CELEX: 62008TJ0465
PHARE
'Revolving funds' obtained by the Czech Republic
Reimbursement of amounts paid
Commission decision to offset
Legal basis
Distinct legal orders
Concept of being certain and of a fixed amount
Obligation to state reasons

Legal context
A –
The EC Treaty
Article 274 EC states:
‘The Commission shall implement the budget, in accordance with the provisions of the regulations made pursuant to Article
279 [EC…]’
Article 292 EC provides:
‘Member States undertake not to submit a dispute concerning the interpretation or application of this Treaty to any method
of settlement other than those provided for therein.’
B –
The Act of Accession
Article 2 of the Act concerning the conditions of accession of the Czech Republic, the Republic of Estonia, the Republic of
Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of
Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which the European Union is
founded (OJ 2003 L 236, p. 33) (‘the Act of Accession’) provides:
‘From the date of accession, the provisions of the original Treaties and the acts adopted by the institutions and the European
Central Bank before accession shall be binding on the new Member States and shall apply in those States under the conditions
laid down in those Treaties and in this Act.’
Under Article 10 of the Act of Accession:
‘The application of the original Treaties and acts adopted by the institutions shall, as a transitional measure, be subject
to the derogations provided for in this Act.’
Article 33 of the Act of Accession provides:
‘1. Tendering, contracting, implementation and payments for pre-accession assistance under the PHARE programme […] shall be
managed by implementing agencies in the new Member States as of the date of accession.
[…]
2. Global budget commitments made before accession under the pre-accession financial instruments referred to in paragraph
1, including the conclusion and registration of subsequent individual legal commitments and payments made after accession
shall continue to be governed by the rules and regulations of the pre‑accession financing instruments and be charged to the
corresponding budget chapters until closure of the programmes and projects concerned. Notwithstanding this, public procurement
procedures initiated after accession shall be carried out in accordance with the relevant Community Directives.’
C –
Framework Agreement between the Government of the Czech Republic and the European Commission concerning the participation
of the Czech Republic in the European Community’s aid programme
Article 1 of the Framework Agreement of 12 March and 12 July 1996 between the Government of the Czech Republic and the European
Commission concerning the participation of the Czech Republic in the European Community’s aid programme (promulgated as Law
No 207/1997 Sb.) (‘the 1996 Framework Agreement’), which replaced the Framework Agreement of 7 November 1990 with the Czech
and Slovak Federal Republic, provides:
‘In order to promote cooperation between the Contracting Parties with a view to supporting the process of economic and social
reform and development in the Czech Republic, the Contracting Parties agree to implement measures in the field of financial,
technical, and other forms of cooperation as specified in the said regulation, which shall be financed and implemented within
the technical, legal and administrative framework, laid down in this Agreement. The specific details of each measure shall
be set out in a memorandum to be agreed between the Contracting Parties [‘the Financing Memorandum’], a model of which is
provided in Annex C.’
Pursuant to these framework agreements, various financing memoranda laid down the precise conditions for financing the following
projects:
–        the Financing Memorandum of 1 October 1991, for Project T9106;
–        the Financing Memorandum of 5 November 1992, for Project CS9203;
–        the Financing Memorandum of 1 February 1994, for Project CZ9302.
Article 5 of the 1996 Framework Agreement provides:
‘Any dispute relating to this Agreement which cannot be resolved by consultation shall be settled according to the arbitration
procedure referred to in Annex B.’
Article 18(1) of Annex A to the 1996 Framework Agreement provides:
‘Any question relating to execution or interpretation of the Financing Memorandum or these General Conditions shall be the
subject of consultation between the recipient and the Commission, leading, where necessary, to an amendment of the Financing
Memorandum.’
Under Annex B to the 1996 Framework Agreement:
‘Any dispute between the Contracting Parties, arising out of the Framework Agreement or a Financing Memorandum, which is not
settled by applying the procedures laid down in Article 18 of the General Conditions relating to Financing Memoranda, shall
be submitted to arbitration by an Arbitral Tribunal as hereinafter provided.
The parties to such arbitration shall be the recipient on the one side and the Commission on the other side.
The Arbitral Tribunal shall consist of three arbitrators appointed as follows:
–      one arbitrator shall be appointed by the recipient [,]
–      a second arbitrator shall be appointed by the Commission [and]
–      the third arbitrator […] shall be appointed by agreement of the parties or, if they shall not agree, by the Secretary-General
of the United Nations.
If either side fail to appoint an arbitrator, such an arbitrator shall be appointed by the [third arbitrator].’
D –
The Vienna Convention on the Law of Treaties
Article 30(3) of the Vienna Convention of 23 May 1969 on the Law of Treaties (‘the Vienna Convention’) states:
‘When all the parties to the earlier treaty are parties also to the later treaty but the earlier treaty is not terminated
or suspended in operation under Article 59, the earlier treaty applies only to the extent that its provisions are compatible
with those of the later treaty.’
E –
Regulation (EC) No 1266/1999
Article 11(1) of Council Regulation (EC) No 1266/1999 of 21 June 1999 on coordinating aid to the applicant countries in the
framework of the pre-accession strategy and amending Regulation (EEC) No 3906/89 (OJ 1999 L 161, p. 68) provides:
‘The Commission shall implement the Community aid in accordance with the rules of transparency and the Financial Regulation
applicable to the general budget of the European Communities, in particular Article 114 thereof.’
F –
The Financial Regulation
Article 71(1) and (2) of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable
to the general budget of the European Communities (OJ 2002 L 248, p. 1) (‘the Financial Regulation’), provides:
‘1. Establishment of an amount receivable is the act by which the authorising officer by delegation or subdelegation:
(a) verifies that the debt exists;
(b) determines or verifies the reality and the amount of the debt;
(c) verifies the conditions in which the debt is due.
2. The own resources made available to the Commission and any amount receivable that is identified as being certain, of a
fixed amount and due must be established by a recovery order to the accounting officer followed by a debit note sent to the
debtor, both drawn up by the authorising officer responsible.’
Under Article 73(1) of the Financial Regulation:
‘The accounting officer shall act on recovery orders for amounts receivable duly established by the authorising officer responsible.
He/She shall exercise due diligence to ensure that the Communities receive their revenue and shall see that their rights are
safeguarded.
The accounting officer shall recover amounts by offsetting them against equivalent claims that the Communities have on any
debtor who himself/herself has a claim on the Communities that is certain, of a fixed amount and due.’
The first subparagraph of Article 76(1) of the Financial Regulation provides:
‘The budgetary commitment is the operation reserving the appropriation necessary to cover subsequent payments to honour a
legal commitment.’
The first and second subparagraphs of Article 76(2) of the Financial Regulation provide:
‘The budgetary commitment is individual when the beneficiary and the amount of the expenditure are known.
The budgetary commitment is global when at least one of the elements necessary to identify the individual commitment is still
not known.’
G –
The Implementing Regulation
Article 7(1), (1a) and (3) of Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules
for the implementation of Council Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general
budget of the European Communities (OJ 2002 L 357, p. 1) (‘the Implementing Regulation’), provides:
‘1. Without prejudice to specific provisions arising from the application of sector-specific regulations, conversion between
the euro and another currency by the responsible authorising officer shall be made using the daily euro exchange rate published
in the C series of the
Official Journal of the European Union
.
[…]
1a. In order to avoid that currency conversion operations have a significant impact on the level of Community co-financing
or a detrimental impact on the Community budget, the specific arrangements for conversion referred to in paragraph 1 shall
provide, if appropriate, for a rate of conversion between the euro and other currencies to be calculated using the average
of the daily exchange rate in a given period.
[…]
3. For the purposes of the accounts provided for in Articles 132 to 137 of the Financial Regulation and subject to Article
213 of this Regulation, conversion between the euro and another currency shall be made using the monthly accounting exchange
rate of the euro. That accounting exchange rate shall be established by the Commission’s accounting officer by means of any
source of information he regards as reliable, on the basis of the exchange rate on the penultimate working day of the month
preceding that for which the rate is established.’
Under Article 78 of the Implementing Regulation:
‘1. The establishment by the authorising officer responsible of an amount receivable shall constitute recognition of the right
of the Communities in respect of a debtor and establishment of entitlement to demand that the debtor pay the debt.
2. The recovery order shall be the operation by which the authorising officer responsible instructs the accounting officer
to recover the amount established.
3. The debit note shall be to inform the debtor that:
(a)      the Communities have established the amount receivable;
(b)      if payment of the debt is made before the deadline specified, no default interest will be due;
(c)      failing payment by the deadline referred to in point (b) the debt shall bear interest at the rate referred to in Article 86,
without any prejudice to any specific regulations applicable;
(d)      failing payment by the deadline referred to in point (b) the institution shall effect recovery either by offsetting or by
enforcement of any guarantee lodged in advance;
[…]
The authorising officer shall send the debit note to the debtor with a copy to the accounting officer.’
Article 79 of the Implementing Regulation provides:
‘To establish an amount receivable the authorising officer responsible shall ensure that:
(a)      the receivable is certain and not subject to any condition;
(b)      the receivable is of fixed amount, expressed precisely in cash terms;
(c)      the receivable is due and is not subject to any payment time;
(d)      the particulars of the debtor are correct;
(e)      the amount to be recovered is booked to the correct budget item;
(f)      the supporting documents are in order; and
(g)      the principle of sound financial management is complied with, in particular with regard to the criteria referred to in point
(a) of Article 87(1).’
Under Article 81(1) of the Implementing Regulation:
‘The recovery order shall specify:
(a)      the financial year to which the revenue is to be booked;
(b)      the references of the act or legal commitment which is the source of the debt and gives rise to the entitlement to recovery;
[…]
(d)      the amount to be recovered, expressed in euro;
(e)      the name and address of the debtor;
(f)      the deadline referred to in Article 78(3)(b);
(g)      the possible method of recovery, including in particular recovery by offsetting or enforcement of any guarantee lodged.’
Article 83(1) and (2) of the Implementing Regulation provide:
‘1. Where the debtor has a claim on the Communities that is certain, of a fixed amount and due, relating to a sum established
by a payment order, the accounting officer shall, once the deadline referred to in Article 78(3)(b) has passed, recover established
amounts receivable by offsetting.
[…]
2. Before proceeding with any recovery in accordance with paragraph 1, the accounting officer shall consult the authorising
officer responsible and inform the debtors concerned. Where the debtor is a national authority or one of its administrative
entities, the accounting officer shall also inform the Member State concerned at least 10 working days in advance of his intention
to resort to recovery by offsetting. However, in agreement with the Member State or administrative entity concerned, the accounting
officer may proceed with the recovery by offsetting before that deadline has passed.’

Facts
The objective of the PHARE programme was to guarantee the financing of a set of measures in support of economic and social
reforms in the Central and Eastern European countries applying for membership of the European Union. The European Union defined
the target spheres for those measures and, at the same time, negotiated the rules for their implementation with those countries,
in order to guarantee the most efficient use of what was referred to as ‘pre-accession assistance’.
The Czech and Slovak Federal Republic was included in the PHARE programme on the basis of the Framework Agreement between
the Czech and Slovak Federal Republic and the Commission of the European Communities of 7 December 1990. This agreement was
replaced, as far as the Czech Republic was concerned, by the 1996 Framework Agreement, which was ratified by the President
of the Czech Republic as a ‘presidential international agreement’.
The 1996 Framework Agreement laid down the general technical, legal and administrative framework for financing and implementing
assistance to the process of economic and social reforms and the development of the Czech Republic.
The specific conditions for each measure were then established between the Czech Republic and the Commission on a contractual
basis in the form of ‘financing memoranda’, a model of which was provided as Annex C to the 1996 Framework Agreement, and
of ‘memoranda of understanding’.
The ‘financing memoranda’ established the spheres for assistance covered by the programme, the programme budget and the technical
aspects of the projects to be implemented within the framework of the programme. These projects were in turn set out in detail
in ‘project fiches’ annexed to the financing memoranda.
‘Memoranda of understanding’, which were also international agreements, set out the rights and responsibilities of the contracting
parties within the framework of the programme. As a general rule, these documents were limited to defining, amending or specifying
the procedures relating to management of the programme and the rights and responsibilities of the bodies involved in implementing
it. However, unlike the financing memoranda, they did not define the content of the programme or the objectives of and issues
relating to the amount of assistance granted to the projects. These memoranda of understanding were concluded solely with
the aim of derogating from the general rules and agreements governing relations between the parties.
From 1994 to 1996, the Czech Republic obtained inter alia ‘revolving funds’ from the PHARE programme on the basis of financing
memoranda for Project T9106 (SME Programme for the Czech and Slovak Federal Republic), for Project CS9203 (Privatisation,
Restructuring and Private Sector Development) and for Project CZ9302 (Private Sector Development).
To be more precise, Project T9106 aimed to support small and medium-sized enterprises, notably by introducing them to entrepreneurship
issues, by establishing an appropriate legal framework and by putting in place mechanisms facilitating access to credit. The
objectives of Project CS9203 were privatisation of the economy, restructuring and the development of the private sector in
what was then the Czech and Slovak Federal Republic, notably for regions at a particular disadvantage. Finally, Project CZ9302
related to restructuring particular economic sectors and especially the banking sector, to developing export-oriented sectors
of industry and to supporting the institutional changes needed for the smooth running of a market economy.
Thus, over the course of the period from 5 October 1994 to 2 August 1996, the Czech Republic received six payments from the
Commission representing a total amount of EUR 13 031 971.97.
These funds were first managed by the Ministry of the Economy of the Czech Republic, then by the Ministry for Regional Development.
The latter was also responsible for implementing the funds.
The Commission notified the Czech Republic, by a letter with reference D(2008)REG 102477, of a decision dated 28 May 2008
(‘the decision of 28 May 2008’) to recover a total amount of 234 480 000 Czech crowns (‘CZK’) in connection with projects
T9106, CS9203 and CZ9302. To be more precise, this amount corresponded to payments made to the Regionální fondy, a.s. (Regional
Funds Inc.) amounting to CZK 144 000 000, to the Českomoravský podnikatelský fond, spol. s r.o. (Czech-Moravian Enterprise
Fund Ltd) amounting to CZK 4 429 000, and to the Regionální podnikatelský fond, spol. s r.o. (Regional Enterprise Fund Ltd),
amounting to CZK 86 051 000. A debit note with the reference number 3230805779 was attached to this decision (‘the debit note’).
The decision of 28 May 2008 was taken following the finding of irregularities in the management of Community funds, since
these funds had been used, according to the Commission, for purposes other than those for which they had been awarded and
had not been managed in compliance with the principle of sound financial management.
The debit note, with a deadline of 7 August 2008, related to an amount of EUR 9354 130.93, corresponding to CZK 234 480 000
converted using an exchange rate established in accordance with the provisions of Article 7(1), (1a) and (3) of the Implementing
Regulation.
The Vice-Minister for Regional Development of the Czech Republic sent a letter to the Commission, dated 8 July 2008. He alleged,
in essence, that there was a problem with the exchange rate applied, that neither the European Anti-fraud Office (‘OLAF’)
investigation procedure nor the judicial proceedings before the Czech courts had finished and, finally, that, under the Framework
Agreement between the Czech Republic and the Commission governing the PHARE programme, all disputes should be settled by negotiation
and subject to arbitration proceedings. Consequently, he asked the Commission to cancel the debit note.
A meeting between the parties took place on 14 July 2008.
On 23 July 2008, the Government of the Czech Republic adopted Decision No 977, by which it decided not to reimburse the debit
note; the Commission was informed of this on 29 July 2008.
The Commission replied to this letter by a letter of 4 August 2008, in which it essentially reiterated its position.
Since the Czech Republic did not fulfil its obligation to pay the amount of EUR 9 354 130.93 by 7 August 2008, the Commission
decided to offset its claim against two amounts due to the Czech Republic under the European Social Fund (ESF), with reference
numbers ESF-2003CZ161P0004 and ESF‑2003CZ053D0001, amounting to a total of EUR 10 814 475.41. The Czech Republic was notified
of this decision by a letter dated 7 August 2008, with reference number BUDG/C3 D (2008)10.5-3956 (‘the contested decision’).
The Czech Republic sent a letter to the Commission on 26 August 2008 to express its disagreement with the Commission and to
reiterate, in essence, the arguments which it had submitted in its letter of 8 July 2008.

Forms of order sought
The Czech Republic claims that the Court should:
–        annul the contested decision;
–        order the Commission to pay the Czech Republic the amount offset of EUR 9 354 130.93 and the corresponding interest for late
payment;
–        order the Commission to pay the costs.
The Commission contends that the Court should:
–        dismiss the action;
–        order the Czech Republic to pay the costs.

Law
The Czech Republic raises three pleas in law in support of its action.
It submits, in essence, firstly, that the Commission exceeded its powers by adopting the contested decision on an incorrect
legal basis, secondly, that the contested decision was issued in breach of the conditions laid down for offsetting by the
Financial Regulation and by the Implementing Regulation and, thirdly, that the contested decision contains no statement of
reasons.
It is appropriate to examine the first two pleas together.
A –
The first plea in law, alleging that the contested decision was adopted on an incorrect legal basis, and the second plea in
law, alleging breach of the conditions laid down for offsetting by the Financial Regulation and by the Implementing Regulation

1. Arguments of the parties
By its first plea in law, the Czech Republic submits, in essence, that the legal relationship at issue in the present case,
relating to the use of funds from the PHARE programme, arose before its accession to the European Union, at a time when it
was a non-member country from the point of view of Community law. Use of the resources from this programme was governed by
rules contained in international agreements between the Czech Republic, as a sovereign state and a person recognised as having
rights and duties in international law, and the Commission, representing the Community, as a distinct person recognised as
having rights and duties in international law.
It maintains that although Community law became binding on it when it acceded to the European Union, this is only within the
limits provided for by the Treaty of Accession and Article 2 of the Act of Accession.
According to the Czech Republic, the Act of Accession partly amended the international agreements relating to the use of funds
from the PHARE programme as regards, firstly, establishing which Member State bodies would, from the date of accession, manage
the allocated resources and, secondly, the rules relating to the organisation of final inspections by the Commission. However,
it maintains that, for other spheres, the Act of Accession, inter alia in Article 33(2), explicitly left in force the existing
legal arrangement – namely, an arrangement which falls outside the scope of the EC Treaty, not only for commitments made before
accession but also for commitments made during the period after accession.
According to the Czech Republic, the Financial Regulation, on the basis of which the contested decision was adopted, cannot
be classified as a rule or regulation of the pre-accession financing instruments within the meaning of Article 33(2) of the
Act of Accession.
Thus it asserts that the concept of a rule within the meaning of Article 33 of the Act of Accession relates to international
agreements between the European Union and acceding states – a category to which the Financial Regulation does not belong –
and, indeed, that this regulation does not appear on the exhaustive list of regulations mentioned in the Act of Accession.
Furthermore, even if that list were not exhaustive, the Financial Regulation could still not be classified, given its purpose,
in the category of regulations of the pre‑accession financing instruments. While the purpose of these instruments is to lay
down rules relating to European Union aid to applicant countries in the context of various programmes, the role of the Financial
Regulation is to impose rules relating, firstly, to establishing and implementing the general budget of the Communities and,
secondly, to submitting and auditing accounts.
Therefore, in essence, the Czech Republic maintains that applying the Financial Regulation to commitments deriving from the
legal relationship at issue in the present case, which are covered by Article 33 of the Act of Accession, infringes those
later provisions.
In addition, the Czech Republic puts forward the argument that, in essence, in its current wording, Article 155 of the Financial
Regulation no longer refers to pre‑accession funds, with the result that this regulation is not applicable to those funds.
It also maintains that although, under the earlier version of Article 155, the Financial Regulation could be applied to the
legal relationships which existed between the European Union and non-member countries, this possibility was subject to the
existence of an agreement between the parties concerned.
Furthermore, the Czech Republic asserts that Article 73 of the Financial Regulation, which is directed at the European Union’s
accounting officer, provides only for offsetting in favour of the European Union. Thus it maintains that the European Union’s
accounting officer may resort to offsetting only on condition, firstly, that the country concerned is a Member State and,
secondly, that the commitment concerned arises from that Member State’s membership of the European Union and is covered by
the Financial Regulation. Therefore, the European Union’s accounting officer cannot resort to offsetting in regard to a non‑member
country without the possibility of doing so having been decided in advance. No offsetting mechanism was provided for in the
1996 Framework Agreement or in the financing memoranda or memoranda of understanding. In addition, offsetting is not a rule
generally recognised in international law.
Furthermore, the Czech Republic puts forward the argument that the 1996 Framework Agreement and the financing memoranda and
memoranda of understanding contain provisions relating to the settlement of disputes arising from the implementation of pre-accession
assistance; in a situation such as the one in the present case, these provisions create an obligation to hold mutual consultations
and, if necessary, to make later use of an arbitration procedure.
The Czech Republic maintains that these rules are still applicable. Consequently, such a mechanism cannot allow disputes between
the parties to be settled unilaterally, for example by means of a Commission decision relating to the existence or the amount
of a claim in favour of the European Union budget or by means of a Commission decision seeking to recover the amount concerned
through offsetting.
The Czech Republic puts forward the argument that this is an exception to the binding nature of Community law for Member States
after their accession to the European Union.
It points out that, in Case C‑302/04
Ynos
[2006] ECR I‑371, paragraphs 36 and 37, the Court held that Community law can be applied in the relevant Member State only
with effect from the date of that State’s accession to the European Union and only if the facts relevant to resolution of
the dispute occurred after its accession.
According to the Czech Republic, Community law became binding on it within the limits laid down in the Treaty of Accession
and by Article 2 of the Act of Accession.
The conditions for accession take the form of temporary or permanent exceptions to the applicability of Community law, whether
primary or secondary legislation, in certain spheres. According to the Czech Republic, such exceptions were provided for in
regard to pre-accession assistance, so it follows that the earlier mechanism for settling disputes has remained in force.
Consequently the Czech Republic maintains that the application of the Financial Regulation would be in direct conflict with
the mechanisms provided for in the event of a dispute relating to the implementation of the 1996 Framework Agreement.
The Czech Republic also disputes the Commission’s argument that the 1996 Framework Agreement is not applicable in its entirety,
in the light of Article 30(3) of the Vienna Convention.
According to the Czech Republic, the Vienna Convention applies only to treaties between states, since similar rules relating
to treaties between states and international organisations could not be adopted at international level. In addition, Article
30(3) of the Vienna Convention requires that all the parties to an earlier treaty and to a later treaty be the same. The Commission,
acting at the time for the European Community and in its name, was a contracting party to the 1996 Framework Agreement, whereas
neither the Commission nor the European Community was subsequently party to the Accession Treaty. Moreover, even if the rule
expressed by Article 30(3) of the Vienna Convention constitutes an international custom, persons recognised as having rights
and duties in international law may, in their mutual relations, agree that, under a later treaty, the rules arising from an
earlier treaty continue to apply to certain legal relationships. Consequently, such rules preclude the applicability of provisions
which differ from or contradict the earlier treaty. Otherwise, the Agreement would be meaningless in that regard and would
contradict the general principle of international law
pacta sunt servanda
.
The effect of this, according to the Czech Republic, is that rules established by agreement concerning the settlement of disputes
about pre-accession assistance apply even after accession to the European Union and preclude the implementation of another
mechanism, namely the unilateral offsetting provided for by the Financial Regulation.
It also follows, according to the Czech Republic, that the principle that anything which is not prohibited by international
law is permitted cannot be applied to a situation where the parties have agreed a particular arrangement for their mutual
relations. Furthermore, offsetting is implicitly prohibited, since it is clearly contrary to the agreed procedures for settling
disputes.
The Czech Republic adds that Article 307 EC expressly allows treaties concluded by Member States before the date of their
accession to the European Union to remain in force, to the extent that they are not contrary to Community law. Moreover, even
where they are, such treaties are not void
ipso facto
. The second subparagraph of Article 307 EC provides for the possibility of eliminating any such incompatibility gradually.
The Czech Republic also denies that offsetting is a customary rule of public international law or a general principle of public
international law.
In the present case, the offsetting operation is between two persons recognised as having rights and duties in international
law who are in a situation of mutual equality and, in those circumstances, according to the Czech Republic, express provision
should have been made for the power to offset unilaterally.
Similarly, the Czech Republic submits, in essence, that offsetting cannot be viewed as a general principle of Community law,
since, firstly, it is not a matter of a principle which draws on the shared constitutional traditions of the Member States
and, secondly, the case-law to which the Commission refers does not say that offsetting constitutes such a principle. In this
respect, the Czech Republic disputes the Commission’s interpretation of the judgment of the Court of Justice in Case 250/78
DEKA
v
EEC
[1983] ECR 421.
Moreover, the Czech Republic submits that the approach adopted by the Commission in implementing external aid measures binds
only the Commission and not the Czech Republic, which was a non-member country when the pre‑accession assistance was granted.
The effect of this is that the Commission cannot itself rebut its internal rules relating to implementation of the budget.
For these rules to be enforceable, it would have been necessary for the Czech Republic to agree to abide by them in the 1996
Framework Agreement, which it did not.
The Czech Republic also asserts that, although the preamble to the 1996 Framework Agreement refers to Council Regulation (EEC)
No 3906/89 of 18 December 1989 on economic aid to the Republic of Hungary and the Polish People’s Republic (OJ 1989 L 375,
p. 11), that fact cannot provide a basis for applying the Financial Regulation to the present case. The only provisions of
the Financial Regulation to which Regulation No 3906/89 relates concern the possibility of the Commission delegating some
of the tasks of public authority to certain bodies.
Moreover, the Czech Republic maintains, in essence, that Case T‑122/06
Helkon Media
v
Commission
[2008] ECR II‑00210 does not preclude use of the concept of the relevant legal order as far as offsetting is concerned. In
the present case, the relevant law does not provide for such a mechanism.
Accordingly, the Czech Republic considers that, in offsetting on the basis of Article 73(1) of the Financial Regulation, the
Commission misused its powers.
As regards the second plea in law, the Czech Republic submits in essence that, even if the Financial Regulation is applicable
in the present case, the conditions which it contains relating to the reciprocity of claims or to whether the claim to be
offset is certain are lacking.
The Czech Republic submits, in this connection, that only the Arbitral Tribunal provided for by the pre-accession agreements
could rule on the amount of a possible claim. According to the Czech Republic, the effect of Joined Cases T‑346/02 and T‑347/02
Cableuropa and Others
v
Commission
[2003] ECR II‑4251, paragraph 225, is that neither the Commission nor the Court has such power.
In that respect, it disputes the Commission’s argument that it is contradictory to maintain that, if the Court is not competent
to rule on the existence and, where relevant, on the nature and the amount of the claim, it cannot rule on offsetting and
therefore cannot annul the contested decision. Thus the Czech Republic submits that, even if the Financial Regulation is applicable
in the present case, it is not possible to circumvent the procedure provided for by the 1996 Framework Agreement in order
to determine the existence and amount of any claims due – that is to say, the arbitration procedure must be used, since a
unilateral decision by the Commission cannot be sufficient in that regard.
The Czech Republic adds that it is necessary to distinguish the power to assess the validity of the contested decision from
the power to settle a dispute pursuant to the 1996 Framework Agreement. In the light of the procedure for settling disputes
provided for by the 1996 Framework Agreement, the Court cannot therefore assess substantive questions relating to a claim
arising on the basis of that agreement.
In any event, the Czech Republic maintains that the Court, even supposing it is competent to establish that the conditions
for offsetting have been satisfied, must hold that the claims to be offset are governed by different legal orders.
It maintains, in essence, that the claim made by the Commission is in reality governed by international law, a situation unaltered
by the Czech Republic’s accession to the European Union.
By contrast, the legal bases of the Czech Republic’s claim on the Commission, which relates to interim payments on two operational
programmes financed from structural funds, are Article 161 EC and Council Regulation (EC) No 1260/1999 of 21 June 1999 laying
down general provisions on the Structural Funds (OJ 1999 L 161, p. 1). The Czech Republic’s claim is therefore governed by
the Community legal order.
It was held in Case C‑87/01 P
Commission
v
CCRE
[2003] ECR I‑7617, paragraphs 61 and 62, that offsetting claims governed by two different legal orders is possible only if
the conditions laid down by both legal orders are satisfied in that regard.
In this connection, the Czech Republic maintains that general international law does not provide for the conditions for, or
even the possibility of, offsetting claims. Similarly, the 1996 Framework Agreement, the financing memoranda and the other
rules expressly agreed between the contracting parties or amended by the Act of Accession do not provide for the conditions
for, or even the possibility of, offsetting claims. Therefore the claim made by the Commission on the Czech Republic may not
be offset.
In addition, the Czech Republic maintains that the condition of reciprocity provided for by Article 73(1) of the Financial
Regulation is not limited solely to establishing that the claimant and the debtor are the same. According to the Czech Republic,
the legal basis of the claim to be offset must also be taken into account.
It adds that the condition of reciprocity also presupposes that the fact that the two claims to be offset are expressed in
different currencies will also be taken into consideration. It does not call into question the possibility of offsetting such
claims. However, it maintains that clear rules must be laid down for converting the currencies at issue. That was not the
situation in the present case.
With regard to whether the claim at issue is certain, the Czech Republic puts forward the argument that the claim arose in
the context of an agreement between parties. Therefore no party could impose a decision on another so far as concerns disputes
arising from the relationship at issue. A dispute of this type could be settled only by agreement of the parties or by decision
of an independent authority, under the arbitration procedure provided for by the 1996 Framework Agreement.
According to the Czech Republic, the Commission unilaterally established the existence and the amount of the claim at issue.
It argues, however, that, in the context of the correspondence exchanged with the Commission (letters sent to the Commission
on 9 July 2008 and 29 July 2008), it called into question the method for determining the amount to be reimbursed and the detailed
rules for applying the exchange rate. According to the Czech Republic, since it was seeking amicable settlement of the dispute,
this exchange of letters complied with the 1996 Framework Agreement. The Czech Republic maintains that it was obliged to bring
the present action, however, because the Commission adopted the contested decision
The Czech Republic maintains in addition that, since the amount of the claim was disputed, the claim at issue was not certain
and therefore could not be offset.
Furthermore, the Czech Republic puts forward the argument that irregularities relating to the use of financial resources granted
to it under the PHARE programme have not been established once and for all. The Commission is basing its arguments mainly
on the instigation of criminal proceedings and on investigations undertaken by OLAF, yet none of these investigations has
been completed. According to the Czech Republic, the final amount which it will have to repay cannot therefore be determined
with absolute certainty, at least until the results of those various investigations are known.
In this connection, the Czech Republic maintains that the decision of 28 May 2008 does not constitute proof of illegal use
of the amounts granted. The Czech Republic considers that that letter does not explain the grounds on which the activities
at issue are regarded as irregular. Nor does it give any details of the allocated resources to which those irregularities
relate. In addition, the Czech Republic takes the view that the Commission’s conjectures relating to the investigations undertaken
by OLAF are contradictory.
In any event, according to the Czech Republic, a finding that an offence has been committed would not be decisive for understanding
the way in which the resources at issue were spent or for assessing the existence and the amount of the claim at issue.
In addition, the Czech Republic disputes the method of calculating the total amount which it must reimburse. It asserts that,
expressed in Czech crowns, this amount – CZK 234 480 000 – represents 69.98% of the payments received by the Regionální fondy,
a.s., the Regionální podnikatelský fond, spol. s r.o. and the Českomoravský podnikatelský fond, spol. s r.o. between 5 October
1994 and 2 August 1996, which totalled CZK 335 087 448.65. It deduces from this that the total amount claimed from it in euros
should also correspond to 69.98% of the total payments at issue expressed in euros. Since the total of these payments was
EUR 9 839 490, the amount claimed from it should therefore be set at EUR 6 885 258.25. The Czech Republic asserts that the
Commission has required reimbursement of a total amount of EUR 9 354 130.93. Furthermore, according to the Czech Republic,
the method of calculation which it advocates, which is the only one possible, neutralises trends in the exchange rate between
the Czech crown and the euro.
In this connection, the Czech Republic asserts that, when it obtained pre-accession assistance in the years 1994 to 1996,
the standard exchange rate varied between CZK 33 and CZK 35 to EUR 1. The Commission, in order to calculate the payment at
issue, used the current exchange rate of CZK 25.067 to EUR 1. According to the Czech Republic, this approach does not take
account of the economic situation existing at the time when the pre-accession assistance was obtained and used. If this approach
were taken, the Czech Republic would be paying for exchange rate trends. Thus the Commission is calling for reimbursement
of amounts whose value expressed in euros exceeds the value that should be requested in Czech crowns. The Commission would
therefore profit unjustifiably from the strengthening of the Czech crown against the euro. This situation could also be described
as unjust enrichment of the European Union, since the Czech Republic would be obliged to pay an amount exceeding the pre‑accession
assistance which it actually obtained. That is why, according to the Czech Republic, the only method which neutralises the
impact of the stronger CZK/euro exchange rate is, first of all, to calculate the payment requested, expressed in Czech crowns,
as a proportion of the total pre-accession assistance obtained for the Regionální fondy, a.s., the Regionální podnikatelský
fond, spol. s r.o. and the Českomoravský podnikatelský fond, spol. s r.o., also expressed in Czech crowns, and then, secondly,
to apply that fraction to the amount, expressed in euros, corresponding to the total pre-accession assistance granted to those
Funds.
Finally, the Czech Republic maintains that the Implementing Regulation is not applicable to the legal relationships arising
from the 1996 Framework Agreement, so that it cannot legally justify the exchange rate established in the present case by
the Commission.
The Commission challenges all those arguments.

2. Findings of the Court
a)     The Commission’s competence and the application of the Financial Regulation and of the Implementing Regulation
Under Article 2 of the Act of Accession, from the date of accession to the European Union, the provisions of the original
Treaties and the acts adopted by the institutions and the European Central Bank (ECB) before accession are binding on the
new Member States and apply in those States under the conditions laid down in those Treaties and in the Act of Accession.
Article 10 of the Act of Accession states that the application of the original Treaties and acts adopted by the institutions
are, as a transitional measure, subject to the derogations provided for in the Act of Accession.
It follows from Articles 2 and 10 of the Act of Accession that the Act is based on the principle that the provisions of Community
law apply
ab initio
and
in toto
to new Member States, derogations being allowed only in so far as they are expressly provided for by transitional provisions
(see, to that effect, C‑233/97
KappAhl
[1998] ECR I‑8069, paragraph 15, and the case-law cited).
Article 33(2) of the Act of Accession, which provides that global budget commitments made before accession under the pre-accession
financial instruments, including the conclusion and registration of subsequent individual legal commitments and payments made
after accession, continue to be governed by the rules and regulations of the pre-accession financing instruments and to be
charged to the corresponding budget chapters until closure of the programmes and projects concerned, appears in Title I, ‘Transitional
measures’, of Part Four, ‘Temporary provisions’ of the Act in question.
Article 33(2) of the Act of Accession, in that it provides for an exception to the application of Community law after the
Czech Republic’s accession to the European Union, must therefore be interpreted restrictively (see, to that effect,
KappAhl
, paragraph 18, and the case-law cited).
It follows that derogations from the application
ab initio
and
in toto
of the provisions of Community law concerning pre-accession assistance under the PHARE programme referred to in Article 33(1)
of the Act of Accession are allowed, on the basis of Article 33(2) of the Act, only in so far as they are expressly provided
for by the provisions in question.
Contrary to the Czech Republic’s argument, Article 33(2) of the Act of Accession does not expressly provide for an exception
to the provisions of Article 292 EC consisting of the continued application, after the Czech Republic’s accession to the European
Union, of the out-of-court methods for settling disputes provided for by the 1996 Framework Agreement.
Consequently, it must be held that the out-of-court methods for settling disputes provided for by the 1996 Framework Agreement
are no longer applicable as of the Czech Republic’s accession to the European Union.
The Czech Republic’s arguments that only the Arbitral Tribunal was entitled to establish the existence of a claim in the context
of the present case must consequently be disregarded.
The same applies to the Czech Republic’s arguments that the document which the Commission sent it on 28 May 2008 constituted
a first stage in the consultation procedure provided for by the 1996 Framework Agreement. Since this procedure is no longer
applicable as of the Czech Republic’s accession to the European Union, the decision of 28 May 2008 cannot constitute its first
stage.
Furthermore, the Czech Republic cannot properly submit that neither the Financial Regulation nor the Implementing Regulation
is part of the rules and regulations of the pre-accession financing instruments referred to in Article 33(2) of the Act of
Accession.
Under Article 274 EC, the Commission implements the budget in accordance with the provisions of the regulations made pursuant
to Article 279 EC.
Article 33(2) of the Act of Accession must be interpreted restrictively in so far as it provides for an exception to the application
of Community law after the Czech Republic’s accession to the European Union (see paragraph 99 above). Consequently, derogations
from the application of Community law – that is to say, in the present case, from the provisions of the regulations made pursuant
to Article 279 EC, in particular the Financial Regulation and the Implementing Regulation – are allowed only in so far as
they are expressly provided for by the transitional provisions in question (see paragraph 97 above).
Therefore, in order to establish whether Article 33(2) of the Act of Accession provides for derogation from the application
of the Financial Regulation and of the Implementing Regulation, it is necessary to define ‘the rules and regulations of the
pre-accession financing instruments’ referred to in that provision.
For that purpose, regard must be had to the concept of ‘global budget commitments’ provided for by Article 33(2) of the Act
of Accession, which remain, under that provision, governed by those rules and regulations.
The Act of Accession does not define the concept of global budget commitments.
However, the derogations provided for by the Act of Accession can be understood only in relation to the provisions from which
they are intended to derogate.
Consequently, reference should be made to Community law and, in particular, to its budgetary provisions, in order to clarify
the meaning of the provisions of Article 33(2) of the Act of Accession.
The concept of global budget commitment is defined in Section 1, Commitment of expenditure, of Chapter 6, Expenditure operations,
in Title IV, Implementation of the budget, of Part One, Common Provisions, of the Financial Regulation.
Thus, under the first subparagraph of Article 76(1) of the Financial Regulation, a budgetary commitment is the operation reserving
the appropriation necessary to cover subsequent payments to honour a legal commitment.
Under the second subparagraph of Article 76(2) of the same regulation, the budgetary commitment is global when at least one
of the elements necessary to identify the individual commitment is still not known.
The concept of budgetary commitment therefore falls within the scope of expenditure operations as referred to in the Financial
Regulation.
On the other hand, the concepts of establishing amounts as recoverable and of recovery, which are at issue here, are covered
by Sections 3 to 5 of Chapter 5, Recovery, in Title IV, Part One of the Financial Regulation.
Consequently, Article 33(2) of the Act of Accession, which is designed to ensure the continuation of expenditure provided
for before accession to the European Union under global budget commitments which have not yet been fully implemented at the
time of accession, derogates from certain provisions of the Financial Regulation relating to expenditure operations.
On the other hand, it is not designed to derogate from the rules of the Financial Regulation relating to recovery.
In other words, contrary to the Czech Republic’s argument, Article 33(2) of the Act of Accession does not expressly preclude
the application of the Financial Regulation and of the Implementing Regulation in respect of recovery operations. Therefore
the latter have been governed by the regulations in question since the Czech Republic’s accession to the European Union.
In addition, offsetting provided for as a method of recovering amounts receivable by Article 73(1) of the Financial Regulation
and by Article 81(1) and Article 83 of the Implementing Regulation is not expressly excluded by the provisions of Article
33(2) of the Act of Accession. Consequently, this recovery operation is applicable, in the conditions laid down by the regulations
in question, to claims resulting from the pre-accession assistance under the PHARE programme referred to in Article 33(1)
of the Act of Accession.
It must consequently be concluded that it is for the Commission to establish and recover, including by means of offsetting,
any amount relating to the reimbursement of funds received by the Czech Republic within the framework of the PHARE programme,
and to that effect the Commission is required to apply and comply with the provisions of the Financial Regulation and of the
Implementing Regulation.
b)     Compliance with the procedure laid down by the Financial Regulation and by the Implementing Regulation for recovery of amounts
receivable
Preliminary observations
Pursuant to Article 71(2) of the Financial Regulation, any amount receivable that is identified as being certain, of a fixed
amount and due must be established by a recovery order to the accounting officer followed by a debit note sent to the debtor,
both drawn up by the authorising officer responsible.
Under the second subparagraph of Article 73(1) of the Financial Regulation, the accounting officer may recover amounts by
offsetting them against equivalent claims that the European Union has on any debtor who himself/herself has a claim on the
European Union that is certain, of a fixed amount and due.
Article 78 of the Implementing Regulation provides that the establishment by the authorising officer responsible of an amount
receivable constitutes recognition of the right of the Communities in respect of a debtor and establishment of entitlement
to demand that the debtor pay the debt. Furthermore, the recovery order is the operation by which the authorising officer
responsible instructs the accounting officer to recover the amount established. Finally, the debit note, which is sent by
the authorising officer to the debtor, informs the latter that the European Union has established the amount receivable, that
no default interest will be due if payment of the debt is made before the deadline specified and that, failing payment by
that deadline, the institution may effect recovery either by offsetting or by enforcement of any guarantee lodged in advance.
Under Article 79 of the Implementing Regulation, to establish an amount receivable, the authorising officer responsible must
ensure inter alia that the receivable is certain and not subject to any condition, that the receivable is of fixed amount,
expressed precisely in cash terms, and that the receivable is due and is not subject to any payment time.
Finally, it is clear from Article 83(1) and (2) of the Implementing Regulation that, where the debtor has a claim on the European
Union that is certain, of a fixed amount and due, relating to a sum established by a payment order, the accounting officer
may, once the deadline specified in the debit note has passed, recover established amounts receivable by offsetting, after
having informed the debtor – where the latter is a national authority or one of its administrative entities – of his intention
to resort to recovery by offsetting, at least 10 days in advance.
In other words, therefore, the recovery of an amount receivable identified as being certain, of a fixed amount and due, after
it has been established by the authorising officer responsible, requires, firstly, a recovery order drawn up by the authorising
officer responsible and sent to the accounting officer and, secondly, a debit note sent to the debtor.
The accounting officer acts on recovery orders. Where the debtor himself/herself has a claim on the European Union that is
certain, of a fixed amount and due, it is also for him to recover amounts receivable by offsetting them.
The accounting officer is required to offset these amounts if the debtor has not done so voluntarily.
The decision of 28 May 2008 and the contested decision
In the present case, the Commission notified the Czech Republic of a decision dated 28 May 2008 under which the Czech Republic
was required to reimburse the amount of CZK 234 480 000, essentially because of irregularities in the management of some PHARE
programme funds.
That decision was accompanied by a debit note.
It is indisputable that the decision of 28 May 2008 is a measure whose legal effects are binding on the Czech Republic and
are capable of affecting its interests by bringing about a distinct change in its legal position (see Case C‑147/96
Netherlands
v
Commission
[2000] ECR I‑4723, paragraph 25, and the case-law cited). That decision might therefore have been the subject of an action
for annulment under Article 230 EC.
The debit note had a deadline of 7 August 2008.
It is established that, at that date, the Czech Republic had not paid the amount claimed from it.
In addition, it is established that the Czech Republic has contested neither the decision of 28 May 2008 nor the debit note
which accompanied it.
Consequently, it is for the accounting officer to recover the amount receivable in accordance with the provisions of the Financial
Regulation and of the Implementing Regulation, which are applicable pursuant to the provisions of Article 274 EC.
In the light of the fact that the Czech Republic has two claims on the ESF, for a total amount of EUR 10 814 475.41, in the
present case it is for the accounting officer to offset the amount established in the decision of 28 May 2008, after having
warned the Czech Republic at least 10 working days in advance, in accordance with the provisions of Article 83 of the Implementing
Regulation, which he did in the contested decision.
That conclusion is not called into question by the arguments put forward by the Czech Republic that the claims at issue are
not reciprocal and that the Commission’s claim is not certain.
–       As to whether the claims are reciprocal
It should be remembered that the Czech Republic submits, in essence, that only the Arbitral Tribunal provided for by the 1996
Framework Agreement was entitled to establish the amount of any claim which it might have owed to the European Union. According
to the Czech Republic, this arbitral tribunal remained responsible under the provisions of Article 33(2) of the Act of Accession
for settling disputes relating to the budget commitments covered by the 1996 Framework Agreement. It considers that the Commission’s
claim is, in reality, covered by the international legal order and not the Community legal order. Consequently, the claims
at issue are covered by two distinct legal orders, and this makes it necessary, according to the case-law, to assess whether
the conditions laid down by both those legal orders have been satisfied (
Commission
v
CCRE
, paragraphs 61 and 62). It is argued that those conditions are not fulfilled in the present case since, according to the
Czech Republic, firstly, public international law does not recognise offsetting and, secondly, the 1996 Framework Agreement,
whose substantive provisions remain applicable under Article 33(2) of the Act of Accession, did not provide for offsetting.
Therefore the condition of reciprocity has not been satisfied.
However, it should be remembered that the mechanism for settling disputes provided for by the 1996 Framework Agreement was
no longer applicable as of the Czech Republic’s accession to the European Union (see paragraph 102 above).
Moreover, the Financial Regulation and the Implementing Regulation have been applicable to recovery operations since the Czech
Republic’s accession to the European Union (see paragraphs 120 and 121 above).
Therefore claims resulting from funding allocated within the framework of the PHARE programme should be offset by the accounting
officer, under the conditions provided for by the Financial Regulation and the Implementing Regulation, after the Czech Republic’s
accession to the European Union when the conditions provided for on that point by the Financial Regulation have been satisfied,
since in this connection it is immaterial whether the Commission’s claim is covered by the Community legal order or the international
legal order.
Therefore the Czech Republic’s arguments, firstly, that the pre-accession agreement does not provide for offsetting and, secondly,
that offsetting is not lawful in the international legal order, which – since the claims belong to distinct legal orders –
would prevent offsetting, must be rejected.
–       As to whether the Commission’s claim on the Czech Republic is certain and of a fixed amount
It should be remembered that the Czech Republic considers, in essence, that the Commission’s claim is not certain because
(a) the context of the relationships between the parties is a contractual one and, if there is a dispute between them, requires
the use of an independent body within the framework of an arbitration procedure, (b) the Czech Republic disagrees with the
method for determining the amount receivable and with the exchange rate applied and (c) it is not possible to determine the
amount which has been improperly used and would have to be reimbursed, as OLAF’s investigations have not been completed.
It is clear from Article 79(a) of the Implementing Regulation that a receivable cannot be considered certain if it is subject
to any condition.
The Czech Republic is not arguing that the Commission’s claim is subject to a condition. It merely pleads that it disputes
the amount. In any event, the claim is not subject to any condition.
Consequently, it must be held that the receivable is certain within the meaning of Article 79(a) of the Implementing Regulation.
Next, it is not disputed that the amount receivable was fixed by the decision of 28 May 2008, which the Czech Republic has
not contested.
Therefore, it must be held that the receivable is of fixed amount within the meaning of Article 79(b) of the Implementing
Regulation.
Finally, it is established that the amount receivable is not subject to any payment time and it is therefore due.
Accordingly, as far as the Commission’s claim is concerned, the conditions laid down by Article 79 of the Implementing Regulation
have been satisfied for the purposes of offsetting by the accounting officer.
That finding is not called into question by the Czech Republic’s arguments in support of its second plea.
The allegations that the Commission was not competent to establish the amount of the claim and that the Arbitral Tribunal
was competent to do so have already been dismissed in the course of analysis of the first plea in law. The mechanism for settling
disputes provided for by the 1996 Framework Agreement was no longer applicable as of the Czech Republic’s accession to the
European Union (see paragraph 102 above).
In addition, the fact that the amount of the claim is contested – since the Czech Republic is critical of the method used
to determine it, the exchange rate applied and the fact that the Commission did not wait for the completion of ongoing investigations
before fixing the amount – does not mean that it is not certain and of a fixed amount and does not preclude offsetting (see,
to that effect, Case T‑231/04
Greece
v
Commission
[2007] ECR II‑63, paragraph 118).
The amount receivable was fixed by the Commission in its decision of 28 May 2008, which, since it was not contested within
the time-limit for bringing an action, is no longer open to challenge. It follows that the amount fixed by that decision cannot
be disputed in the present action.
In conclusion, both the first plea in law and the second plea in law must be dismissed.
B –
The third plea in law, alleging failure to state reasons

1. Arguments of the parties
The Czech Republic asserts that the contested decision contains no statement of reasons. Referring to the Financial Regulation
is not sufficient in that respect. Moreover, the need for a detailed statement of reasons is all the stronger in situations
where the decision concerns complex or technical facts. The persons to whom such decisions are addressed must be able to clearly
ascertain the circumstances on which the Commission has based them, notably where the decisions at issue have serious financial
consequences for the Member States.
Furthermore, the Czech Republic submits that that is in no way altered by the fact that the reasons are partly set out in
the earlier informal correspondence exchanged with the Commission. From the point of view of legal certainty or of the conditions
established by case-law concerning the statement of reasons on which measures are based, such reasons are not sufficient.
Finally, the Czech Republic maintains, firstly, that the Commission refused to grant its request for information on the results
of OLAF’s investigations leading to the adoption of the contested decision and, secondly, that the fact that the context of
this adoption had come to its knowledge cannot, on its own, constitute a sufficient statement of reasons for the decision
at issue.
The Commission disputes those arguments.

2. Findings of the Court
The purpose of the obligation to state the reasons for an act adversely affecting a person, as provided for in Article 253
EC, is, first, to provide the person concerned with sufficient information to make it possible to determine whether the act
is well founded or whether it is vitiated by an error which may permit its validity to be contested before the EU judicature
and, second, to enable the latter to review the lawfulness of the decision. The obligation to state reasons therefore constitutes
an essential principle of Community law which may be derogated from only for compelling reasons. The statement of reasons
must therefore in principle be notified to the person concerned at the same time as the act adversely affecting him, since
a failure to state the reasons cannot be remedied by the fact that the person concerned learns the reasons for the act during
the proceedings before the EU judicature (see, to that effect, Case T‑228/02
Organisation des Modjahedines du peuple d’Iran
v
Council
[2006] ECR II‑4665, paragraphs 138 to 140, and the case-law cited).
The statement of reasons must, however, be appropriate to the measure at issue and to the context in which it was adopted.
The requirements to be satisfied by the statement of reasons depend on the circumstances of each case, in particular the content
of the measure in question, the nature of the reasons given and the interest which the addressees of the measure, or other
parties to whom it is of direct and individual concern, may have in obtaining explanations. It is not necessary for the statement
of reasons to specify all the relevant matters of fact and law, since the question whether the statement of reasons is sufficient
must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter
in question. In particular, the reasons given for a measure adversely affecting a person are sufficient if it was adopted
in circumstances known to that person which enable him to understand the scope of the measure concerning him (
Organisation des Modjahedines du peuple d’Iran
v
Council
, paragraph 141, and the case-law cited).
The statement of reasons required for a decision to offset must be such as to allow precise identification of the claims to
be offset, without there being any requirement for the initial reasons used in support of establishing each of these claims
to be repeated in the decision to offset.
In the present case, it is not disputed that the basis of the decision to offset is the decision of 28 May 2008, and the Czech
Republic acknowledged this at the hearing.
The decision of 28 May 2008 includes a particularly detailed statement of the reasons which led the Commission to claim reimbursement
of an amount of CZK 234 480 000 from the Czech Republic.
Moreover, the contested decision makes it clear that the Czech Republic has two claims on the ESF and that, failing payment
of the amount claimed in the debit note accompanying the decision of 28 May 2008 within the time-limit set, the accounting
officer is bound, in those conditions, to effect recovery by offsetting in accordance with the provisions of Article 73(1)
of the Financial Regulation.
Consequently, the measure adversely affecting the Czech Republic was adopted in circumstances known to it, enabling it to
understand the scope of the measure which concerns it, since the Czech Republic knows the reasons why the accounting officer
decided to offset reciprocal claims existing between the parties.
Accordingly, it must be held that the contested decision contained a sufficient statement of reasons and the plea alleging
failure to state reasons must consequently be rejected.
In conclusion, the action must be dismissed.

Costs
Under Article 87(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been
applied for in the successful party’s pleadings. Since the Czech Republic has been unsuccessful, it must be ordered to pay
the costs, in accordance with the form of order sought by the Commission.
On those grounds,
THE GENERAL COURT (Third Chamber)
hereby:
1.
Dismisses the action.
2.
Orders the Czech Republic to pay the costs.
Azizi
Cremona
Frimodt Nielsen
Delivered in open court in Luxembourg on 15 April 2011.
[Signatures]
Table of contents
Legal context
A – The EC Treaty
B – The Act of Accession
C – Framework Agreement between the Government of the Czech Republic and the European Commission concerning the participation
of the Czech Republic in the European Community’s aid programme
D – The Vienna Convention on the Law of Treaties
E – Regulation (EC) No 1266/1999
F – The Financial Regulation
G – The Implementing Regulation
Facts
Forms of order sought
Law
A – The first plea in law, alleging that the contested decision was adopted on an incorrect legal basis, and the second plea
in law, alleging breach of the conditions laid down for offsetting by the Financial Regulation and by the Implementing Regulation
1. Arguments of the parties
2. Findings of the Court
a) The Commission’s competence and the application of the Financial Regulation and of the Implementing Regulation
b) Compliance with the procedure laid down by the Financial Regulation and by the Implementing Regulation for recovery of
amounts receivable
Preliminary observations
The decision of 28 May 2008 and the contested decision
– As to whether the claims are reciprocal
– As to whether the Commission’s claim on the Czech Republic is certain and of a fixed amount
B – The third plea in law, alleging failure to state reasons
1. Arguments of the parties
2. Findings of the Court
Costs
*
Language of the case: Czech.