C-304/89

OPINION O F MR DARMON — CASE C-304/89

OPINION O F MR ADVOCATE GENERAL DARMON delivered on 5 M a r c h 1991 *

Mr President, 4. Oliveira had applied to the Department Members of the Court, for the Affairs of the European Social Fund (hereinafter the 'Department'), the national authority responsible for dealing with the Fund, established in Lisbon, which, in the name of the Portuguese Republic and on 1. The action brought by the Portuguese behalf of that company, drafted two company Estabelecimentos Isodoro M. applications for Fund assistance for the year Oliveira (hereinafter referred to as 1987: one for the training of persons aged 'Oliveira') is for the annulment of two under 25 years, the other for the training of decisions of the Commission of 27 June persons aged 25 years (hereinafter referred 1989 holding certain expenditure amounting to as 'young people' and 'adults'). The to ESC 63 450 244 and ESC 23 713 486, in project in respect of 'young people' was the framework of the implementation of approved by a decision of the Commission Projects N o 870708/P1 and N o 8707O8/P3 of 30 Aprii 1987 2 with a slight reduction of the European Social Fund, t o be due to a decrease in the number of trainees. ineligible. The project relating to 'adults' was only partially approved, part of the expenditure being refused. 3 The amounts approved were notified to Oliveira. 4

received. However, following the procedures for hearing the Member State, applicantiis claim for final payment, the but that it is restricted to allowing the latter Commission took the view that a large to express any objections. In the event of a proportion of the amounts submitted in the refusal to make the final payment, either in file relating to the training of 'young people' whole or in part, the national authorities was ineligible on the ground that the rule of may in turn refuse to notify the decision to equality between the number of practical the undertaking; thereupon a phase of hours and the number of theoretical hours dialogue with the Fund is embarked upon. It had not been observed and, in addition, is only following this that the decision because certain unit costs were 'inexplicably becomes final by being notified to the high'. Within the framework of the project promoter. 8 The Commission adds that in concerning the 'adults', to which the the present case the Portuguese authorities circular did not apply, the Commission undertook to notify the decision to the identified an amount of expenditure that promoter and to request the reimbursement was ineligible, again on the ground that of the overpayment. certain unit costs were inexplicably high.

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comments. Commission, which its representative, at the hearing, recognized as being the result of a 12. The argument advanced by the 'more than broad interpretation of this Commission would, if accepted, necessarily provision', is, to my mind, contrary both to give rise to some practical disadvantages. the letter and to the spirit of Article 6(1) of Supposing that a decision reducing the regulation, which provides, 1 would assistance were notified to the undertaking remind the Court, that 'the Commission and that subsequently the State were to may suspend, reduce or withdraw the submit its comments to the Commission assistance, after having given the relevant regarding that decision. The undertaking Member State an opportunity to concerned, aware that the national auth- comment'. u It must therefore be a question orities have raised objections against the of consultation prior to the decision first decision, might be tempted to await the reducing or withdrawing the assistance.

' ' 15. The Commission's representative That argument is also difficult to reconcile pointed out at the hearing that if the with the Court's case-law which refuses to departments of the Fund had to 'contact all recognize that the adoption of a position the Member States before taking a which a Community institution undertakes decision', they would be 'completely to re-examine 12 constitutes a decision. paralysed'. When I then asked him if the Commission withdrew or reduced assistance 11 — See, on this last point, concerning the European Social on numerous occasions, he replied that such Fund, the order in Case C-I2/90 lnfortec [1990] ECR cases should amount to half a dozen in 1-4265, paragraph 10. 12 — Judgment in Case 44/81 Federai Republic of Germany v Commission [1982] ECR 1855, paragraphs 8 to 12. 13 — Emphasis added.

17. As the Court pointed out in its 18. In such a context, the obligation to judgment in EISS of 15 March 1984, consult the Member State laid down in Article 6(1), in case of the suspension, reduction or withdrawal of assistance, takes on yet another dimension. It is not necessary to dwell further on the signifi- 'this procedure [of financial assistance under cance of the opinion of the Member State, the Fund] creates a financial relationship in the light of the position which it occupies between the Commission and the Member and the responsibility which lies on it. State on the one hand and between that Member State and the institution which is the recipient of the financial assistance on the other'. 1 5 19. Since the Commission has infringed Article 6(1) of Regulation No 2950/83 which lays down essential procedural requirements for the validity of the The Member State appears not solely as an Commission's decisions suspending, involuntary intermediary, but also as an reducing or withdrawing Fund assistance, I authority which, throughout the procedure invite the Court to declare that the first plea laid down by the regulation, occupies a is well-founded and, accordingly, to annul central place by virtue of the degree of its the decisions adopted. involvement and of its responsibilities. Suffice it to point out some of the provisions of that regulation. In the words of Article 5(4), 'the Member State shall 20. It is therefore in the alternative that I 14 — Sec the Annual Report of lhe Court of Auditors concerning shall examine the other three pleas. the year 1989 including a comparison over five years (OJ 1989 C 313, p. 76). 15 — Case 310/81 [1984] ECR 1341, paragraph 15. 16 — Emphasis added.

24. It is true that the Court's case-law 23 has 9 In its reply, ' moreover, the applicant attributed to the obligation to state reasons deplored the fact that that certain grounds, an invariable purpose, while recognizing which were not mentioned in the contested that its extent may depend on a number of decisions, only appeared at the stage of the factors: the wording, the legal framework, Commissioniis defence. the context of the decision. Since these are identical to those which I have identified in the context of the decision reducing assistance which was taken in respect of Interhotel, I refer to my observations in paragraphs 12 to 19 of the Opinion in Case 23. The Commission's response 20 was that C-291/89 which I have delivered today. the decisions clearly mentioned the amounts of expenditure held to be ineligible and indicated their origin with reference to the headings in the final payment claims; 25. Taking into account the circumstances furthermore, a comparison between the surrounding those decisions, it is necessary amounts shown in the forms of application to determine whether the statement of for assistance and those appearing in the reason on which they are based enables the forms of final payment claim showed more persons concerned to become aware of the precisely the source of the amounts of grounds for the measures taken so that they ineligible expenditure. While admitting that can defend their rights and the Court can its reasons '[did] not err on the side of exercise its supervisory jurisdiction.

17 — Application, paragraph 19. 21 — Rejoinder, paragraph 11. 18 — Judgment in Case 1/69 Commission v Italy [1969] ECR 22 — Judgment in Case 32/86 SISMA [1987] ECR 1685, 227, paragraph 9. paragraph 8, emphasis added. 19 — Paragraph 17. 23 — Sec in particular the judgment in Case 185/83 University of 20 — Defence, p. 12 of the French translation. Groningen [1984] ECR 3623, paragraph 38.

26. In the decision relating to the training or abnormally 27 high, I must admit that it is of young people, the Commission relies on rather general. The applicant had inferred two grounds: the failure to observe equality therefrom that it was accused of exceeding between the number of practical hours and certain amounts claimed in its original the number of theoretical hours, and the application for assistance, as is witnessed by presence of inexplicably high unit costs. its attempts to justify the discrepancies in an annex to its application to the Court. The defence reveals that the Commission did wish to penalize such overspending; but it 27. As regards the first ground, it is also shows that the Commission accused the apparent from the final payment claim 24 applicant of having included identical that the applicant did not observe the expenses under several headings, of not requirements of the Commission concerning having shown that certain expenditure was the duration of practical instruction as actually incurred, and of not having expressed in Circular No 10/DAFSE/87 reflected the reduction in the length of since, apart from the course for the training training in the amounts applied for. Does of marketing specialists, the duration of this complaint enable the various grounds practical training is in all cases considerably put forward for reducing the amount of longer than that of theoretical training. eligible expenditure to be grouped together? Consequently, it is possible to assign these Although it would have been preferable for excesses to various items of expenditure each ground to have been expressly without its being possible to determine formulated, I am of the opinion that they precisely the amount of the sums refused in are all connected with the general ground. that respect in the absence of information The existence of identical expenses, and of regarding the percentage of the reduction expenditure which fails to take account of and the items to which it applies. Thus, we the reduction in the duration of the training learn from the defence 25 that it is necessary (point 14.6 of the final payment claim), to make a reduction of 36% of the amount gives rise to unjustified costs. Similarly, the of the heading 'Income of trainees', of the lack of documentary proof of certain expen- amounts of the items 'Remuneration of staff diture which led the Commission to make and charges on remuneration', 'Equipment significant reductions in particular to point and non-durable goods', 'Other supplies 14.3 of the file relating to 'young people' and services by third parties' and can be identified in the ground put forward, 'Consumption of raw materials . . . '. This the more so since the national authorities being the case, those details do not seem to had given the applicant warning of this and, me to be indispensable, having regard to the according to them, had carried out an fact that this ground enables the persons analysis intended 'to give greater clarity to addressed to be 'aware of the reasons for the final payment claims and to make the the measure' within the meaning of the expenditure and costs comply with criteria requirement which the Court has laid of verisimilitude'. 28 down. 2 6

which can be identified by comparing the the original application for assistance. applications, I consider that the Commission Furthermore, when it appeared in the final has not failed in its obligation to state its payment claim, the Commission disallowed reasons and that the fourth plea is not well- it, given that, under Portuguese law, stamp founded. duty is not payable in respect of this type of training operation. In the same way, it will be seen in the file relating to the training of adults that the item 'Recruitment and 30. The applicantiis third plea is based on selection of instructors' 35 appears for the the infringement of acquired rights. first time in the final payment claim. According to the applicant, 29 the final Moreover, the expenditure relating to the decisions did not take into consideration the expenses for staff concerned in prep- unit costs which had previously been aration 3 6 had not been approved by the approved. T h e Commission takes the Commission and this has not been disputed view, 30 on the other hand, that the by the applicant. The Commission was assistance was reduced because the amounts therefore able to make the necessary approved had been exceeded, because adjustments 37 without prejudicing acquired expenditure which had not been approved rights. had been included, and because certain expenditure had not been supported by the documentary proof or had been duplicated.

33. In my Opinion in the Interhotel case 38 I maintained that it was, moreover, essential 31. As I pointed out in my Opinion in Case to allow the Commission a margin of C-291/89 Interhotel, the Commission, when discretion at the time of the final exam- examining final payment claim, uses the ination of the application for assistance earlier decision of approval as a framework. which it carries out in the light of the It may therefore legitimately refuse expen- detailed report on the content and results of diture which it had not approved as well as the operation, enabling it to ascertain that expenditure the amounts of which have expenditure was actually and necessarily been increased. incurred. The Court has stated that it 'cannot be disputed' that

However, I also pointed out 4 0 that the Commission should not be allowed, at the final stage, to refuse approved expenditure 35. I have also pointed out that certain the necessity of which it had been in a expenditure capable of giving rise to position to assess at the initial stage, confusion in the final payment claim was provided that it does not exceed the amount only clarified in the applicantiis reply in agreed by the decision of approval and that these proceedings. This is so regarding the necessary documentary proof of expenditure expenditure relating to 'Travelling is provided. expenses' 45 which, according to the applicant, 46 covers the expenses of persons not in receipt of an accommodation allowance, but does not apply to other persons. It must be appreciated, however, that the Commission was not aware of this 34. According to the Commission, certain distinction when it decided on the final items of expenditure were not the accom- payment claims and was entitled to take the panied by any documentary proof in the view that such expenditure was not justified. final payment claim; these were, in the file relating to the training of young people, expenditure headed 'Miscellaneous' under the item 'Teaching materials', 41 'Expen- diture on staff', 'Expenditure for specialized work' 4 2 and 'General administrative 36. Similar blunders are to be found in the expenses', 43 for which Oliveira main- final payment claim concerning the training tained 44 that the documentary proof was in of adults: certain expenditure such as that its archives and remained available. T o my relating to specialized work 4 7 was not supported by documentary proof; other mind this argument is inadequate. The expenditure, such as that relating to Commission was entitled to expect the 'Recruitment and selection of trainees', 48 promoter to supply proof of his expenditure may, in the absence of sufficient explanation when applying for final payment. The fact on the part of the undertaking in its final that this proof was produced at the stage of payment claim, misled the Commission 49 the applicantiis reply is of no great conse- which was bound to refuse that expenditure. quence: it is not for me to take over the role Thus the Commission could also legit- of the Community administration, but to imately refuse this type of expenditure consider whether, at the time of taking its without prejudicing the acquired rights of decision, the Commission was entitled the applicant. to withdraw part of the assistance. 45 — Point 14.3.5 of the final payment claim. 39 — Judgment in Case 84/85 Uniteti Kingdom v Commission 46 — Annex 6 to the reply, p. 14. [1987] ECR 3765, paragraph 23. 47 — Point 14.2.7 of the final payment claim, see defence, 40 — Paragraph 41. paragraph 9, and rejoinder, paragraph 5 e), to be 41 — Point 14.2.1 of the final payment claim. compared with Annex 6, p. 18. 42 — Point 14.2.7 of the final payment claim. 48 — Point 14.2.3. 43 — Point 14.3.14 of the final payment claim. 49 — Rejoinder, paragraph 5 d), to be compared with Annex 6 44 — Annex 6 to the reply, p. 13. to the reply, p. 18

38. That method seems to be particularly open to criticism. The original application, as approved by the Commission, contained individual items of expenditure under that heading, for both the file relating to 'adults' 41. In the second place, it is apparent that and the file relating to 'young people'. It certain expenditure under that heading was for the Commission, in order to respect could not be regarded, as it was in the file the rights required by the applicant as a relating to 'young people', as ineligible. result of the decision of approval, to Thus the amount of ESC 4 424 345.60 57 for ascertain, item by item, whether the exceeding sums approved concerning the approved amounts had not been exceeded expenses related to non-teaching staff, as and that there was adequate documentary well as that of ESC 1 260 938.40 for corre- proof of expenditure. The Commission was sponding expenses, could be refused. The not entitled to employ a general method to expenditure relating to travel expenses 58 make the same reductions in the file relating amounting to ESC 422311.10 could have to 'adults' as those effected in the file relating to 'young people' without estab- 53 — Annex III to defence, p. 2; additional sheet N o 7 of the final payment claim. lishing that the items in the former file 54 — A total amount of ESC 4 161 464.15 relating to internal contained the same omissions and irregu- training should be reached, and not of ESC 5 982 363.69; larities as did those in the latter file. the error therefore amounts to ESC 1 820 899.54. 55 — Point 14.3.2 of the final payment claim, p. 2 separate she« N o 9 of Annex III to the defence : taking into account the part of the charges (28, 5%), an excess of ESC 518 956.36 is to be found in that respect.

been considered as unjustified, 59 as could 43. Furthermore, in the two files relating to the expenditure relating to 'Specialized 'young people' and 'adults', the Commission work' 6 0 amounting to ESC 4 015 267. took the view that the amount of the expen- Similarly, the amount corresponding to diture relating to the preparation and trans- 'Costs of hire and rent' 6 I could also have lation of manuals w was included in the cost been held to be excessive in relation to that of the preparation of the courses, dupli- in the initial application. 62 Accordingly, the cation of documents and specialized work 6 7 Commission was entitled to refuse the and, consequently, rejected the expenditure excess amount noted, namely ESC 561 598. relating thereto in the file relating to 'young Similarly, it was possible for it to disallow people' and the expenditure relating to the expenditure relating to the item 'Taxes teaching materials in the file relating to and duties' 6 3 amounting to ESC 239 705, 'adults'. My objection to these refusals is since this expenditure does not appear in the twofold. On the one hand, it does not seem initial application and since, moreover, to me that it is possible to claim that there stamp duty is not payable for this type of was any overlapping with the expenditure training measure under Portuguese law. relating to the specialized work, which was Finally, the Commission was entitled to take already refused for lack of documentary the view that the general administrative proof. 68 On the other hand, I fail to expenses, 64 amounting to ESC 512 033, understand how there was overlapping were not justified. between the preparation and translation of manuals and the costs of duplicating

On the duplication of the manuals. Indeed, the other hand, it was not entitled to employ a Commission should have noted that Oliveira general method of reduction which was not distinguished, in its final payment claims, appropriate for this type of application and between the items 'Preparation and trans- which led to the refusal of an amount lation of manuals' and 'Costs of preparation of ESC 19 237214, which seems to be of courses' under the heading 'Teaching excessive.

references. 64 — Point 14.3.14 of the final payment claim; see paragraph 34 of this Opinion concerning the file relating to 'young 68 — Paragraphs 34 and 36 of this Opinion. people'. 69 — Point 15.2 of the original applications for assistance. 65 — 19 237 2 1 4 - 1 3 776 054. 70 — Of ESC 8 100 000.

amounts, the lack of sufficient documentary approved, 74 the undertaking was entitled to proof and the submission of certain expen- take it as accepted. Consequently, the diture without adequate explanation, the refusal of expenditure relating to the item Commission refused to take into account 'Budgetary management and control' other expenditure which it judged amounting to ESC 1 900 080 seems, to my unnecessary for the successful conduct of mind, to be contrary to the rights acquired the operation. It thus appears, in the file by the applicant. relating to the training of young people, that the expenditure under 'Budgetary management and control' and that relating 46. Moreover, the Commission refused to 'Specialized work' 7 1 under the heading certain expenditure because of the reduction 'Functioning and management of courses' in the duration of training.

45. With regard to 'Budgetary management seems, was no longer entirely necessary. and control', on the other hand, Oliveira Similarly, the Commission reduced the had sought in its original application 73 amount relating to normal depreciation 79 by assistance relating to the following matters: taking account only of the actual period of 'Management and financial control of the training declared in the final payment project, preparation of budgets and system claim. 80 Accordingly, these two reductions for document distribution and filing, seem to me to be justified. archiving of documents connected with the training operations, drawing-up of monthly accounts . . . '.

expenditure. Since the latter was 78 — Point 14.5 of the final payment claim, defence, paragraph 9. 71 — Points 14.3.7 and 14.3.8 of the final payment claim. 79 — Point 14.6. of the final payment claim. 80 — Final payment claim, p. 2 additional sheet N o 1 ; defence, 71 — Reply to defence, paragraph 5. p. 7 of the French translation, and rejoinder, paragraph 73 — Point 15.3 of the original application for assistance.

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rights must be upheld in part in so far as the training and the period of practical training Commission refuses, on the one hand, in be of equal duration, while it was decided the file relating to the training of young upon after the application for assistance had people, expenditure relating to the prep- been approved, was communicated by aration and translation of manuals as well as means of a circular from the Department 'at to administration and budgetary control for a time when it was quite possible to alter the sums amounting respectively to ESC period of practical training as, moreover, 2 247 308 and ESC 1 900 080, and on the the other promoters had done'. It adds that other hand, in the file relating to the it would have subscribed to the applicant's training of adults, expenditure relating to argument if that requirement had been teaching materials amounting to 1 637 612 formulated after the completion of the in addition to amounts totalling training operations. Finally, it emphasizes 86 ESC 5 461 160 under the heading 'Func- that the text of the circular was sufficiently tioning and management of courses'. explicit.

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Commission, and this position is obvious latter, two weeks after the commencement from the text which is reproduced. of the operations, to carry out the prescribed alignment. 52. On the other hand, it seems to be indis- putable that the applicant could alter the 53. Thus, since the text of the circular period of practical training at a time when appears to be sufficiently binding for the training operations had just commenced. Oliveira to comply with it in good time, I Since the training of young people was am of the opinion that the decisions at issue spread over 26 weeks,89 as was confirmed have not infringed the general principles of by the representative of Oliveira at the law listed above. Accordingly, this plea must hearing, it must have been possible for the fail.

54. In the light of the foregoing observations, I propose that the Court should:

(1) — annul the Commission's decisions of 27 June 1989 concerning Projects Nos

870708/P1 and 870708/P3 of the European Social Fund:

OLIVEIRA v COMMISSION

Annex I

File relating to 'young people' N o 870708/P1

Headings of expenditure Amount Subject of expenditure Reasons given in final payment claim refused

14.1 Incomes of 9 528 606 Alignment of duration of trainees practical courses on that of theoretical courses

14.2 Preparation of 1. Preparation 2 247 308 Amount already courses and translation included in the cost of of manuals course preparation and in sub-items 14.2.4 and 14.2.7

5. Travel expenses 885 791 Unjustified expenditure, external staff having received a lodging allowance

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Headings of expenditure Amount Subject of expenditure Reasons given in final payment daim refused

7. Management 1 900 080 Expenditure held to be and budgetary unnecessary for the control proper conduct of the operations

8. Specialized 8 377 453 Expenditure held to be work unnecessary for the proper conduct of the operations

Ineligibility of certain items

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OLIVEIRA v COMMISSION

Annex II

File relating to 'adults' No 870708/P3

Headings of expenditure Amount Subject of expenditure Reasons given in final payment daim refused

14.5 Training of 1 400 925 Reduction taking teaching staff account of reduction in number of trainees

14.6 Normal 1 216 772 Reduction taking depreciation account of actual weeks of training

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