effectively exists, if only with formal requirements. In particular, there is no statement of the reasons on because the rate (BFR 1 = LIT 15) which the measure was based and the remained fixed from 1972 to 1975 (the measure was notified by internal mail in time of the "reduction"). Once the incertam personam. Particularly as regards "reduction" took place, the rate applied the obligation to state the reasons on ought to have been the "updated" rate. which a measure is based, the case-law However, it was not so applied; on the of the Court has long been well contrary, the IMF parities were again established. applied (BFR 1 = LIT 12.50) which afforded the borrower a double advantage, since he secured a considerable decrease of the principal debt and continued to make his The Commission replies that, by repayments on the basis of the rate of requiring only as from April 1979 — exchange of BFR 1 = LIT 12.50. It is thus affording an advantage to the only with effect from 1977 that the loans borrower — repayment in Belgian francs were actually paid in Belgian francs but of the sums paid at the rate of exchange even then they were repaid on the basis existing at the time of the "transfer" (as of the IMF rate, namely BFR 1 = LIT provided for in Article 15 of the loan 12.50, until March 1979. As from April agreement and not on the basis of the 1979 the new "transfer" machinery is IMF fixed parities), it has not breached applicable and is much more favourable any clause of the agreement, neither has for borrowers than the system whereby it acted in bad faith and still less has it merely the "updated" parities are contravened the principle of the applied. protection of legitimate expectation.

the Commission for the building loan, to vantage during the course of transactions which amount however the Italian and which they had irrevocably undertaken Belgian weightings apply, giving the to carry out under the provisions of the following result: BFR 2 660 (monthly previous law; repayment instalment) : 100 (Belgian weighting) x 70.3 (Italian weighting) = BFR 1 870 x 26.13 (exchange rate) = LIT 48 863 (to be repaid to the Commission). That sum (LIT 48 863) is The principle of the protection of considerably lower than the figure that legitimate expectation is breached where, would be obtained by direct application in the absence of an overriding public of the "updated" parities; the result interest, the Community legislature would in fact be BFR 2 660 (monthly amends a provision, without notice and repayment instalment) x 26.13 with immediate effect, in a manner (exchange rate) = LIT 69 505. Even unfavourable to traders without adopting with the new system of weightings transitional measures intended to provided for in Regulations Nos 3085 safeguard the legitimate hopes of those and 3086/78 ("transfers"), the borrowers traders. thus continued to enjoy extremely advan- tageous terms. It is sufficient to bear in mind that the said amount of LIT 48 863 corresponds to a parity of about LIT 18 = BFR 1. In the present case, the alteration of the exchange rates was perfectly foreseeable since it was not reasonably conceivable that the official IMF parity (BFR 1 = LIT 12.50) could be maintained, in view of the well-known problems of the. inter- The Commission summarizes the national money market, which moreover case-law of the Court regarding the preceded the conclusion of the contract principle of the protection of legitimate and, as already stated, the contract expectation as follows. provided that reimbursement was to take place on the basis of the parities existing at the time of the transfer. There was no "silence" on the part of the Commission "regarding an exchange rate which According to a generally recognized might be different" at the time when the principle, new rules are, except in the "reduction" of the principal debt was case of a derogation therefrom, offered, and freely accepted by the applicable to the future effects of applicant. The "alteration" was so fore- situations which arose under the previous seeable that the applicant himself had law; foreseen it, by agreeing to the reduction of the principal amount of his debt. The "alteration" was not adopted with immediate effect and without notice, or without the implementation of A legitimate expectation exists where a transitional measures in order to enable particular legal situation is "protected", the loss to be mitigated. In fact, until that is to say where the persons 1979 the applicant and the other concerned were entitled to take the view borrowers continued to enjoy the benefit that an existing legal situation would not of extremely favourable terms since the be unforeseeably amended to their disad- principal amount outstanding was

In reply the applicant states that by paying the principal of the loan in lire on the basis of the rate of BFR 1 = LIT 12.50 at a time when that rate differed from the rate ruling in the money market and, at the same time, by accepting for a Since the rate of exchange ruling as still longer period reimbursement of between the Belgian franc and the Italian loans on the basis of LIT 12.50 = BFR lira evolved in and after 1973 in a 1, the Commission showed conclusively manner wholly unfavourable for the lira, that the parity in force as at the date of the Commission decided to avoid the transfer was to be taken to mean the exchange risks by altering the conditions consolidated parity on the basis of which for the grant and reimbursement of the principal of the loan had been future loans and of those already advanced. Someone who in 1974 was contracted. It secured acceptance of the paid the exchange value in lire of a above-mentioned alteration by the other principal amount borrowed of BFR parties to contracts by means of a 100 000 received the sum of LIT "reduction of the principal debt", in 1 250 000 which is less than the sum reality by the application ex post facto to which he would have obtained by the payment made by it (advance of the converting that amount of Belgian francs principal amount of the loan) of a real into lire at a bank (about LIT 2 000 000). exchange rate instead of the official IMF The consolidated parity therefore was parity. In that way, the Commission advantageous to the Commission which believed it could circumvent the had disbursed an amount in lire less than argument to the effect that as the that which would have been arrived at if principal sum had been paid in lire on the real exchange rate had been applied. the basis of the official IMF parity In those circumstances, it would be (which was already at that time different natural and lawful for repayment to be from the real parity), the repayments had accepted at the same rate (IMF parity) so also to be made on the basis of the same that for every amount of LIT 12.50 parity. If the Commission had explained repaid by the borrower his debt would be its intentions clearly ("the borrowers will reduced by BFR 1. No exceptional or be credited with the difference resulting unjust advantage — which as such would from calculation of the principal amount have to be eliminated — was obtained by according to a parity lower than that officials called upon to reimburse neither actually in force when the loan was more nor less than they had received in advanced, provided that the borrower

If the applicant's claims are upheld, he will waive the sum with which the As regards the breach of the principle of Commission credited him in respect of legitimate expectation, the applicant the so-called "reduction" of the principal considers that if it was foreseeable and amount lent and similarly in the event of even desirable that the weightings should his being authorized, in the alternative, again be given the function for which to repay in advance — on the basis of they were created, repayment would not the official IMF parity which he claims be conceivable — at least in the case of should be applied — the principal loans calculated on the basis of the IMF amount of the loan still outstanding parity — on the basis of a parity other within i.ch reasonable period as may be than that which had been applied to the prescribed by the Court. advance made by the Commission. The case-law regarding foreseeable events refers to external events and not to those deriving from action taken by one of the contracting parties. Moreover, the In its rejoinder, the Commission rectifies applicant emphasizes that officials who the example given in its defence in which entered into a loan contract did so on it is stated that the exchange rate the basis not only of the incontestably remained unchanged from 1972 to 1975 advantageous conditions offered by the at BFR 1 = LIT 15. For officials who, Commission but also of the IMF like the applicant, applied for and exchange rate which was applied inter obtained a "reduction", the exchange partes in respect of repayments. rate of BFR 1 = LIT 12.50 also Otherwise they would have expressed the remained unchanged for repayments

made from the date on which the It may be deduced from the foregoing contract was concluded until the day of that the Commission was right — in the "reduction" and subsequently until pursuance of the provisions of the March 1979. contract — to apply the new parities, that is to say those used for implementation of the general budget of the Communities on 1 July 1978 (BFR 1 = LIT 12.50), to the monthly repayments made by the applicants as from April 1979. But in the interests of The Commission emphasizes that it was its officials, it applied the parities not to a fixed and unchangeable parity, designated as "transfer rates" which determined by contract on the basis of were manifestly more advantageous for BFR 1 = LIT 12.50, that the parties those concerned. In fact, by assimilating referred for the performance of their the deductions at source made for the obligation but rather to the parity in purpose of repaying the building loans to force at the time of the transaction. That the transfers referred to in Article 17 of confirms the view that no exchange Annex VII to the Staff Regulations, the guarantee was given by the lender. It Commission applied the parity of BFR 1 repeats that in 1975 it offered a - LIT 12.50 (LIT 100 = 3.83 × 100 "reduction" of the principal amount of (Belgian weighting): 70.3 (Italian the debt, to cover any loss which might weighting), that is to say LIT 100 = be suffered by the borrowers in BFR 5 448 or BFR 1 = LIT 18.35) and consequence of the introduction of the not the one that it should have applied new monetary parities provided for in (BFR 1 = LIT 26.11). Nor does the the Staff Regulations, a situation which Commission understand how the arose four years later and involved a " applicant can complain that the clear and appreciable advantage for Commission, which generously accorded officials. T o offset the voluntary him such an advantage, included the acceptance of the "reduction" which — monthly loan repayments within the under the contract — the Commission 35% of the net remuneration was under no obligation to offer, the constituting the ceiling for transfers. borrowers, if they had wished to repay the entire debt in advance, would be able to do so not on the basis of the rate of BFR 1 = LIT 12.50 lire but only according to the market parity. Naturally, repayments not made in advance continued to be on the basis of IV — O r a l p r o c e d u r e the IMF rate, namely BFR 1 = LIT 12.50. The Commission does not understand how the applicant can maintain that the borrowers were never informed of the effects of the The parties presented oral argument at "reduction" (which, moreover, was to the sitting on 20 February 1982. their advantage) or that that "reduction" involved "an aggravation of the terms of repayment" of the monthly instalments due in respect of the loan when in fact the so-called aggravation derived directly The Advocate General delivered his from implementation of the contractual opinion at the sitting on 18 March 1982.

s By virtue of Article 4 of the agreement, the borrower undertakes to repay the amount of the loan in monthly instalments due on the 15th day of each month in accordance with the table attached to the agreement. The table, drawn up in duplicate and signed by both parties, constitutes an integral part of the agreement.

6 By virtue of Article 5 of the agreement the borrower irrevocably instructs the Commission to deduct or cause to be deducted for transfer to the Commission by the Community institution by which he is or may be employed in the future, on the 15th day of each month, from his monthly

ADAM v COMMISSION

salary or other emolument, the monthly instalment shown in the repayment table referred to in Article 4.

7 Article 15 of the agreement provides that any transfer made by the borrower to the lender by way of early repayment or in payment of monthly instalments is to be made in Belgian francs or in the currency of the country in which the property to be financed is situated and in which the loan was advanced. The currency of the loan is to be converted into Belgian francs on the basis of the parity ruling on the date of the transfer.

8 In the table referred to in Article 4 of the agreement the amount of the loan, the monthly instalment, the monthly interest, the monthly repayment of principal and the principal outstanding are expressed in Belgian francs.

(b) To determine the new principal debt, the amounts paid to the borrower in foreign currency shall be convened into Belgian francs at the rate specified in subparagraph (a). From the amount thus obtained there shall be deducted the repayments made up to the date of the decision to reduce the debt. If those repayments were made in the currency of the country in which the property is situated, they shall also be converted into Belgian francs at the rate specified in subparagraph (a).

(c) All repayments to be made after the decision to reduce the debt shall be made in Belgian francs."

1 3 By letter of 21 August 1975 that decision was notified to the applicant. The letter contained the statement: "In the event of reduction of the debt, all repayments made subsequently are to be made in Belgian francs. You may therefore no longer make any advance repayment in the currency in which the loan was made."

i4 By declaration of 26 September 1975 the applicant sought a reduction of BFR 34 960 in his principal debt (the amount specified in the letter of 21 August 1975). The reduction was granted by the Commission, with a consequent reduction in the monthly repayments expressed in Belgian francs.

is After that reduction was made, the Commission continued until 31 March 1979 to make transfers in respect of the monthly instalments payable by the applicant by converting into Belgian francs the amount transferred in lire, adopting the parity referred to in Article 63 of the Staff Regulations.

ADAM v COMMISSION

JUDGMENT OF 1. 7. 1982 — CASE 1205/79

2i The applicant's first two complaints are based on the view that the parity used for conversion of the amount of the loan into Italian lire and for the conversion of lire into Belgian francs for the monthly repayment instalments ought to be the parity notified to the International Monetary Fund and that the Commission was not entitled unilaterally to adopt any other parity.

22 It appears from the file on the case that the exchange rate used for the conversion of the amount of the loan into Italian lire was the parity notified to the International Monetary Fund in 1965 which, at the time of the loan, was the reference parity determined in Article 63 of the Staff Regulations. In essence the applicant's view is that that same rate must be used throughout the duration of the agreement for the conversion into Belgian francs of the funds transferred to the Commission to repay the loan by means of the monthly instalments provided for in the agreement.

23 The Commission contends on the other hand that the exchange rate to be used for that conversion must be the one fixed as a reference parity in Article 63 of the Staff Regulations and that the monthly transfers may be made pursuant to the provisions of Article 17 of Annex VII to the Staff Regu- lations, which enables officials regularly to transfer part of their emoluments through the institution by which they are employed in the currency of certain other Member States.

n In pursuance of that interpretation of the agreement, the Commission converted the amounts in lire transferred to repay the loan in question into Belgian francs according to the parity referred to in Article 63 of the Staff Regulations until the entry into force of Regulations Nos 3085/78 and 3086/78. As from 1 April 1979 it also based its calculations for conversion of the monthly payments on the rates laid down in the Staff Regulations, as amended by Regulations Nos 3085/78 and 3086/78 and applied the provisions of Article 17 of Annex VII to the Staff Regulations in its amended version. It claims that that method of making the transfers conforms wholly with the agreement.

29 It is clear from the foregoing considerations that the Commission has not changed the parity in contravention of the terms of the agreement and that the alleged breach of the principle of the protection of legitimate expectation and the alleged misuse of power are without foundation.

30 As regards the alleged discrimination between the applicant and borrowers who received their loans after 1977, it should be noted that the reduction of the debt which the applicant was allowed in 1975 had the effect of placing him in the position in which he would have been if he had received the amount of the loan at the market rate. Moreover, the applicant had the benefit, until April 1979, of the parity initially provided for in the agreement. He could not therefore maintain that he was treated in a manner less favourable than the other borrowers. The allegation of discrimination cannot therefore be upheld.

3i It appears from the foregoing considerations that the applicant's complaints are without foundation and that the application must be dismissed.

OPINION OF MR CAPOTORTI — CASE 1205/79

Costs 32 Under Article 69 (2) of the Rules of Procedure the unsuccessful party is to be ordered to pay the costs.

33 However, under Article 70 of the Rules of Procedure costs incurred by the institutions in proceedings by servants of the Communities are to be borne by those institutions.

Delivered in open court in Luxembourg on 1 July 1982.

J. A. Pompe G. Bosco Deputy Registrar President of the First Chamber

OPINION OF MR ADVOCATE GENERAL CAPOTORTI

(see Case 567/79 A, p. 2394)