Avis juridique important

Judgment of the Court (Sixth Chamber) of 24 October 1996. - Commission of the European Communities v Lisrestal - Organização Gestão de Restaurantes Colectivos Ldª, Gabinete Técnico de Informática Ldª (GTI), Lisnico - Serviço Marítimo Internacional Ldª, Rebocalis - Rebocagem e Assistência Marítima Ldª and Gaslimpo - Sociedade de Desgasificação de Navios SA. - European Social Fund - Decision reducing financial assistance initially granted - Infringement of the rights of the defence - Right of interested parties to be heard. - Case C-32/95 P. European Court reports 1996 Page I-05373

Summary Parties Grounds Decision on costs Operative part

Social policy ° European Social Fund ° Financial assistance for vocational training schemes ° Decision to reduce assistance initially granted ° Rights of the defence of the undertakings concerned ° Scope

Observance of the right to be heard is, in all proceedings initiated against a person which are liable to culminate in a measure adversely affecting that person, a fundamental principle of Community law which must be guaranteed even in the absence of any rules governing the proceedings in question. That principle requires that any person against whom a decision adversely affecting his interests may be taken should be placed in a position in which he may effectively make known his views on the evidence against him upon which the contested decision is based.

That is so in the case of beneficiaries of assistance granted by the European Social Fund in respect of a vocational training scheme conducted in a Member State, when the Commission contemplates a reduction of the assistance initially granted because of the fact that it was not used in accordance with the conditions laid down by the decision of approval. The fact that the Member State concerned plays a central role in the system whereby the Fund is managed and that it is the addressee of any decision to reduce assistance does not rule out the establishment of a direct link between the Commission and the beneficiary who has been the subject of investigation by the Commission for the purpose of establishing any irregularities and who directly suffers the economic consequences of the reduction, since he incurs primary liability to repay the sums unduly paid.

Consequently, a decision to reduce assistance adopted when the beneficiary had not been heard by the Commission before the adoption of the decision infringes the beneficiary' s rights of the defence, irrespective of any practical difficulties for the Commission in consulting beneficiaries directly.

In Case C-32/95 P,

Commission of the European Communities, represented by Ana Maria Alves Vieira and Nicholas Khan, of its Legal Service, acting as Agents, with an address for service in Luxembourg at the office of Carlos Gómez de la Cruz, of its Legal Service, Wagner Centre, Kirchberg,

appellant,

APPEAL against the judgment of the Court of First Instance of the European Communities in Case T-450/93 Lisrestal and Others v Commission [1994] ECR II-1177, seeking to have that judgment set aside in part,

the other parties to the proceedings being:

Lisrestal ° Organização Gestão de Restaurantes Colectivos Ld.a, a company incorporated under Portuguese law, established in Almada (Portugal),

Gabinete Técnico de Informática Ld.a (GTI), a company incorporated under Portuguese law, established in Lisbon,

Lisnico ° Serviço Marítimo Internacional Ld.a, a company incorporated under Portuguese law, established in Almada,

Rebocalis ° Rebocagem e Assistência Marítima Ld.a, a company incorporated under Portuguese law, established in Almada, and

Gaslimpo ° Sociedade de Desgasificação de Navios SA, a company incorporated under Portuguese law, established in Almada,

represented by Manuel Rodrigues, of the Lisbon Bar, with an address for service in Luxembourg at the Chambers of Ângelo Alves Azevedo, 61 Rue de Gasperich,

THE COURT (Sixth Chamber),

composed of: C.N. Kakouris, acting for the President of the Chamber, P.J.G. Kapteyn and H. Ragnemalm (Rapporteur), Judges,

Advocate General: A. La Pergola,

Registrar: R. Grass,

having regard to the report of the Judge-Rapporteur,

after hearing the Opinion of the Advocate General at the sitting on 6 June 1996,

gives the following

Judgment

1 By application lodged at the Registry of the Court of Justice on 10 February 1995, the Commission of the European Communities brought an appeal under Article 49 of the EC Statute of the Court of Justice against the judgment in Case T-450/93 Lisrestal and Others v Commission [1994] ECR II-1177 (hereinafter "the contested judgment"), in which the Court of First Instance annulled the Commission decision reducing financial assistance from the European Social Fund (hereinafter "the Fund") initially granted to Lisrestal, GTI, Rebocalis, Lisnico and Gaslimpo (hereinafter "the respondents") and which required them to repay an initial advance of ESC 138 271 804.

2 The contested judgment states that in 1986 the respondents and two other undertakings, Proex Ld.a and Gelfiche, all established in Portugal (hereinafter "the beneficiaries") applied to the Fund, through the Departamento para os Assuntos do Fundo Social Europeu (the competent national authority in the Portuguese Ministry of Employment and Social Security, hereinafter "DAFSE") for assistance in respect of a proposed operation concerning vocational training, as provided for in Article 3(1) of Council Decision 83/516/EEC of 17 October 1983 on the tasks of the European Social Fund (OJ 1983 L 289, p. 38), in the district of Setúbal (Portugal) (paragraph 7).

3 The Fund' s assistance was requested in order to carry out a vocational training scheme to improve employment opportunities for 1 687 young persons aged under 25 having qualifications which were inadequate and/or inappropriate after the end of their compulsory schooling (paragraph 8).

4 On 31 March 1987 the proposal for the scheme was approved by Commission Decision C(87) 670 in respect of a total amount of ESC 630 642 227, of which ESC 346 853 225 was to be financed by the Fund and ESC 283 789 002 by the Orçamento da Segurança Social/Instituto de Gestão Financeira da Segurança Social (Social Security Budget/Institute for the Financial Management of Social Security) (paragraph 9).

5 In accordance with Article 5(1) of Council Regulation (EEC) No 2950/83 of 17 October 1983 on the implementation of Decision 83/516/EEC (OJ 1983 L 289, p. 1) the Fund made an advance payment of 50% of the assistance granted to the beneficiaries, namely ESC 173 426 612 (paragraph 10). On 31 October 1988 the same beneficiaries submitted a claim, through DAFSE, for payment of the balance, namely ESC 127 483 930. Supporting documents and a report on the operation of the scheme were sent with that claim (paragraph 11).

6 On 25 November 1988 the audit section of the Fund proposed that the file be reviewed because the costs and operations were not clear from the invoices (paragraph 12). That investigation, carried out between 29 January and 2 February 1990 at the premises of two of the respondents, Lisrestal and GTI, revealed various irregularities in the financial management of the assistance, in particular in the sub-contracting of the entire scheme to organizations which did not have the necessary infrastructure or experience. On the assumption that false contracts and invoices were involved, the inspectors suggested that a demand should be made for repayment of the Community funds paid to the respondents (paragraph 13).

7 On 19 October 1990 DAFSE sent "certificates" to the respondents stating that there had been a Community investigation to check the implementation and legality of the scheme, but that it could not provide any other information, since the Commission had not yet adopted a definitive decision on the matter (paragraph 14).

8 By letter of 14 June 1991 the competent head of department in the Directorate-General for Employment, Industrial Relations and Social Affairs (DG V) sent the inspectors' findings to DAFSE and stated that the Fund considered that a sum of ESC 536 879 559 had been used for ineligible expenditure (paragraph 16). In the same letter DAFSE was informed that a ceiling of ESC 35 154 808 had been set for the amount of aid from the Fund and that, having regard to the payment of ESC 173 426 612 which had been paid by way of initial advance, ESC 138 271 804 would have to be repaid. The Commission allowed DAFSE 30 days to submit its observations (paragraph 17).

9 By letter of 8 July 1991 DAFSE informed the Fund that it did not have any observations to make on the reports of the Fund' s inspectors or on its letter of 14 June 1991 and that it accepted the decision (paragraph 18).

10 On 3 March 1992 the Commission sent a repayment demand to DAFSE (paragraph 20).

11 By letters of 24 April 1992 and 7 May 1992 DAFSE informed the respondents of the Commission' s decision to reduce the assistance granted and of the amounts to be refunded to the ESF and to the Portuguese social security budget authorities (paragraph 21).

12 By application lodged at the Registry of the Court of First Instance on 19 June 1992 the respondents brought an action for annulment of the Fund' s decision ordering the repayment (hereinafter "the decision") and for an order that the Commission pay the whole of the sums claimed.

14 In the contested judgment the Court rejected the first plea. It also rejected as inadmissible the respondents' claim for an order that the Commission should pay the balance of the assistance. Finally, as to the second and third pleas, the only ones with which this appeal is concerned, the Court of First Instance held as follows:

"42 The Court observes that it is settled law that respect for the rights of the defence in all proceedings which are initiated against a person and are liable to culminate in a measure adversely affecting that person is a fundamental principle of Community law which must be guaranteed, even in the absence of any specific rules concerning the proceedings in question (see in particular Joined Cases C-48/90 and C-66/90 Netherlands and Others v Commission [1992] ECR I-565, paragraph 44, and Case C-135/92 Fiskano v Commission [1994] ECR I-2885). That principle requires that any person who may be adversely affected by the adoption of a decision should be placed in a position in which he may effectively make known his views on the evidence against him which the Commission has taken as the basis for the decision at issue.

45 Furthermore, it was in the repayment demand of 3 March 1992 that the Commission definitively purported to reduce the assistance granted, as it had indicated in the letter of 14 June 1991 from DG V to DAFSE. The Commission' s decision incorporated in the abovementioned letter was, it is true, addressed only to the Portuguese authorities. However, it named and expressly referred to the applicants as direct beneficiaries of the assistance granted. The Court therefore considers that the applicants are directly and individually concerned by the contested decision to reduce that assistance.

46 That analysis is confirmed by the fact that it has consistently been held that undertakings which have received financial assistance from the [Fund] are entitled to bring actions against the decisions depriving them of such assistance (see Case C-291/89 Interhotel v Commission [1991] ECR I-2257, paragraph 13, and Case C-157/90 Infortec v Commission [1992] ECR I-3525, paragraph 17), which presupposes not only that they are individually concerned by such decisions, but also that they are directly concerned by them.

47 That analysis is also borne out by the provisions of Regulation No 2950/83, the effect of which is to establish a direct link between the Commission and the recipient of the assistance, even though the Member State is the sole interlocutor of the [Fund]. Article 6 of Regulation No 2950/83 provides that first, it is for the Commission to suspend, reduce or withdraw assistance [from the Fund], where it has not been used in conformity with the conditions set out in the decision of approval, the relevant Member State merely having an opportunity to comment, and secondly, sums paid which are not used in accordance with the conditions laid down in the decision of approval are to be refunded, the Member State concerned having only secondary liability for the repayment of sums, unwarranted payment of which has been made for operations to which the guarantee referred to in Article 2(2) of Decision 83/516 applies.

48 The applicants are therefore directly affected by the economic consequences of the decision to reduce the assistance, which adversely affects them since they have primary liability for the repayment of the sums paid without warrant (judgment in Netherlands and Others v Commission, cited above, paragraph 50). Moreover, the Commission acknowledged at the hearing that, if necessary, it could commence proceedings against the applicants in the national courts for recovery of the sums at issue.

49 It follows that the Commission, which alone assumes legal liability to the applicants for the contested decision, was not entitled to adopt the contested decision without first giving those undertakings the possibility, or ensuring that they had had the possibility, of effectively setting forth their views on the proposed reduction in assistance.

50 It is common ground that neither the reports of the Commission' s enquiry nor the Commission' s complaints against them were notified to the applicants, and that they were not heard by the Commission before it adopted the contested decision. It is also agreed that DAFSE, after having being invited by the Commission by letter of 14 June 1991 to submit its observations, informed the Commission by letter of 8 July 1991, without first hearing the applicants, that it intended to accept the decision which the Commission was preparing to adopt with respect to the applicants.

51 In those circumstances the adoption of the contested decision infringed the applicants' rights of defence."

15 After having also found that neither the decision nor the inspection reports satisfied the requirement in Article 190 of the Treaty to state the reasons on which they were based (paragraph 52), the Court of First Instance annulled the decision.

16 In its appeal the Commission requests the Court, first, to set aside paragraphs 2 and 3 of the operative part of the contested judgment, in which the Court of First Instance annulled the decision and ordered the Commission to pay the costs, secondly, to refer the case to the Court of First Instance for a ruling on the fourth plea relied on by the respondents in their application to that court, alleging a manifest error of assessment, and thirdly, to reserve the costs.

17 It support of its appeal the Commission claims that the Court of First Instance committed errors of law by holding in the contested judgment that

° the procedure whereby the decision was adopted infringed the respondents' rights of defence, and

° the decision was vitiated by lack of a statement of reasons and does not satisfy the requirements of Article 190 of the Treaty.

18 In its first plea the Commission maintains that the Court of First Instance committed an error of law in holding that the Commission could not adopt the decision at issue without first giving the respondents the possibility of effectively giving their views on the reduction in financial assistance. It relies on three arguments.

19 First, it is not possible to give the respondents a right to be heard beforehand because of the way in which the administration and management of the Fund are structured. Second, the decision does not impose any sanction on the respondents. Third, the way in which the Fund is administered makes it extremely difficult in practice for the Commission to consult beneficiaries directly.

20 The Commission also maintains that in any event the respondents had already been informed by a letter received from DAFSE on 19 October 1990 of the reservations and suspicions which it harboured in regard to the observance of the conditions for the award of assistance laid down in the decision of approval.

The respondents' right to be heard

Implementation of the right to be heard by the Commission

43 In those circumstances, it must be held that the Court of First Instance was entitled to conclude that the decision at issue was adopted in breach of the respondents' rights of defence.

44 The first ground of appeal must therefore be rejected as unfounded.

45 Since that infringement of the rights of the defence must result in the annulment of the decision at issue, it is not necessary to examine the second ground of appeal relied on by the Commission, alleging lack of a statement of reasons.

46 The appeal must therefore be dismissed in its entirety.

Costs

47 According to Article 69(2) of the Rules of Procedure, applicable to the appeal procedure by virtue of Article 118, the unsuccessful party is to be ordered to pay the costs. Since the Commission' s pleas have failed, it must be ordered to bear the costs of these proceedings.

On those grounds,

THE COURT (Sixth Chamber)

hereby:

1. Dismisses the appeal;

2. Orders the appellant to pay the costs.