T-142/97

BRANCO ν COMMISSION

J U D G M E N T O F T H E C O U R T O F FIRST INSTANCE (Third Chamber) 15 September 1998*

In Case T-142/97,

Eugénio Branco Lda, a company incorporated under Portuguese law, having its registered office in Lisbon, represented by Bolota Belchior, of the Bar of Vila Nova de Gaia, with an address for service in Luxembourg at the Chambers of Jacques Schroeder, 6 Rue Heine,

applicant,

ν

T H E C O U R T O F FIRST INSTANCE O F T H E E U R O P E A N C O M M U N I T I E S (Third Chamber),

composed of: V. Tiili, President, C. P. Briet and A. Potocki, Judges,

Registrar: B. Pastor, Principal Administrator,

having regard to the written procedure and further to the hearing on 11 June 1998,

gives the following

Judgment

4 Article 5(4) of Regulation N o 2950/83 provides that final payment claims must contain a detailed report on the content, results and financial aspects of the rel­ evant operation and requires the Member State concerned to certify the accuracy of the facts and accounts in payment claims.

5 Article 6(1) of Regulation N o 2950/83 provides that when ESF assistance is not used in conformity with the conditions set out in the decision granting approval the Commission may suspend, reduce or withdraw the aid after giving the relevant Member State an opportunity to comment.

6 Under Article 6(2), sums paid which are not used in accordance with the condi­ tions laid down in the decision granting approval must be refunded.

7 Article 7(1) provides that the Commission may, without prejudice to any controls carried out by the Member States, make on-the-spot checks.

8 Article 6 of Commission Decision 83/673/EEC of 22 December 1983 on the man­ agement of the ESF (OJ 1983 L 377, p. 1) requires Member States' final payment claims to reach the Commission within 10 months of the date of completion of the

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12 The project in respect of which assistance was requested (file-number 880280 P1) was approved by a Commission decision notified to the applicant by a letter from the DAFSE of 25 May 1988 ('the approval decision').

1 3 That approval decision fixed the amount of ESF assistance at ESC 62 191 499. For its part, the Portuguese State undertook to finance the applicant's project up to an amount of ESC 50 883 954 through the Orçamento da Segurança Social/Instituto de Gestão Financeira da Segurança Social (Social Security Budget/Institute for the

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BRANCO ν COMMISSION

Financial Management of Social Security) (OSS/IGFSS'). The financing of the training programme was supplemented by private contributions.

14 By letter of 21 July 1988, the applicant returned to the DAFSE an 'acceptance of the approval decision' which it had duly signed at the Commission's request. In that document it stated that it would, when using ESF assistance, comply with the relevant rules of national and Community law and with the conditions set out in the approval decision.

Article 5(4) of Regulation N o 2950/83. It paid out to the applicant the sum of ESC 16 795 307, representing the balance of the assistance to be paid by the OSS/ IGFSS, but pointed out that this payment did not prejudge the Commission's final decision.

19 The IGF presented its report on 9 January 1990. Since it found that the applicant had incurred unnecessary expenditure and that other expenditure had been incurred in breach of provisions of national law, it concluded that the financial assistance granted ought to be reduced.

20 Adopting the IGF’s position, the DAFSE wrote to the applicant on 23 May 1990 informing it that ESF assistance was to be reduced to ESC 30 672 242 and that of the OSS/IGFSS to ESC 25 095 471. It accordingly instructed the applicant to repay a portion of the sums which it had already received from the ESF and the OSS/ IGFSS, in the amounts of ESC 423 507 and ESC 17 141 813 respectively.

21 O n 23 May 1990 the DAFSE, on behalf of the applicant, also forwarded to the Commission a corrected claim for final payment. It proposed a reduction of the assistance in the amounts indicated in the letter of even date sent to the applicant.

22 By decision of 29 March 1993 the Commission, in accordance with that proposal, reduced the ESF's financial assistance to ESC 30 672 242.

23 By letter of 15 December 1993, received on 17 December 1993, the DAFSE noti- fied the applicant of that decision.

28 Following that judgment, the Commission re-examined the file. By letter of 30 May 1996 it sent to the D AFSE a new draft decision reducing the assistance and requested it to submit any comments in accordance with Article 6(1) of Regulation N o 2950/83. It also requested the DAFSE to forward that draft decision to the applicant and inform the Commission of any reaction on the applicant's part.

29 By letter of 19 June 1996 the DAFSE sent to the applicant a copy of the Commis­ sion's draft decision and requested it to submit its comments within 10 days. The applicant responded to that request within the allotted time.

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30 By letter received on 4 September 1996, the D AFSE forwarded to the Commission a copy of the applicant's comments on the Commission's draft decision, together with its own comments.

31 O n 16 December 1996 the Commission adopted Decision C(96)3170 ('the con- tested decision'). After outlining the procedure which it and the DAFSE had fol- lowed and referring to the IGF report and to its own letter of 30 May 1996, the Commission concluded that the ESF's financial assistance ought to be reduced to the same amount as that accepted in its decision of 29 March 1993, that is to say, ESC 30 672 242.

35 Upon hearing the report of the Judge-Rapporteur, the Court of First Instance (Third Chamber) decided to open the oral procedure without any preparatory inquiry. However, it decided to put a number of written questions to the Commis­ sion, to which the latter replied at the hearing held in open court on 11 June 1998.

36 During that hearing, the parties presented oral argument and replied to the ques­ tions put by the Court.

37 The applicant claims that the Court should:

— annul the contested decision;

— order the Commission to pay the costs.

38 The Commission contends that the Court should:

protection of legitimate expectations and legal certainty; breach of acquired rights; and, finally, infringement of the principle of proportionality.

1. The first plea in law: breach of Regulation No 2950/83

Arguments of the parties

40 The applicant notes that, during August 1989, the D AFSE certified the accuracy of the facts and accounts in the final payment claim which it had submitted, in accor- dance with Article 5(4) of Regulation N o 2950/83. Once that certification had been sent to the Commission, the power of the DAFSE and the Member State con- cerned came to an end. The rules applicable, and in particular Regulation N o 2950/83, do not, the applicant argues, allow the DAFSE, after certification has been completed and sent to the Commission, to carry out, as in this case, a ‘re- examination' of the file, thereby altering its prior certification.

41 The Member State should, the applicant argues, examine whether there are any irregularities before it accords certification. If the position were otherwise, it would be carrying out a false certification. O n receipt of the final payment claim, the DAFSE could have concluded either that the information submitted was accu- rate and proceeded to certify it, or, in the alternative, that the information was inaccurate and, in that case, refused certification. In certifying the final payment claim, the DAFSE thus definitively approved the information contained in that claim.

42 Finally, the applicant notes that the above re-examination was carried out by the IGF, which is neither empowered to monitor ESF operations nor technically in a position to rule on the application of Community legislation.

46 Those obligations and powers devolving on Member States are not limited by any restriction in time.

47 Accordingly, in a case such as this, in which the Member State has already certified the accuracy of the facts and accounts in the final payment claim, that State may still alter its assessment of the final payment claim if it considers that it contains irregularities which had not been previously detected.

48 Article 6 of Decision 83/673 provides in this regard that applications for final pay­ ment must reach the Commission within 10 months of the date of completion of the training operations and that no payment may be made in respect of aid for

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which the application is submitted after the expiry of that period. In those circum- stances, if checks to establish conformity could be made only before certification that the facts and accounts in a final payment claim were accurate, the Member State might not be in a position to submit that claim to the Commission within the above 10-month period, with the result that final payment of the aid could not be made. It follows that, in some cases, certification of the accuracy of the facts and accounts in a final payment claim prior to a check to establish conformity or before its completion may be in the interest of the aid recipient.

BRANCO ν COMMISSION

52 The applicant first takes issue with the circumstance that the I G F did not examine the facts of the training programme but carried out solely an examination of the accounts. In its report, the I G F made no reference to the approval decision. In particular, it did not indicate to what extent the conditions laid down in that deci­ sion had been breached. Ultimately, the report points only to a minor divergence between the I G F and the applicant, relating to the criteria governing eligibility of expenditure.

53 The I G F report, the applicant submits, also contains errors of appraisal in regard to the subcontract awarded to the company E. B. Lda, the hourly rate for trainees, and, finally, the regular attendance bonuses, the leased computer hardware and depreciation costs.

54 With regard, first, to the subcontracting of certain activities to E. B. Lda, the I G F was, the applicant argues, wrong to take the view that this was not justified.

55 The rules applicable and the approval decision allow a recipient of ESF assistance, at least implicitly, to have recourse to third parties in order to carry out specialised work as part of a training programme. The subcontract awarded to E. B. Lda was, moreover, indicated in the application for assistance, the costs relating to the work in question being set out under the entry 'specialised work'.

56 The IGF's criticism that the amounts invoiced by E. B. Lda were increased by excessive reliance on independent assistants is unjustified, since the applicant itself had recourse to such assistants at even higher cost and this practice was at no time challenged by either the DAFSE or the Commission.

60 More particularly, the regular attendance bonuses awarded to trainees in 1988 were not treated by the IGF as eligible expenditure, whereas, in 1987, the IGF had taken the view that similar bonuses did in fact constitute eligible expenditure. The same reasoning, the applicant claims, applies in regard to the depreciation costs, which had been accepted by the IGF in 1987 but turned down in 1988.

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BRANCO ν COMMISSION

61 Furthermore, it was in accordance with the approval decision that the value of the leased computer hardware should have been spread over the 12 months of the year during which the training programme was held (1988) and not over the six-month period during which it was actually conducted.

62 During 1987 and 1988, the depreciation of assets was still being calculated on an annual basis, a rule which the tax authorities did not amend until 1993. In applying legislation which entered into force in 1993 to facts occurring in 1987 and 1988, the I G F disregarded an elementary rule of legislative interpretation.

63 The Commission takes issue with the argument put forward by the applicant.

67 With regard to the scope of the power exercised by the Commission pursuant to Article 6(1) of Regulation N o 2950/83, the application of that provision may make it necessary to assess complex facts and accounts. In making such an assessment, the institution therefore enjoys a wide discretion. Consequently, the Court must, in examining whether the present plea is well founded, limit its review to verifying that there has been no manifest error in assessing the facts at issue (see most recently, to this effect, Case T-118/96 Thai Bicycle Industry ν Council [1998] E C R 11-2991, paragraphs 32 and 33).

68 In the contested decision, the Commission, as it was legally entitled to do (Branco ν Commission, paragraph 36, and Commission ν Branco, paragraph 30, cited above), referred to the I G F report and to its letter of 30 May 1996, both of which it is not disputed were brought to the applicant's attention in good time.

69 The Commission's letter of 30 May 1996 is based entirely on the I G F report.

70 In those circumstances, the contested decision is itself based solely on that report.

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BRANCO ν COMMISSION

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JUDGMENT OF 15. 9. 1998 — CASE T-142/97

The errors allegedly contained in the IGF report

76 It is necessary to ascertain whether the I G F report does indeed contain manifest errors concerning appraisal of the training programme's cost in regard to the sub- contract awarded to E. B. Lda, the hourly rate of pay for trainees and, finally, the regular attendance bonuses, the leased computer hardware and the depreciation costs.

— The subcontract awarded to E. B. Lda

77 While it is true that there is nothing in the rules relating to the ESF or in the approval decision to preclude recourse to subcontracting, such recourse must be justified, as the Commission has stressed in its pleadings, by the fact that the sub- contractor is in a position to perform certain specialised work which is clearly identified and forms part of his normal activities. The applicant has itself implicity accepted this analysis inasmuch as it entered the subcontract awarded to E. B. Lda under the heading 'specialised work'.

82 The I G F concluded (p. 8 of the report):

'It is entirely unclear what purpose was served by the involvement of E. B. Lda in the training programme; this means that it will be possible to accept as eligible only such expenditure as, being based on invoices of E. B. Lda, comes within the limit of that which it incurred as being connected with the training programme.'

83 So far as concerns the comparison which the applicant draws with the subcontrac­ tor Açorlis Lda, it is clear from the IGF report (p. 15) that the amount received by Açorlis Lda was accepted in full because it was not large and did not therefore merit an in-depth examination of the kind carried out in respect of E. B. Lda.

84 With regard to the findings thus made, the Commission did not commit a manifest error of appraisal in reducing, on the basis of the IGF report, the assistance granted to the applicant under the entry concerning the subcontract awarded to E. B. Lda.

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BRANCO ν COMMISSION

89 With regard to the entry concerning regular attendance bonuses, the I G F report states (p. 21) that these are, under Portuguese domestic law, treated as trainee pay, a fact which the applicant does not dispute. In this case, it was the use of rates higher than those authorised by law (see paragraph 85 above) which led to the reduction in the entry concerned. The applicant cannot therefore argue that the regular attendance bonuses 'were disallowed in 1988'.

90 So far as the leased computer hardware is concerned, the training programme was conducted from 4 July 1988 to 30 December 1988, that is to say, for approximately six months. Consequently, as is clear from the I G F report (pp. 20 and 22), the amounts relating to this entry had to be calculated on the basis of a 6-month period, not a 12-month period as suggested by the applicant.

91 With regard to the depreciation of assets generally, the applicant has failed entirely to produce documents, in particular legislation, to support its contention that the IGF wrongly applied legislation which came into force in 1993 to events occurring in 1987 and 1988 (see paragraph 62 above). It has thus failed to establish that, con­ trary to what the I G F report suggests (at p. 22) and to the explanations given by the Commission during the hearing, the Portuguese law applicable at the material time precluded depreciation of assets from being calculated on the basis of a period of less than one year (12 months).

92 In those circumstances, the Commission did not commit a manifest error of appraisal in reducing, on the basis of the I G F report, the assistance granted to the applicant under the entries relating to regular attendance bonuses, leased computer hardware and depreciation costs.

95 The applicant stresses that the Commission must take a decision within a reason­ able period. It cannot allow proceedings to continue interminably and postpone indefinitely the adoption of a decision without infringing the principles of protec­ tion of legitimate expectations and legal certainty (Case 223/85 RSV v Commission [1987] E C R 4617, paragraph 12 et seq.).

96 The Commission takes issue with the argument put forward by the applicant.

Findings of the Court

97 In a case such as this, in which the recipient of ESF assistance has not implemented the training programme in accordance with the conditions to which the grant of assistance was made subject, the recipient cannot rely on the principle of protec­ tion of legitimate expectations with a view to securing final payment of the full

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BRANCO ν COMMISSION

101 In those circumstances, the period in question must be regarded as being reason­ able.

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JUDGMENT OF 15. 9. 1998 — CASE T-142/97

102 It follows that the plea in law alleging infringement of the principles of protection of legitimate expectations and legal certainty must be rejected.

4. The fourth plea in law: breach of acquired rights

Arguments of the parties

BRANCO ν COMMISSION

107 It follows that the plea in law alleging breach of acquired rights must be rejected.

5. The fifth plea in law: infringement of the principle of proportionality

Arguments of the parties

108 The applicant points out that the Commission had initially fixed the amount of ESF assistance for the training programme in question at ESC 125 639 392, while, after the programme had been completed, it reduced that sum to ESC 61 964 126. In thus reducing the assistance by more than half, the applicant claims that the Commission infringed the principle of proportionality.

109 The Commission contests the argument put forward by the applicant.

113 The action must accordingly be dismissed in its entirety.

The applicant's request to the Court to remove a document annexed to the Commission's rejoinder

1 1 4 By a separate document lodged at the Registry of the Court on 28 January 1998, the applicant requested the Court to remove the document entitled 'charge' annexed to the Commission's rejoinder and referring to the proceedings instituted by the IGF before the Tribunal Criminal do Porto.

115 The Commission objects to that request.

116 The Court did not, in this case, rely on the document in question for the purpose of resolving this dispute.

117 It is therefore unnecessary to rule on the applicant's request.

hereby:

1. Dismisses the action;

2. Orders the applicant to pay the costs.

Tiili Briët Potocki

Delivered in open court in Luxembourg on 15 September 1998.

H. Jung V. Tiili