C-413/98

1. Pursuant to Article 177 of the EC Treaty Facts (now Article 234 EC), reference has been made to the Court of Justice of the European Communities by order of the Supremo Tribunal Administrativo of 27 October 1998, which was received at 2. In 1987, Frota Azul applied for financial the Court Registry on 20 November 1998, assistance from the ESF and the Orgamento for a preliminary ruling interpreting the da Segurança Social (or 'OSS' — the Por- provisions of Council Decision 83/516/ tuguese Social Security Fund) in order to EEC of 17 October 1983 on the tasks of carry out vocational training operations. the European Social Fund, 2 of Council When, in 1988, the operations for which it Regulation (EEC) No 2950/83 of 17 Octo- had obtained approval had been carried ber 1983 on the implementation of Deci- out, Frota Azul made a final payment claim sion 83/516/EEC on the tasks of the to DAFSE for the balance of the national European Social Fund, 3and of Commis- and Community assistance. The Director General of DAFSE certified the expenditure sion Decision 83/673/EEC of 22 December submitted and forwarded the claim to the 1983 on the management of the European ESF. Six years later, in 1995, DAFSE made Social Fund (ESF), 4 in the context of it known that it was reviewing the claim for proceedings between Frota Azul-Trans- final payment of the balance and that the portes e Turismo Ld.a ('Frota Azul'), a amounts it could certify were lower than company governed by Portuguese law, and those previously communicated to the the Directora-Geral do Departamento para Commission of the European Communi- os Assuntos do Fundo Social Europeu ties. It therefore concluded that it could not (Director-General of the Department for certify certain expenditure and ordered European Social Fund Affairs, 'DAFSE'), Frota Azul, without prejudice to any final representing the service responsible at decision which the Commission might national level for the financial management adopt with regard to the final payment of activities to which the European Social claim, to repay the sum of PTE 3 777 465, Fund ('the ESF') has contributed. after adjusting the balances of ESF assis- tance and the OSS contribution.

5. The relevant basic provisions are those of Decision 83/516, of which two must be mentioned here: Article 5(4):

Article 2 provides that:

'Final payment claims shall contain a detailed report on the content, results and ' 1 . Fund assistance shall be given for financial aspects of the relevant operation. operations carried out both by bodies The Member State shall certify the accu- governed by public law and bodies gov- racy of the facts and accounts in payment erned by private law. claims.'

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Article 6(1): Article 7(5):

Article 6:

'Without prejudice to any controls carried out by the Member States the Commission ' 1 . Member States' payment applications may make on-the-spot checks.' must reach the Commission within 10

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months of the date of completion of the Member State not to certify the accu- operations concerned. No payment shall be racy of the facts and accounts concern- made in respect of aid for which the ing a portion of the expenditure in application is submitted after the expiry respect of a training operation to which of this period. the European Social Fund (ESF) has contributed, on the ground that: it does not correspond to the actual cost of the goods and services on the domestic market; the prices of services exceed 2. Advances must be reimbursed when the the maximum prices laid down in the costs of the operation concerned cannot be Member State; the administrative costs justified on the form given in Annex 2 charged are excessive; the quantities within three months of the expiry of the 10- and types of materials used bear no month period laid down in paragraph 1.' relation to the operation or the quan- tities are not justified by that specific operation; or on similar grounds, be deemed to be a decision that the expenditure is ineligible, or is it, on the contrary, a decision which falls Article 7 within the scope of negative certifica- tion of the accuracy of the facts and accounts in payment claims, pursuant to the second part of Article 5(4) of that regulation? 'Where the management of an operation for which assistance has been granted is the subject of an investigation because of suspected irregularities, the Member State shall notify the Commission thereof with- out delay.'

contribution, serves no purpose and is expenditure is justified by the opera- not viable? tion actually carried out, the cost of goods and services on the domestic market, and the reasonableness of the costs charged within a complex struc- ture, and therefore as requiring such assessment to be restricted to a formal 3. Likewise, where, having found serious verification that the expenditure sub- irregularities vitiating the entire frame- mitted refers to approved expenditure, work within which the financing was that the expenditure has remained assessed and granted, a Member State within the overall ceilings of each item decides, after receiving a claim for final and that it is accounted for by formally payment of the balance pursuant to acceptable documents in accordance Article 5(4) of the regulation, to with- with the applicable accounting rules? draw national assistance, despite the fact that some kind of training course was organised, or that the course was only a sham, does the body managing the ESF cease to have any discretion, and is there no justification for it to take a final decision, by virtue of the fact that any possibility of a Commu- nity contribution towards that course is irretrievably precluded, and that the withdrawal of assistance has even at Community level already taken effect in law, simply because the national body has taken a decision to that effect and because that preclusion follows 5. Is the application to the expenditure necessarily and automatically, being incurred of substantive assessment cri- contained in the abovementioned arti- teria, namely, whether such expendi- cles of the regulation and the decision, ture corresponds to actual market as well as in the rules set out in general prices, whether the administrative costs terms in the aforementioned provisions of the undertaking which carried out of Community law, inasmuch as they the training course have been properly govern participation in financing and charged, whether the use of a certain contribution by the Fund since, in the quantity or even a certain type of circumstances set forth above, situa- materials is unreasonable (e.g. materi- tions of that kind would no longer als more costly than others equally arise? suitable) with a view to organising a specific training course, capable of reserving that power of assessment to Community bodies, with the result that those criteria must be identical and thus all traders within the Community 4. Must certification of the accuracy of be accorded equal treatment, with the the facts and accounts in payment implications which that entails for the claims be understood as excluding any interpretation and application of Arti- assessment whatever as to whether the cle 5(4) of Regulation No 2950/83?

Accordingly, if the competent national body is not precluded by Community law from suspending, reducing or with- drawing the national assistance, does 7. May certification of the accuracy of the the adoption of a decision of that kind facts and accounts in claims for final after submission of the claim for final payment in respect of training courses, payment take immediate and auto- as referred to in the second part of matic effect in respect of the corre- Article 5(4) of Council Regulation sponding proportion of the Commu- No 2950/83, be validly effected only nity contribution and, in addition, does by means of an entry in box 18 of the it allow the national body to demand form set out in Annex 2 to Commis- the immediate repayment of the sion Decision 83/673 of 22 December national contribution, or of the 1983 when the claim for final payment national contribution and the Commu- is forwarded, pursuant to the first nity contribution? indent of Article 1(2) and Article 1(3) and (4) as well as Article 6(1) and (2) of the abovementioned decision, or do those provisions apply only to inter- departmental procedural formalities, of no external relevance since they are not essential, which do not make it impos- sible for the department concerned subsequently to issue a certificate which differs from the first certificate, Or else, is it an absolute requirement of either as a separate document or on a Community law that the national body fresh form, provided that, in either must restrict itself to not certifying case, it takes account of the legal certain expenditure and await a final nature of the measures in question decision from the Commission and can and complies with the limits and con- only then demand repayment of any ditions laid down by national law for amount advanced on account of final making the relevant alteration?'

13. Must a decision not to certify the 'The only matter to be decided in these accuracy of the facts and accounts con- proceedings is whether or not the court in cerning a portion of the expenditure, on the the judgment under appeal was right to ground that it is not justified, be deemed to declare null and void the administrative be a decision as to the ineligibility of this measure of the Director General of DAFSE expenditure (first question)? on the ground of lack of competence to refuse to certify certain expenditure and order the repayment of sums corresponding to part of the uncertified expenditure. The judgment under appeal started from the premiss that, since the Commission is the only body competent to approve applica- 14. I shall then go on to consider whether tions for ESF financial assistance and, the competent national authority is free to therefore, to decide on the eligibility of decide to reduce or withdraw national certain expenditure, the decision adopted assistance and, if the answer is yes, whether by the Director General of DAFSE such a decision involves automatic conse- encroached upon the powers of the Com- quences for Community financing of the mission and is thus vitiated by lack of subsidy (second and third questions). Con- competence.' versely, does the power reserved to the Commission by the relevant provisions to suspend, reduce or withdraw the Fund's assistance extend to the 'national contribu- tion' (first part of the sixth question)? 11. This definition of the problem leads me first to consider the exact meaning of the certification 'of the accuracy of the facts and accounts in payment claims', which the competent national body is being required to provide. 15. The referring court is also uncertain whether the competent national body can ask for repayment of national assistance and the ESF contribution before the Com- 12. Must this certification be restricted to a mission has taken its final decision (second formal verification of accounting docu- part of the sixth question).

19. For its part, the Commission has pointed out that all recipients of ESF 17. In the fourth and fifth questions, the assistance must sign an document accepting referring court is enquiring whether certifi- the Commission's decision, and that this cation 'of the accuracy of the facts and includes inter alia the recipient's declara- accounts in claims for final payment' must tion that 'the assistance granted will be be understood 'as excluding any assessment used in accordance with the relevant whatever as to whether the expenditure is national and Community provisions and justified by the operation actually carried also in compliance with all the particulars out, the cost of goods and services on the that played a decisive part in the adoption domestic market, and the reasonableness of of the decision granting approval of the the costs charged within a complex struc- abovementioned proposal...'. ture, and therefore as requiring such assess- ment to be restricted to a formal verifica- tion that the expenditure submitted refers to approved expenditure, that the expendi- ture has remained within the overall ceil- 20. The Commission goes on to take a view ings of each item and that it is accounted similar to that of the Portuguese Govern- for by formally acceptable documents in ment, maintaining that 'it is the responsi- accordance with the applicable accounting bility of the Member State to check whe- rules'. Should an assessment that goes ther the assistance allocated has been used beyond this formal verification and relates according to the criteria of legality and in to the substantive expenditure not be compliance with conditions laid down for reserved to Community bodies, with the the manner in which the operation shall be result that the criteria applied be identical carried out'. However, it adds that the and thus that all traders be accorded equal Member State's certification decision is treatment, with the implications that nonetheless not binding on the Commission entails for the interpretation and applica- and cannot prejudice its final decision,

21. Subject to this reservation, the Com- mission concludes that 'the certification of 24. If the competent national body had to the accuracy of the facts and accounts restrict itself to formal certification of the carried out by the Member State must accuracy of accounting documents, it include a full assessment as to whether the would not play a very useful role. In those expenditure is justified by the operation circumstances, the Commission would, in actually carried out, the cost of goods and every case, have to send out inspectors services on the domestic market, and the (instead of making sample checks) in order reasonableness of the costs charged within to ascertain whether the subsidised training a complex structure'. The Member State programme had actually been carried out must check whether there has been sound correctly. financial management of public funds and whether the cost/efficiency rule has been observed.

25. Moreover, since under Article 2(2) of Assessment Decision 83/516 the Member States must guarantee the successful completion of operations to which a contribution has been made, certification cannot be reduced to a simple accounting check. 22. I can only endorse the opinions of the Portuguese Government and the Commis- sion.

26. For its part, the Court of First Instance has already confirmed, in Case T-271/94 23. Community assistance programmes are Branco v Commission, 5that 'according to always implemented through Member Article 7(1) of the regulation, both the States and the bodies they designate for Commission and the Member State con- that purpose. These bodies are close to the cerned may check the use to which the aid recipients of assistance and therefore they is put...'. are much better able than the Commission to check on the conditions in which the operation subsidised by the Community 5 — [1996] ECR II-749, paragraph 4.

'Furthermore, although a decision to sus- pend, reduce or withdraw Community assistance may sometimes reflect an assess- ment and evaluation by the competent 30. I share the opinion of the Portuguese national authorities, under Article 6(1) of Government and the Commission that it Regulation No 2950/83 it is the Commis- does not. sion which adopts the final decision and

6 — [1998] ECR II-2847, paragraph 87. 7 — [1996] ECR I-5373, paragraph 29.

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takes sole legal liability for such a decision payment must be understood as including as against the beneficiaries.' any assessment of whether the expenditure is justified or substantiated.

34. For its part, the Court of First Instance has explained that 'any certification under Article 5(4) of Regulation No 2950/83 must be regarded as being by its nature an The first question operation carried out by Member States subject to all reservations'. 8

OPINION OF MR MISCHO — CASE C-413/98

ture actually constitutes a decision that this in accordance with the conditions laid expenditure is ineligible, so that the Com- down in the decision of approval, mission can no longer entertain the elig- pursuant to Article 6(1) of Regulation ibility of such non-certified expenditure but No 2950/83. must restrict itself to assessing expenditure certified by DAFSE.

45. In the second situation, the expenditure 43. As far as the concept of 'ineligible concerned is inherently eligible for opera- expenditure' is concerned, the Portuguese tional financing, but is nevertheless to be Government has pointed out that this does regarded as ineligible for the purposes of not relate exclusively to the abstract defini- final payment, since it has not been in- tion of the type of expenditure eligible for curred in accordance with the conditions financing under Article 1 of Regulation laid down in the decision of approval or in No 2950/83, but is also used to identify conformity with the criteria of legality, all expenditure that cannot be taken into sound management and cost/efficiency, consideration when clearing the final bal- provided for in national and Community ance. legislation.

52. In its second question, the referring court is essentially asking whether the 49. However, as we have seen in relation to reduction of the national contribution the fourth and fifth questions, the Member decided upon by the competent national State may only make a proposal in this body as a result of its decision not to certify regard, since the Commission alone 'may certain expenditure entails a corresponding suspend, reduce or withdraw the assistance' proportional reduction in the amount of (Article 6 of Regulation No 2950/83). Community assistance, because any re- assessment by the Community bodies of the correctness or accuracy of the facts and accounts in respect of such expenditure would now serve no purpose and could not be made. 50. Contrary to the opinion expressed by the Portuguese Government, therefore, the expenditure in question will actually become ineligible only from the time when the Commission decides that it is. This means that the Member State should also provide the Commission with explanations 53. In setting out the grounds for its as to why it did not feel able to certify decision to refer the question, the national certain expenditure. court has explained its position as follows:

51.1 therefore propose that the Court reply '... if, in exercising its own power to certify to the first question that a decision by a that the amount of expenditure submitted Member State not to certify the accuracy of is substantively correct, the competent the facts and accounts concerning a portion national body does not certify the factual of the expenditure in respect of a training accuracy of certain expenditure, or any part

55. Finally, in the first part of the sixth question, the Supremo Tribunal Adminis- trativo is enquiring whether, conversely, the power reserved to the Commission to suspend, reduce or withdraw ESF assis- tance extends to the 'national contribu- 59. It takes this view on the basis that the tion'. Member State has exclusive power to grant national funding, which prevents the Com- mission from approving expenditure and 9 — Emphasis added. from requiring participation in financing 10 — Emphasis added. expenditure that the Member State has 11 — Emphasis added. found to be unjustified.

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61. The Portuguese Government further takes the view that, 'if the Member State itself, which is ultimately presumed to have an interest in generating Structural Fund Assessment payments, has already taken the initiative in declaring that a portion of the claim is unjustified, it serves no purpose to over- burden the Commission by requiring it to assess that portion of the claim as well'. 65. It is certainly the case that the ESF acts only at the request of a Member State and that, under Article 5(1) of Decision 83/516, ESF assistance may not exceed the amount 62. The Commission, on the other hand, of the financial contribution of the public considers that 'there cannot be a reduction authorities of the Member State concerned. in national assistance decided by the com- petent national body' and that 'likewise, such an interpretation cannot be inferred from A r t i c l e 5(4) of R e g u l a t i o n No 2950/83'. 66. It is also true that 'At the request of the Member State concerned, submitted in good time, the payment of the advances referred to in paragraphs 1 and 2 [of 63. The Commission has explained that, on Regulation No 2950/83] shall be suspen- the contrary, 'the competent national body, ded'. The question remains whether, in this case DAFSE, in practice puts for- beyond this stage, the Member State may ward a proposal to reduce funding, which still unilaterally reduce or withdraw its relates to the national contribution and to contribution. Like the Commission, I do the Community contribution and which is not think this is possible.

72. It is true that, as we have seen, the 68. As from then, a partnership is estab- Member State itself may make a proposal lished between the Member State and the to reduce or withdraw assistance, either by Commission, meaning that all subsequent refusing, at the time of the claim for final decisions are to be taken in close consulta- payment of the balance, to certify a portion tion. of or the whole expenditure, or by propos- ing the reduction or withdrawal of ESF funding, following checks carried out after payment of the whole of the national and Community assistance. 69. Therefore, 'Where an operation for which an application for assistance has been submitted or assistance has been granted cannot be carried out or can be carried out only in part, the Member State shall notify the Commission thereof with- 73. However, even in this situation, 'under out delay' (Article 5 of Decision 83/673). Article 6(1) of Regulation No 2950/83 it is the Commission which adopts the final decision and takes sole legal liability for such a decision as against the benefici- aries'. 13 70. Similarly, 'Where the management of an operation for which assistance has been granted is the subject of an investigation because of suspected irregularities, the Member State shall notify the Commission thereof without delay' (Article 7 of the same decision). 74. Therefore, if the Member State were able, after finding irregularities, to reduce or withdraw its contribution unilaterally, at the same time quoting to the Commission the rule under which ESF assistance may not exceed the amount of the national 71. Finally, 'When Fund assistance is not contribution, it would monopolise the final used in conformity with the conditions set decision on reduction or withdrawal of ESF

76. As the Court of First Instance made clear in paragraph 40 of the same case, 'it is for the Commission, and not the Member State, to determine whether the expendi- ture incurred by the recipient meets the 80. However, borderline cases may occur, conditions imposed in the decision granting in which the gravity of the infringement approval, the Member State being required and the size of the reduction in the solely to cooperate with the Commission to contribution that should result from it ensure observance thereof'. may require sensitive assessment, notably as regards the principle of proportionality. The fact that the competent national body and the Commission are obliged by the system to compare their views in that respect protects the legitimate interests of the recipient of assistance. Should the need 77. When the Commission, following the arise, the Community courts will have to Member State's proposal to that effect, resolve the issue. decides that the expenditure in question is ineligible, consequences will automatically and immediately follow, in relation to both the level of the ESF contribution and the level of the national contribution.

81. In the light of the above observations, I 14 — Cited above, paragraphs 38 and 39. propose that the Court give the following

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answer to the second and third questions 83. I have explained above that the pre- and the first part of the sixth question: misses on which this question is based cannot be accepted.

'The reduction or withdrawal of a contri- bution, proposed by the competent national body, remains subject to a final 84. It follows that it is only from the time decision by the Commission, relating to the when the Commission's final decision takes portion of the contribution that concerns effect that the national body may irrevoc- ESF assistance. This final decision will ably claim the total or partial reimburse- affect the national contribution.' ment of the national contribution and the Community contribution from the recipient of assistance.

87. For all these reasons, therefore, I pro- 89. The Portuguese Government is of the pose that the Court decide, as the Commis- opinion that the time-limit provided for in sion has done, 'that there is no provision in Article 6(1) of Decision 83/673 applies Community legislation preventing the only to the forwarding of final payment Member State from demanding immediate claims, but does not oblige Member States repayment of the national contribution to forward the certification of the data and/or the Community assistance, after contained in the payment claims at the the final claim for payment has been same time. forwarded to the Commission, subject to the reservation that its decision is taken without prejudice to the Commission's final decision', and that the issue of whether the Member State is in a position to demand such reimbursement subject to a reserva- tion 'is an issue of domestic law which must 90. It maintains that DAFSE may, there- be settled at national level'. fore, make its certification decision as long as the Commission, which is not subject to any time-limit, has not ruled on the final payment claims.

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92. According to the Commission, 'certifi- to enable the latter to carry out the cation of the accuracy of the facts and certification specified in Article 5(4) of accounts in claims for final payment in Regulation No 2950/83. Box 18 of the respect of training courses, as referred to in form is specially reserved for that purpose. the second sentence of Article 5(4) of Regulation No 2950/83, does not prevent a Member State from conducting a review after the final payment claim has been made and from submitting to the Commis- sion, if necessary, a revised final payment claim proposing a reduction in assistance'. 95. The Court of First Instance has pointed out, in paragraph 68 of its judgment in Proderec, that:

Assessment

16 — See, for similar grounds, Case C-213/87 Gemeente Amsterdam and VIA v Commission [1990] ECR I-221, concerning the admissibility of claims for assistance. 17 — Emphasis added.

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96. In this regard, Artide 6 of Decision 99. Paragraphs 77 and 78 of that order 83/673 provides that applications for final read as follows: payment must reach the Commission within ten months of the date of comple- tion of the training operations concerned and that no payment shall be made in respect of aid for which the application is submitted after the expiry of this period. '77 As the Court of First Instance stated in paragraph 48 of the judgment under appeal, Article 6 of Decision 83/673 provides in this regard that applica- tions for final payment 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 which the 97. Therefore, as certification must take application is submitted after the place within that time-limit and be set out expiry of that period. As the Court of in the box reserved for it on the form First Instance rightly held, if checks to claiming final payment set out in Annex 2 establish conformity could be made to Decision 83/673, it is not surprising that only before certification that the facts the national body, faced with a flood of and accounts in a final payment claim final payment claims, finds itself caught were accurate, the Member State might between the obligation to check the validity not be in a position to submit that of the expenditure set out in the claim, claim to the Commission within the having regard to the Member State's above 10-month period, with the result responsibilities, and the obligation to cer- that final payment of the aid could not tify the claim and forward it to the be made. The Court of First Instance Commission, failing which the claim will therefore rightly concluded that, in become inadmissible. some cases, certification of the accu- racy of the facts and accounts in a final payment claim prior to a check to establish conformity or before its com- pletion might be in the interest of the aid recipient.

100. In reviewing the file and amending its 102. Consequently, I propose that the previous assessment, DAFSE did not, as the Court reply to the seventh question that Commission has pointed out with good certification of the accuracy of the facts and reason, carry out a second certification of accounts in claims for final payment in the accuracy of the facts and accounts respect of training courses, as referred to in pursuant to Article 5(4) of Regulation the second sentence of Article 5(4) of No 2950/83. Regulation No 2950/83, may be validly effected only by means of an entry in box 18 of the form entitled 'Claim for final payment from the European Social Fund', as set out in Annex 2 to Decision 83/673. 101. On the other hand, DAFSE did per- However, this certification does not prevent form the controls that it is empowered to a Member State from conducting a review exercise under Article 7 of Decision after the final payment claim has been 83/673. This power is not subject to the made and from submitting to the Commis- time-limit provided for in Article 6 of sion, if necessary, a revised final payment Decision 83/673 and may therefore be claim proposing a reduction in assistance. exercised after certification of the final payment claim, if checking prior to for- warding of the final payment claim by the recipient would have exposed DAFSE to the risk of incurring the abovementioned time-bar.

Conclusion

103. Having regard to all the above considerations, I propose that the Court give the following answers to the questions referred by the Supremo Tribunal Administrativo:

The second and third questions and the first part of the sixth question

The reduction or withdrawal of a contribution, proposed by the competent national body, remains subject to a final decision by the Commission, relating to the portion of the contribution that concerns European Social Fund assistance. This final decision will affect the national contribution.

The sixth question

Community legislation does not prevent the Member State from demanding immediate repayment of the national contribution and the Community assistance after the final claim for payment has been forwarded to the Commission, without prejudice to the Commission's final decision. Subject to this reservation, the question raised is an issue of domestic law, which must be settled at national level. I - 699

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The seventh question