Report for the Hearing in Case C-291/89

I — Legal background to the proceedings

Article 1(2) of Council Decision 83/516 of 17 October 1983 on the tasks of the European Social Fund provides inter alia that the Fund is to participate in the financing of operations concerning vocational training and guidance. Article 3(1) provides that Fund assistance may be granted for operations carried out within the framework of Member States' labour market policies and in particular those intended to improve employment opportunities for young people.

Article 4(1) provides that Fund assistance may be granted in order to promote employment for young people under the age of 25, in particular those whose chances of employment are especially poor, in particular because of a lack of vocational training or inadequate training and those who are long-term unemployed.

Council Regulation No 2950/83 of 17 October 1983 defines the kind of expenditure for which assistance from the Fund may be granted and includes the costs of the preparation, operation and administration of vocational training measures.

Article 5(1) provides:

When the training programme has been concluded its promoter draws up and sends to the national authorities a final report on its completion together with, if appropriate, an application for payment of the balance. Article 5(4) of Regulation No 2950/83 provides :

Finally, Article 6 provides:

Article 5 of Commission Decision 83/673 of 22 December 1983 on the management of the European Social Fund provides that

II — Facts and written procedure

The Business Department of the European Social Fund (hereinafter referred to as the Department), Lisbon, made two applications on behalf of the Portuguese Republic in favour of the applicant company for assistance from the Fund for 1987. It is apparent from the standard form used that the training for which the assistance was requested was based on Article 3(1) of Decision 83/516 and related to young people of less than 25 years of age.

The project, the file for which was given the number FSE 870840/PI, was approved on 30 April 1987 by Commission Decision C(87) 0860 with two amendments relating to the amount of the assistance which was fixed at ESC 121647958 and the number of participants. That decision was notified to the applicant by the Department on 4 June 1987.

A circular, dated 8 June 1987 but received by the applicant on 29 June 1987, which was distributed by the Department, states:

The applicant agreed to comply with those guidelines by reducing the number of hours originally approved by 36.13%.

The courses began on 3 August 1987. Pursuant to the provisions of Article 5(1) of Regulation No 2950/83 the applicant submitted on 12 August 1987 an application for payment of an advance of 50% of the assistance approved, already taking account of the reduction in hours of the training measures. Payment was authorized in accordance with the application.

It is apparent from the documents before the Court that the actual cost of the measures remained below ESC 156960232 since it amounted to ESC 148538669. The final payment claim took into account the actual cost of the measures, namely ESC 12672962 chargeable to the Fund and ESC 10368788 to the Financial Management Institute for Social Security (hereinafter referred to as the Institute) and was submitted to the Department at the same time as a quantitative and qualitative assessment report.

By Circular No 2/88 of 13 December 1988, which the applicant received on 20 December 1988, the Department stated that the file had been forwarded to the Commission and that the costs and financing had been confirmed just as set out in the file.

By notification dated 19 July 1989 and received by it on 24 July 1989, the applicant was informed of the contested decision of the Commission's Fund department referring to an amount of ESC 62479600 in respect of non-eligible expenditure relating to points 14.1, 14.2, 14.3, 14.6 and 14.8 of the standard form. The reasons given for disallowing the expenditure were as follows: ... since there was no reduction proportionate to the reduction in the hours of the training courses and that certain terms in the original proposal were not complied with (14.1). The decision stated that there was no balance in favour of the applicant, that part of the assistance paid as a first advance was revoked and that in consequence the sum of ESC 18254440 should be refunded to the Fund and ESC 14935450 to the budget of the Institute within 15 days.

By application received at the Court Registry on 21 December 1989 the applicant brought an action under Article 173 of the EEC Treaty for a declaration that the decision was void.

Upon hearing the Report of the Judge-Rapporteur and the views of the Advocate General the Court, by decision of 10 October 1990, assigned the case to the Second Chamber pursuant to Article 95 of the Rules of Procedure and opened the oral procedure without any preparatory inquiries.

III — Forms of order sought by the parties

The applicant claims that the Court should:

The Commission contends that the Court should:

IV — Pleas in law and arguments of the parties

1. Inadequate statement of reasons

In the applicant's view the contested decision infringes Article 190 of the Treaty in that the reasons are not explicit, ~lear and relevant. The existence of a clearly defined amount of expenditure regarded as ineligible is not a reason for the decision. In addition, the allegation that the costs were not reduced in the same proportion as the number of hours of training is wholly unfounded.

The Commission insists that the contested decision shows a clearly defined amount of non-eligible expenditure and the origin of that amount. Reference to the points in the standard form used for the application for assistance clearly shows that it is a question of the expenditure relating to those points. Further, the contested decision expressly refers to the reasons for the reductions made: failure to make a reduction proportionate to that of the hours of training and disregard of terms of the original proposal. The grounds of the decision making the reduction are to be inferred from a comparison between the expenditure approved and the declared expenditure. The existence of the two documents (application for assistance and final payment claim) enables the Court to review the lawfulness of the decision.

The Commission also stressed the fact that the contested decision is a simple management measure addressed directly to the national authorities which could make any observations which they considered appropriate to the Fund and ask for any explanations which they considered necessary.

2. Infringement of the legislation concerning the Fund

The applicant maintains that the contested decision infringes Regulation No 2950/83 in revoking pan of the assistance although the finance obtained had been correctly applied and no objection had been made when payment of the advance of 50% of the assistance requested was authorized, at a time when the defendant knew perfectly well, owing to the memorandum on the summary of the position, that the costs had been reduced proportionately to the number of hours. The conditions governing the use of the assistance had been fulfilled and observed and there was therefore no need to revoke the assistance, even in part. The amendments to the original project were imposed by the Commission. The number of hours of the training operations was reduced by 33.13%, the authorized costs being reduced in the same proportion.

In those circumstances the regulation was infringed simultaneously with the acquired rights lawfully exercised by the applicant.

Nor, in the applicant's view, may the Commission allege that the applicant disregarded the precise terms in which the amendment arose, when the memorandum on the summary of the situation was attached to the application for payment of an advance of 50% of the assistance granted.

In those circumstances the Commission's decision to reduce the assistance impairs the acquired rights of the applicant legitimately exercised by it.

The applicant admits that it did not adhere to the amount stated in the application for assistance as regards the items Residence and board, Board and lodging and Teaching staff but claims that the failure to respect the amounts fixed in the decision of approval was due to circumstances beyond its control.

The Commission replies that where the recipient of assistance from the Fund has supplied the Commission with false or incomplete information when lodging an application the error is entirely due to the recipient who in consequence cannot claim the protection of any legitimate expectation in the lawfulness of the decision.

In such a case the Commission may either revoke the decision to grant assistance and replace it by a second decision providing for reduced assistance from the Fund or simply revoke the first decision together with all assistance pursuant to Article 6(1) of Regulation No 2950/83.

Payment of the assistance approved by the Fund requires previous compliance with the conditions laid down by the decision of approval of the assistance and those conditions were not observed in the present case. The applicant declared expenditure appreciably higher than the amounts approved by the Fund, especially as regards the income of trainees and the functioning and management of the courses.

The applicant also declared unjustified expenditure (that is, amounts for which no evidence was supplied or amounts claimed twice), in particular in relation to the preparation of courses, qualified staff, residence, food and travel, management and financial control, specialized work, expenditure in relation to hiring and rents and normal depreciation.

Finally, the applicant declared expenditure which had not been approved and in particular in relation to the copying of documents, the use of a computer, specialized work, other supplies and services by third parties, normal depreciation and the boarding of participants.

In those circumstances, and by reducing its contribution pursuant to Article 6(1) of Regulation No 2950/83, the Commission had kept within the strict limits of the law and had fully observed the principle of proper management of Community funds. Moreover, the reduction was unconditionally approved by the competent Portuguese authorities to which an opportunity was given to challenge it.

It is for the applicant to justify the amount of expenditure which it has declared. In confining itself very often to stating amounts without providing the slightest information to enable their correctness to be assessed, the applicant has not discharged its burden of proof. In its capacity as manager of Community public funds, the Commission cannot accept those amounts.

In its assessment of how far the training measures complied with the project submitted, the Commission had, moreover, duly taken account of the adjustment to the project as regards the duration of the practical training. It stresses the fact that the adjustment was notified to the applicant before the training courses began and was accepted by it.

The Commission states that payment of an advance of 50% of the assistance requested results from application of Article 5(1) of Regulation No 2950/83, irrespective of any value-judgment on the circumstances in which the credits granted had been used. It is not possible to draw from such payment the slightest inference concerning compliance with the conditions laid down in the decision of approval of the application for assistance. Although the decision of approval of the application for assistance gives rise to a right to demand payment of the approved assistance, the crystallization of that right is conditional upon compliance with the terms laid down in the said decision. Since the applicant did not fully comply with those conditions it does not have the right to demand payment of the approved amount.

1 Language of the case: Portuguese.

2 OJ 1983 L 289, p. 38.

3 OJ 1983 L 289, p. 1.

4 OJ 1983 L 377, p. 1.

5 Judgment in Case 18/57 Nola KC v High Authority [1959] ECR 41.

6 Judgment in Case 310/81 E1SS v Commission [1984] ECR 1341, at 1353.