C-500/99

CONSERVE ITALIA v COMMISSION

OPINION OF ADVOCATE GENERAL ALBER delivered on 12 July 2001 »

I — Introduction for various investments may be recovered in its entirety or whether it must be reduced only by the amount to which the incorrect information relates.

II — Legal framework

1. The present appeal proceedings against a judgment of the Court of First Instance dismissing an application for annulment concern the contesting of a decision by 2. The provisions referred to in paragraphs which the Commission withdrew in 1996 7 to 11 below are of particular relevance to financial aid granted from the Guidance this case. The other legal provisions serve Section of the EAGGF in 1990. Together primarily to provide an overall view and a with the Italian authorities, the Commis- schematic classification. sion found that some of the payments for which aid had been granted had been made before the date on which the Commission received the application for aid and there- fore EC financial aid for that purpose could not, as a rule, be granted under the applicable provisions of Community law. 3. Conserve Italia's application for aid (in The applicant at first instance claimed that 1988) was made pursuant to Regulation the expenditure could, nevertheless, have (EEC) No 355/77. Regulation (EEC) been deemed to be eligible for assistance No 2515/85 specifies the information since it was incurred during the six months which the application must contain and preceding the date on which application the supporting documents which must be was made. The dispute also concerns enclosed therewith. Commission working whether, where the applicant provides document Vl/1216/86 stipulates in detail partially incorrect information, aid granted the conditions of eligibility for aid under Regulation No 355/77 and lays down other requirements and practices relating to the 1 — Original language: German. grant of such aid.

2 — OJ 1977 L 51, p. 1. 3 — Emphasis added.

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conditions under which agricultural and fish products are processed and marketed 4

B.1. Measures to be totally excluded 8. Under Article 1(1) of this regulation, applications for aid made by virtue of Regulation No 355/77 must contain the information specified in the annexes. The supporting documents specified therein must be attached to them. Under point 5.3 of the application to be completed by the applicant, a cross must be placed in the appropriate box to indicate whether the applicant undertakes not to start work on the project before the application reaches the Guidance Section of the EAGGF. 5. Work or measures begun before the According to the explanatory notes relating application was submitted, with the excep- to this point, projects begun before the tion of the following: application reaches the Commission cannot qualify for aid.

(a) ... (3) Working document VI/1216/86 on the determination of the maximum possible aid from the Guidance Section of the EAGGF under Council Regulation (EEC) No 355/77 (b) the purchase of machinery, equipment and building materials, including metal frames and prefabricated elements (order and supply), provided that their assembly, installation, incorporation, 9. The relevant passages of the working and on-site work in the case of building document read as follows: materials, did not take place before the application for aid was submitted;

These investments may be eligible, how- ever, if the hire-purchase agreement pro- vides that the beneficiary will become However, for the part-financing of projects owner of the equipment or measures and aid schemes, expenditure may 6 be involved within five years of the date of deemed to be eligible for assistance from the granting of the aid. This period is the Funds if incurred during the six months reduced to four years for projects financed preceding the date on which the Commis- from 1985 onwards. sion received the corresponding appli- cation.'' 7

5 — OJ 1988 L 374, p. 1. 6 — Emphasis added. ...' 7 — Emphasis added.

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11. Article 24 bears the heading 'Reduc- (5) Council Regulation (EEC) No 4256/88 tion, suspension and cancellation 8 of of 19 December 1988 laying down provi- assistance'. It provides that: sions for implementing Regulation (EEC) No 2052/88 as regards the EAGGF Guid- ance Section 10

12. Article 10 of this regulation provides '1. If an operation or measure appears to that: justify only part of the assistance allocated, the Commission shall conduct a suitable examination of the case in the framework of the partnership, in particular requesting that the Member State or other authorities '1. The Council, acting on a proposal from designated by it to implement the operation the Commission in accordance with the submit their comments within a specified procedure laid down in Article 43 of the period of time. Treaty, shall by 31 December 1989 decide upon the forms of and the conditions for the Fund contribution to measures to improve the conditions under which agri- cultural [and] forestry ... products are pro- cessed and marketed ...

14. The derogation provided for in the second subparagraph of Article 15(2) of Regulation No 4253/88 was discontinued with effect from 3 August 1993 by Council Regulation (EEC) No 2082/93 of 20 July 1993 amending Regulation (EEC) No 4253/88 laying down provisions for i m p l e m e n t i n g R e g u l a t i o n (EEC) No 2052/88 as regards coordination of the activities of the different Structural 22. While the application was being con- Funds between themselves and with the sidered Fedital sold its Massa Lom- operations of the European Investment barda establishment to Colombani Bank and the other existing financial Lusuco SpA, which the Federazione instruments.12 Italiana dei Consorzi Agrari also con- trolled, on 31 December 1989. The business name of the acquiring com- pany was then changed to "Massalom- I I I— Facts of the case barda Colombani SpA" (hereinafter "Massalombarda Colombani"). On 15. The following facts are evident from 18 October 1994 that company was the paragraphs of the judgment set out sold to Frabi SpA (which subsequently below: became Fincoserve SpA), the finance company of the group Conserve Italia Soc. Coop, ari (hereinafter "Conserve Italia"), the applicant. ...

'20. On 27 October 1988 the Commission received an application for the grant of

11 — OJ 1990 L 91, p. 1. 23. On 23 March 1990 the Commission 12 — OJ 1993 L 193, p. 20. asked Fedital to specify the nature, cost

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and starting and finishing dates of the 27. On 22 November 1991 the Italian work to be financed and to state authorities carried out a final inspec- whether it had been started before the tion of the work and approved it on the date on which the application was ground that it satisfied all the con- received by the C o m m i s s i o n ditions laid down in the decision to (27 October 1988). Furthermore, the grant aid. Commission asked for the balance sheet for 1988 and a copy of the contracts of sale relating to the various acquisitions made by the company.

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30. On 22 May 1995 the Commission 33. The main grounds of that decision are informed Massalombarda Colombani reproduced below: and the Italian authorities of its inten- tion to initiate such a procedure and recover the amounts wrongly paid and asked them to submit their observa- tions on this. "...

Whereas the aid was granted having 31. Massalombarda Colombani submitted regard in particular to the technical its observations on 3 August and description of the planned work and 22 September 1995. It stated that it the period set aside to carry out the had in fact purchased the equipment work referred to in the file attached to before the Commission received the the application for aid and contained in application for aid, but that those the wording of the decision; purchases had been made on a trial basis. Moreover, it acknowledged that the project related to some work that was carried out before the application for aid was submitted. Following dis- cussions with officials of the competent services of the Commission on 19 January 1996, it submitted an additional statement on 27 February 1996. Whereas during [a] check it was found that certain definitive purchases had been effected and certain work carried out before the Commission received the application for aid from the benefici- ary, that is to say before 27 October 32. On 3 October 1996 the Commission 1988, and that was contrary to the adopted Decision C (96) 2760 discon- undertaking which the beneficiary tinuing the aid granted to the company entered into pursuant to the provision Massalombarda Colombani by Com- laid down on page 5 of Annex A1 to mission Decision C (90) 950/356 of Regulation ... No 2515/85 ..., in that 29 June 1990 on the grant of aid from application for aid; the EAGGF Guidance Section pursuant to Regulation No 355/77 in connection with EAGGF project No 90.41.IT.109.0 entitled "Potenziamento e aggiorna- mento tecnologico degli impianti di uno stabilimento ortofrutticolo in Whereas it was also found that a Massa Lombarda (Ravenna)" ("the contract of sale relating to a Tetra contested decision"). Pak packing machine had been falsified

16. On 23 December 1996 Conserve Italia brought an action against the Commis- — declare inadmissible the claim for sion's decision. annulment, in so far as may be necess- ary, of the working document;

It claimed that the Court of First Instance should — as for the remainder, dismiss the action as unfounded;

— annul the contested decision; — order the applicant to pay the costs.

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17. Conserve Italia based its action on the eligibility of the project is governed various infringements of rules of law relat- by that provision. ing to the application of the EC Treaty and in particular Article 15(2) of Regulation No 4253/88, paragraphs 5 and 12 of point B.1 of the working document, and Article 24(2) of Regulation No 4253/88. In the context of those pleas it complained in particular that the Commission failed to 44. The terms "expenditure" and "in- observe the principles of legality of pen- curred" in the second paragraph of alties, the protection of legitimate expec- that article ... suggest that account tations and proportionality and that it has must be taken of the date of payment misused its powers. Finally, the applicant for the purchases or work, or at least also put forward a plea alleging infringe- the date of invoicing. ment of essential procedural requirements on the ground that insufficient reasons were stated for the contested decision.

47. Finally, the defendant failed to observe It follows that the instructions con- the principle of the protection of legit- tained in the aid application form, in imate expectations by discontinuing particular those relating to the under- the aid at issue on the basis of criteria taking which the applicant must enter other than those referred to in into when submitting his application, A r t i c l e 15(2) of R e g u l a t i o n examined in the light of point 5.3 of No 4253/88 ...'. the "Explanatory notes for each head- ing" in Annex A to that regulation ..., have binding force identical to that of the provisions of the regulation to which the models and explanatory notes are annexed (see, to this effect, 19. In that regard the Court of the First the judgment of the Court of First Instance stated: Instance in Joined Cases T-551/93, T-232/94, T-233/94 and T-234/94 Industrias Pesqueras Campos and Others v Commission [1996] ECR II-247, at paragraph 84). Moreover, '59.... Article 19(2) of... [R]egulation the company Massalombarda Colomb- [No 355/77] states that the Commis- ani entered, by its signature, into an sion may decide to suspend, reduce or express, solemn and unequivocal per- discontinue aid "if the project has not sonal undertaking not to start work on been carried out as planned" and "if the project before receipt of the appli- certain of the conditions laid down cation for aid by the EAGGF Guidance have not been fulfilled". Section. Since that undertaking was accepted by the Commission, it became part of the measure granting the aid and is imbued with the legal force of that measure. The condition relating to the point in time to which the under- 60. That provision does not state what taking refers, which, amongst other those conditions are but refers things, makes for legal certainty and expressly to the "financial or other helps to further equal treatment of conditions laid down for each project". applicants for aid, constitutes a "con- It follows that all the conditions laid dition laid down" within the meaning down for each project, irrespective of of Article 19(2) of Regulation whether they are technical or financial No 355/77 and failure to comply with or whether they lay down a time-limit, it therefore means that the project are covered by that expression. financed has not been carried out as planned.

66. It is therefore necessary to ascertain the 63. It is clear from the first subparagraph date to be taken into consideration for of Article 15(2) of Regulation determining whether the work was No 4253/88 and the term "may" in started before receipt by the Commis- the second paragraph thereof that, as a sion of the application for aid, bearing general rule, expenditure is eligible in mind the undertaking entered into at only if incurred after the date on which the time the application for the aid at the Commission received the cor- issue was submitted. In particular, it is responding application. It is only in necessary to consider whether, as the exceptional cases that the Commission applicant claims, that date is the date has the power to consider expenditure on which the initial purchases or sub- eligible if it was incurred during the six sidised work were paid for or, possibly, months preceding the date on which the date on which they were invoiced. the Commission received the appli- cation.

67. The conclusion of contracts, even sub- ject to a condition having suspensory 64. By the decision to grant aid ... the effect, as part of a supported invest- Commission approved the application ment project has a decisive effect on the containing the personal undertaking manner in which it is carried out. Such not to start work on the project before contracts therefore constitute a meas- receipt of the application for aid, with- ure executing a project. Accordingly, it out specifying that it intended to use is their conclusion which determines the power provided for in the second the date on which work is started for paragraph of Article 15(2) of Regu- the purposes of the undertaking lation No 4253/88. entered into by the beneficiary.

72. The fact that, in this case, the infor- mation relating to the date on which work was started was concealed or presented in such a way as to mislead the Commission constitutes breach of that obligation and, consequently, of 70. The applicant's submission that the the applicable rules. relevant date is the date of payment, or at least the date of invoicing, cannot be upheld. It is doubtful that the beneficiary of the aid could have thought that no start had been made on the work on the project before the invoices had been drawn up or paid. 73. Accordingly, there is no valid ground Even assuming that the beneficiary had for charging the defendant with an no fraudulent intent, it must at the very infringement of Article 15(2) of Regu- least have had doubts as to its inter- lation No 4253/88. pretation of the undertaking not to start work on the project before the Commission had received the appli- cation for aid. In such circumstances it was for the beneficiary to inform itself of the significance of the undertaking required, not only so as not to commit 74. Since the complaint alleging breach of itself lightly but also to avoid any risk the principle of the protection of legit- of misleading the Commission. imate expectations is based on the

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installed before the application for aid of Regulation No 4253/88 was not appli- was submitted, which is not the case cable in this case since the irregularities here. Second, paragraph 12 of point found did not affect the conditions of the B.1 of the working document provides operation. In the alternative, it contended that investments financed by leasing that Article 24(2) did not provide for the are eligible only where the contract possibility of discontinuing the aid, but stipulates that the beneficiary will only for the possibility of reducing or become the owner of the equipment suspending it. Consequently, the contested financed during the four years follow- decision was unlawful because it had no ing the date on which the aid is legal basis. granted. In this instance the contract for hire contained no clause stipulating a transfer of ownership within such a period.

21. In that regard the Court stated as follows in its judgment:

'90. As is clear from paragraphs 69 and 72 to 76 above, the beneficiary of the aid did not carry out the project as planned 80. It follows from all the foregoing that and certain of the conditions laid down the pleas alleging infringement of were not fulfilled. Article 19(2) of Article 15(2) of Regulation No 4253/88 Regulation No 355/77 allows the Com- and paragraphs 5 and 12 of point B.1 mission to suspend, reduce or discon- of the working document must be tinue aid which has been granted rejected.' beforehand where the project has not been carried out as planned or certain conditions laid down have not been fulfilled. Consequently, that provision constitutes a sufficient legal basis for the adoption of the contested decision.

92. Although the wording of Article 24(2) (3) Proportionality of the discontinuance does not expressly provide for the of the aid possibility for the Commission to adopt a measure to cancel assistance, the fact remains that it is entitled "Reduction, suspension and cancel- 22. Lastly, Conserve Italia submitted that lation of assistance". Where there is a the contested decision was disproportion- discrepancy between the wording of a ate. Since the irregularities complained of provision and the title thereof, both did not result in any discrepancy between must be construed in such a manner the project approved and the operation that all the terms employed serve a carried out and did not stem from any useful purpose. Having regard, first, to fraudulent intent or an effort to obtain that rule of interpretation and, second, financial assistance greater than the to the existence of another provision, amount of the investments made, they did also applicable to the aid in question, not justify the discontinuance of the aid at which provides for the possibility of issue. discontinuing aid from the EAGGF in certain circumstances (Article 19(2) of Regulation No 3 5 5 / 7 7 ; . . . ) , A r t i c l e 2 4 ( 2 ) of R e g u l a t i o n No 4253/88 must be construed as 23. In that regard the Court ruled as meaning that all the terms employed follows: by the legislature, in particular the word "cancellation" in the title of that provision, serve a useful purpose. That article must therefore be construed as meaning that it allows the Commission '101. It is settled case-law that by virtue of to discontinue aid from the EAGGF in that the principle of proportionality the event of an irregularity, in particu- laid down in the third paragraph of lar where a significant change to the Article 3b of the EC Treaty (now operation affecting its nature or the Article 5 EC) the measures adopted conditions governing its execution is by Community institutions must not involved, for which the Commission's exceed what is appropriate and prior approval has not been sought. necessary for attaining the objective pursued ...

103. Furthermore, the Court of Justice has held that the infringement of obli- gations whose observance is of fun- damental importance to the proper functioning of a Community system may be penalised by forfeiture of a right conferred by Community legis- lation, such as entitlement to aid (see, 105. At the hearing the applicant acknowl- to this effect, Case C-104/94 Cereol edged, first, that the work had been Italia [1995] ECR I-2983, at para- started before the Commission had graph 24, and the case-law cited received the application for aid in the therein). sum of ITL 1 780 663 116 and, second, that the irregularity relating to the contract for the sale of the Tetra Pak packing machine involved a sum of ITL 470 000 000. A total of 104. As has been pointed out at paragraph ITL 2 250 663 116 was thus involved. 77 above, the purpose of Regulation Since the aid granted from the No 355/77 is to improve the con- EAGGF was ITL 2 002 932 326 and ditions under which agricultural the overall investment was ITL 8 036 products are processed and marketed, 600 000, the irregularities com- improvement being assessed by com- plained of therefore represent 112% paring the situation which was of the aid and 28% of the investment. intended to be the result of the The fact that the applicant failed to operation funded with that which comply with its undertaking not to existed before the commencement of start work on the project before the project. It also follows from the receipt of the application for aid by seventh recital in the preamble to the Commission, failed to inform the Regulation No 355/77 that the legis- Commission of this and, in response lature sought to lay down an effective to a request for information, for- control procedure in order to ensure warded a copy which was not con- that beneficiaries comply with the sistent with the original of the conditions laid down when the contract for the sale of a machine EAGGF aid is granted. It follows referred to in the subsidised project from paragraph 71 above that the constitutes a serious breach of funda- submission by the applicants for, and mental obligations.

— misinterpretation of Article 24(2) of Regulation No 4253/88 and paragraph 5 of point B.1 of working document 108. ... V1/1216/86;

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— breach of the principles of propor- is concluded specified as the date to be tionality and non-discrimination. taken into consideration.

27. Conserve Italia considers that taking (1) Ground of appeal alleging infringement account of the date of payment is also of the second indent of the second sub- compatible with point 5.3 of Annex A to paragraph of Article 19(2) of Regulation Regulation No 2515/85, which merely No 355/77 makes clear that projects begun before the application reaches the Commission are ineligible for aid. However, it does not specify when a project is to be regarded as having been started. (a) Submissions of the parties

(ii) Commission

33. Finally, working document VI/216/86 is, under paragraph 5 of point B.1 thereof, applicable only to machinery which has not 30. By contrast, the Commission considers been installed at the relevant establishment that the Court of First Instance's interpre- before the date on which the application tation of Article 19(2) of Regulation was received. Moreover, paragraph 12 of No 355/77 is correct. Work on a project point B.1 excludes hired machinery from starts when the contracts are concluded. If any form of aid. Consequently, in this the relevant date were the date on which regard too the contested decision is not the agreed work was paid for, the bene- vitiated by an error in law. ficiary of the subsidy could easily manipu- late that date simply by delaying payment despite the fact that it was due.

(b) Appraisal

31. As regards the Tetra Pak machine, it concurs with the Court of First Instance that the forwarding of a copy which was not consistent with the original of the 34. Under the first paragraph of Article 51 contract constitutes a serious irregularity. of the EC Statute of the Court of Justice, an For the management of financial resources appeal may be brought only on the grounds to function properly, it is essential that of a lack of competence of the Court of information submitted to it be complete First Instance, a breach of procedure before and correct. it which adversely affects the interests of the appellant and the infringement of Community law by the Court of First Instance.

32. Moreover, Conserve Italia failed to show that the acquisition of ownership of the machine has improved the conditions under which the agricultural products in 35. Conserve Italia is not raising a point of question are processed and marketed. law in claiming that the acquisition of

37. In its examination of the conditions relating to the application of Article 24 of Regulation No 4253/88 and its consider- ation of the extent to which an 'irregular- ity' with the meaning of that provision had been committed, the Court of First Instance 39. Articles 6 to 15 and 17 to 23 of found that work on a project starts when Regulation No 355/77, which are con- the contracts are concluded. 13 The con- sequently applicable to Conserve Italia's clusion of the contracts before 27 October application, lay down no provision con- 1988, the date on which the Commission cerning the date on which work on a received the application for the aid, 14 was project starts. However, Regulation incompatible with the undertaking, which No 2515/85 was adopted on the basis of Conserve Italia entered into in its appli- Article 13(5). It stipulates the information cation for aid, not to start work on the which must be provided when applying for aid from the EAGGF. In accordance with Annex A, Part One — Beneficiary (A 1), 13 — Paragraph 67 of the contested judgment. the applicant under point 5.3 must place a 14 — Sec paragraph 20 of the contested judgment. cross in the appropriate box to indicate

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whether it undertakes not to start work on by the Commission, the Court of First the project until the application is received Instance concluded that a 'condition laid by the Guidance Section of the EAGGF. down ' [Auflage] within the meaning of The 'Explanatory Notes and Instructions Article 19(2) of Regulation No 355/77 had for Completion of Applications' state that not been fulfilled. 15 projects begun before the application reaches the Commission cannot qualify for aid.

15 — See paragraphs 61 and 69 of the contested judgment, cited 42. Since Conserve Italia concluded above. contracts before receipt of the application 16 — Paragraph 61 of the contested judgment.

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is directed at the finding that this 'Auflage' (order and supply 17), provided that or 'Bedingung' has not been fulfilled. What their assembly, installation, incorpor- is at issue is the fact that the date on which ation, and on-site work in the case of the contracts were concluded is taken as the building materials, did not take place date on which work was started. Fur- before the application for aid was thermore, the legal consequence is the submitted; same. Aid is not possible where there is failure to satisfy either an 'Auflage' or a 'Bedingung'.

45. As has already been stated, neither Regulation No 355/77 nor Regulation No 2515/85 contain any criterion for resolving the question raised in this case. It is therefore necessary to consider whether (d) ... or not Commission working document VI/1216/86 reveals anything in favour of the appellant.

Measures (a) and (b) are eligible while measures under (c) and (d) are ineligible 46. In accordance with paragraph 5 of but do not render the project itself inad- point B.1 of the working document (see missible. Any other measure or work begun point 9 above), work or measures begun before the application concerning the pro- before the application was submitted in ject is submitted renders the project inad- particular are to be excluded, with the missible.' exception of the following:

sequently, working document VI/1216/86 50. In accordance with paragraph 12 of clearly assumes that work on a project point B.l of the working document the starts when a contract placing orders is following are also to be ineligible for aid: signed and not when payment is made. 'The costs of hiring equipment and invest- ments financed by a leasing arrangement. For example: hire costs for the use of tetra-pack machinery; projects financed partially or totally by a leasing arrange- ment. These investments may be eligible, however, if the hire-purchase agreement provides that the beneficiary will become 48. This assessment is based on the above- owner of the equipment or measures mentioned consideration of the Court of involved within five years of the date of First Instance that the conclusion of a the granting of the aid. This period is contract as part of a supported investment reduced to four years for projects financed project — as cited above at paragraph from 1985 onwards.' 41 — 'has a decisive effect on the manner in which it is carried out. Such contracts therefore constitute a measure executing a project.'

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52. For these reasons, no legal objection disregard this provision. All the expendi- may be raised to the Court's finding that ture in question was incurred during the six the conclusion of contracts determines the months preceding the date on which the date on which work is started. Therefore, Commission received the application. the first plea must be rejected. Contrary to the Court's finding at para- graph 63 of the contested decision, this provision does not grant the Commission a measure of discretion as regards which expenditure is to be considered eligible. 'May' does not mean that the Commission 53. In light of the foregoing, the complaint has discretion and that its silence must be which Conserve Italia derives from the interpreted as refusal. Instead, the provi- protection of legitimate interests must like- sion enables undertakings to take swifter wise be dismissed. Paragraph 5 of point B.1 action and to adapt their facilities more of the working document confirms the view easily. that the date on which the contracts are concluded, and not the date of payments made, determines the date on which work is started on an investment project.

(ii) Commission

(b) Appraisal 59. The wording of the provision initially indicates that the Commission does have discretion. The term 'may' normally grants the authority concerned discretion. If the legislature had intended to impose an 56. The second ground of appeal raises the obligation on the Commission to finance question as to whether or not the Court of all expenditure incurred in this period, it First Instance was right to rule out appli- would have opted for the expression 'must cation of Article 15(2) of Regulation be funded'. No 4253/88 to the aid applied for. The central issue is the meaning of the word 'may' in the second subparagraph under which expenditure may be deemed to be eligible for assistance if incurred during the six months preceding the date on which the application was submitted. 60. This interpretation is confirmed by the scheme of the provision. The first subpara- graph establishes the principle that expen- diture incurred before the date on which the application reaches the Commission cannot as a rule be funded. This reiterates a 57. The Court of First Instance dismissed principle which already applies under application of this provision on the ground Regulation No 355/77, read in conjunction that the Commission had not indicated that with Regulation No 2515/85, as discussed it intended to use the power granted to it. 20 above in connection with the consideration It is not evident that the judgment is of the first ground of appeal. Therefore, for vitiated by an error in law in this regard. these reasons too, the view put forward by Conserve Italia must be dismissed.

62. Conserve Italia's claim that the purpose (a) Submissions of the parties of the provision is to enable the applicant undertakings to take swifter action is likewise unconvincing. This factor is already taken into account in that there is eligibility for aid from the time the Com- mission receives the application, not just (i) Conserve Italia when the applicant receives approval. The ability of undertakings to take swift action is thereby safeguarded, but at the same time the abovementioned ability of the Commis- sion to exert influence over the investment decisions set out in the application is also secured. This constitutes a sensible balance 64. Conserve Italia takes the view that of the interest in swift action on the one there is no legal basis for the contested hand, and in effective management of the decision of the Commission. The infringe- available aid, on the other. ments found concern only 28% of the financial assistance which was granted. The legal consequence provided for in Article 24(2) of Regulation No 4253/88 is a pro rata reduction of the aid, not the complete cancellation thereof. The wording of the provision provides only for a reduc- 63. Therefore, it must be held that the tion or suspension of the financial assist- second subparagraph of Article 15(2) of ance, but not complete cancellation. Con- Council Regulation No 4253/88 grants sequently, Conserve Italia considers that

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the Court of First Instance interpreted the No 4253/88 must be read instead in the provision, at paragraph 92 of the contested light of Article 24(3). This provision stipu- judgment, contrary to the wording thereof. lates specifically when sums must be repaid to the Commission. 'Effet utile' could thus be given to the heading without circum- venting the wording of Article 24(2).

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70. Even if a literal interpretation is placed undertakings acting in bad faith to commit on Article 24(2) of Regulation No 4253/88, abuse. If they had to fear only a reduction this provision does empower the Commis- proportionate to the irregularities found, sion to effect recovery. That is because they would still retain the remainder of the there can also be a reduction of 100% and assistance. that amounts to a cancellation.

71. By adopting Article 24(2) of Regulation 75. The Court of First Instance had no No 4253/88, the legislature merely comment to make on the criteria used to intended to replace its forerunner, not in determine the level of the reduction, that is an attempt to restrict its importance but the say on the alleged infringement of rather to extend its effectiveness (effet paragraph 5(c) of point B.1 of the working utile). document. In that regard Article 24(2) of Regulation No 4253/88 grants the Com- mission a measure of discretion. The Com- mission has to consider measures in full knowledge of all the circumstances of the specific case. 72. Furthermore, the interpretation by the Court of First Instance is consistent with the spirit of the provision. It is intended to facilitate proper, effective, and non-dis- criminatory management of the financial resources of the Structural Funds. (b) Appraisal

77. Firstly, as regards the objection that the longer applicable by the time the contested Court of First Instance was wrong to decision was adopted on 3 October 1996. conclude that Article 19(2) of Regulation Since Regulation No 4256/88, as amended No 355/77 is applicable, it must be noted by Regulation No 2085/93, contains no that this provision could in fact no longer legal basis for the recovery of aid paid out, form a legal basis for the contested decision it was necessary to rely on the horizontal of the Commission. Under Article 10(2) of rules in Regulation No 4253/88, as Regulation No 4256/88, Regulation amended by Regulation No 2082/93. This No 355/77 was repealed on 1 January explains why the contested decision cor- 1990. It is true that, under Article 10(3), rectly cites only Article 24 of Regulation Articles 6 to 15 and 17 to 23 of Regulation No 4253/88 as a legal basis. No 355/77 continued to apply to projects submitted by 1 January 1990. To that extent, the application for aid which the applicant submitted on 27 October 1988 was also still subject to these provisions, as has already been discussed as part of the consideration of the first ground of appeal.

I-898

CONSERVE ITALIA v COMMISSION

empowers the authority merely to reduce or ing an advantage to be withdrawn. It must suspend assistance in respect of the oper- therefore be held that the term 'cancella- ation or measure concerned. tion' in the heading of Article 24 is not to be read primarily in conjunction with the obligation to repay laid down in Article 24(3) but is at most relevant to this provision in so far as it also covers, according to its wording, repayment of the entire assistance granted. 81. The Commission proposes that this divergence between the wording of the heading and of Article 24(2) be overcome by considering that there can be a reduction of 100% and that would amount to a cancellation. That view has the advantage 83. In the context of the scheme of that it respects the wording of Article 24(2) Article 24 it should be noted that and nevertheless permits cancellation as a Article 24(1) does indeed cover the possi- result. However, it is unsatisfactory in so bility of the complete cessation of the far as it fails to answer the question why assistance. It states that the Commission the heading refers to the term 'cancellation' must conduct an examination if an oper- separately from the term 'reduction'. If the ation or measure 'appears to justify neither latter were the more comprehensive term part nor the whole of the assistance allo- and thus also covered a 'cancellation', then cated'. This indicates that the consequences it would have been logical not only to omit of the examination referred to in the term 'cancellation' not only from Article 24(2) can also cover the entire Article 24(2) but also from the heading. amount of assistance concerned.

if it did not also cover the cancellation of a taken as a basis, then only 28% of the subsidy. Article 24(1) of the provision subsidy allocated would be affected and grants the Commission the right to conduct 72% of the monies which the Commission examinations where neither part nor the paid to Conserve Italia would be retained whole of the aid appears justified. It by that undertaking. However, the risk of involves the Member State in clarifying losing the entire subsidy as a consequence the situation by requiring it to submit of providing false data and documents is an comments. As the representative of the important deterrent in managing EAGGF Commission correctly emphasised at the resources. It contributes to the effective hearing, this is merely a procedural safe- management of public aid. As the Court guard which offers the Member State and noted in the contested judgment, in manag- the undertakings concerned an opportunity ing the Funds the Commission is reliant on to submit comments on the Commission's the applicants providing correct infor- findings. Article 24(2) deals with the poss- mation on the planned investments. ible measures the Commission may take on the basis of the results of the examination carried out. It would not be logical to be able to extend the examination provided for in Article 24(1) to the legality of the assistance as a whole but to seek to limit to part of the assistance the possible measures taken on the basis of the results of the examination. 22 Finally, Article 24(3) imposes a complementary obligation to repay on the beneficiary of the subsidy affected by the penalty, which can, nat- urally, cover the entire assistance. 87. This interpretation of Article 24(2) as a comprehensive rule for penalties resulting from irregularities found in the use of aid is supported by a comparison of the fore- runner of that provision. Article 19(2) of Regulation No 355/77 which, as stated above, was applicable to cases such as the present until October 1993, empowered the Commission to carry out checks (first paragraph) and to suspend, reduce or 86. If the scope of Article 24(2) were discontinue aid from the EAGGF (second limited to cases of reduction (in particular paragraph) and provided that the Commis- a pro rata reduction corresponding to the sion was to recover any sums the payment irregularities found, as proposed by Con- of which was not or was no longer justified serve Italia) and of suspension, the recipient (paragraph 3). Therefore, that provision of a subsidy who had acted unlawfully had the same structure as Article 24. It would still retain the part of the subsidy certainly made express provision for the which was not affected by the irregularity. possibility of cancelling the assistance com- If the figures given by Conserve Italia are pletely. Nevertheless, there are no indi- cations that the legislature intended to limit the Commission's power by the new word- 22 — See, to this effect, also Case T-143/99 Hortiplant v Commission [2001] ECR 11-1665, paragraph 39. ing in Article 24 of Regulation No 4253/88.

90. These considerations confirm the inter- pretation placed on Article 24(2) of Regu- lation No 4253/88 above as a sufficient basis for the adoption of the decision of 3 October 1996. Consequently, this ground of appeal must also be rejected. 89. As early as in its judgment in Algera and Others the Court ruled that any administrative measure granting unlawful advantage may in principle be withdrawn ex tunc. 23The authorities must certainly comply with the principle of legal cer- tainty 24 and in particular the principle of (4) The ground of appeal alleging infringe- the protection of legitimate expectations. 25 ment of the principles of proportionality As part of the balancing of interests which and non-discrimination has to be carried out by the institution concerned, regard must also be had to whether the beneficiary was aware of its unlawfulness 26 or whether he provided (a) Submissions of the parties incomplete or incorrect information.27 By virtue of this case-law the Commission had the power to recover the aid from Conserve Italia since, as the Court of First Instance

(b) Appraisal 92. Furthermore, the judgment in Cereol Italia28 cited at paragraph 103 of the contested judgment cannot, in the view of Conserve Italia, be taken as a precedent in respect of the present case. It relates to the application of a regulation which made express provision for the imposition of penalties. This was precisely not so in the case of Regulation No 4253/88. 94. In the contested judgment the Court of First Instance correctly rejected the com- plaint alleging that the recovery of the aid was disproportionate. The risk of losing, where irregularities are found, the entire aid, and not merely the part affected by the (ii) Commission irregularity on a pro rata basis, has a deterrent effect. This is not only an appro- priate means of safeguarding the effective management of EAGGF resources, but is also necessary and proportionate. As the Commission correctly observes, if a bene- ficiary of a subsidy who acts unlawfully merely ran the risk of losing the aid only in 93. By contrast, the Commission points to so far as it was based on his misconduct, the seriousness of the infringements found. that would constitute encouragement to commit abuse. Therefore, there is no less stringent means of achieving the desired 28 — Case C-104/94 Cereol Italia v Azienda Agricola Castello effective management of aid. [1995] ECR I-2983.

I-902

CONSERVE ITALIA v COMMISSION

99. Under Article 122 of the Rules of Procedure, read in conjunction with Articles 118 and 69(2) thereof, the unsuc- cessful party is be ordered to pay the costs 97. In light of the considerations relating to if they have been applied for in the success- proportionality, there is likewise no dis- ful party's pleadings. Since the Commission applied for Conserve Italia to be ordered to pay the costs of the proceedings and the 29 — Cereol Italiav Azienda Agricola Castello, cited in footnote appeal must be dismissed, Conserve Italia 28, paragraph 24. must bear the costs of the proceedings.

I-903

OPINION OF MR ALBER — CASE C-500/99 P

V I I— Conclusion

100. In light of the foregoing, I propose that the Court should rule as follows:

(1) The appeal is dismissed.