Opinion of the Advocate General — ECLI:EU:C:2005:107
Date: 2005-02-24
Language of the case: English
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: European Social Fund (ESF)
Procedure: Action for annulment - unfounded;Action for annulment - inadmissible
Origin: Ireland

summary amounts certified to the Commission with the individual expenditure records and supporting documents at the various administrative and final beneficiary levels, and (b) verification of the allocation and the transfers of the available Community and national funds.’ 12. Finally, it is necessary to refer to Commission Regulation (EEC) No 1866/90 of 2 July 1990 on arrangements for using the ecu for the purposes of the budgetary management of the Structural Funds (‘Regulation No 1866/90’). (9) Article 5(2) of that regulation is of importance here and provides: ‘Member States which submit their statements of expenditure in ecus shall convert the amounts of expenditure incurred in national currency into ecus applying the rate for the month during which the expenditure was recorded in the accounts of the bodies responsible for the financial management of the programme. To this end, the Commission shall inform Member States each month of the rate applicable.’ III – Facts and procedure 13. By Decision 94/626/EC of 13 July 1994 the Commission established the Community support framework for Community structural assistance for the Irish regions concerned by Objective 1, which is the whole country, (10) for the programming period 1 January 1994 to 31 December 1999. 14. In implementation of that measure, by three different decisions in 1994 the Commission granted, inter alia, ESF financial assistance to operational programmes in respect of human resources development, (11) tourism (12) and industrial development (13) for a total amount of EUR 1 897 206 226. 15. The management authority designated by Ireland to implement projects co-financed by the ESF was the Department of Enterprise, Training and Employment (‘the DETE’). 16. From 6 to 10 November and from 4 to 6 December 2000, the Commission carried out, within the meaning of Article 23(2) of Regulation No 4253/88, on-the-spot checks and investigations in Dublin in respect of operations co-financed by the ESF for the period 1994 to 1998. Those checks covered in particular the operations carried out by the National Training and Development Institute (NTDI) and by the Central Remedial Clinic, both working under the responsibility of the National Rehabilitation Board. During those checks, the Commission also checked the audit trail provided by the DETE in order to reconcile the amounts paid by the Commission with the amounts claimed by the different final beneficiaries participating in the operational programmes in question. 17. As a result of those controls, the Commission found irregularities in the claims for ESF financial assistance in respect of the three operational programmes. 18. In particular, it pointed out that: (a) NDTI had not declared the total amount of national resources actually available for the operational programme in respect of human resources development, but only those up to an amount equal to 25% of the total cost of the financing, that is, the minimum percentage of national funding required to benefit from ESF co-financing under ‘Objective 1’. That irregularity therefore led to an overclaim for the Community contribution to the project; (b) the DETE – after having correctly applied the ecu conversion rate laid down in Article 5(2) of Regulation No 1866/90 – carried out adjustments to the amounts obtained after that operation, transferring a part of the non-co-financed public funding to the co-financed funding. In that way it had maximised the ESF contribution initially calculated for the three operational programmes, and consequently overclaimed for co-financing; (c) at the level of the operations carried out by NDTI and the DETE, both the abovementioned irregularities had created breaches in the audit trail, as they did not make it possible to reconcile the expenditure incurred with the financing claimed. 19. On the basis of those controls, the Commission prepared an audit report, a copy of which it sent to the Irish authorities on 13 February 2001, and invited the DETE to take a view on it. 20. After having conducted an investigation into the alleged irregularities brought to light in the aforesaid report, by letter of 20 December 2001 the DETE replied to the objections raised by the Commission. 21. In the Commission’s view, those investigations produced no new facts and it therefore opened the procedure provided for in Article 24 of Regulation No 4253/88 and, by letter of 28 February 2002, notified the Irish authorities of its decision, inviting it to submit its observations. 22. By letter of 18 June 2002, which was supplemented by the letter of 25 July 2002, the DETE noted that: (a) the original claims for ESF co-financing submitted by NDTI were not in accordance with ESF best practice and they had therefore been resubmitted following careful checks, at least in respect of 1998 and 1997. It had however not been possible to conduct such checks to the same level of detail for the years prior to 1997, mainly owing to the change in NDTI’s budgetary computer system which had led to the loss of various data. Accordingly, Ireland had resorted to extrapolations in order to reconstruct the accounts from 1994 to 1996, which in any event made it possible to verify the regularity of the financing granted; (b) although the adjustment mechanism for the ESF co-funding claims was not appropriate, it had not, however, led to any undue financing or over-financing by the Community; (c) the checks carried out by the Irish authorities had demonstrated that all of the claims for financing related to eligible expenditure, thereby remedying the unintended breaches in the audit trail found by the Commission. 23. On 27 February 2003, having completed its analysis of the response of the Irish authorities, the Commission finally adopted the contested decision in which it reduced the total amount of assistance granted by the ESF under the three operational programmes by EUR 15 614 261 on the basis of the irregularities found in the implementation of the projects concerned and the respective claims for financing. 24. By application lodged on 13 May 2003, Ireland sought the annulment of the contested decision and an order for the Commission to pay the costs of the proceedings. Clearly, the Commission opposed those requests, requesting in its turn that the application be dismissed as unfounded in its entirety and the applicant be ordered to pay the costs. 25. On closure of the written procedure, during which a reply and a rejoinder were also lodged, the parties were heard at the hearing on 13 January 2005. IV – Legal analysis (1) Manifest error of assessment 26. By its first plea, the Irish Government claims that the Commission committed a manifest error of assessment in fact and in law when applying the financial correction in question. 27. In particular, it claims that the alleged irregularities found by the Commission are in fact errors of a purely ‘technical’ or ‘procedural’ nature which had no material impact on the Community budget. In other words, those ‘procedural errors’ should not be likened to real ‘irregularities’ so as to justify a reduction in Community assistance. 28. Finally, the Irish authorities assert that the Commission refused, without justification, to take account of the statements and revised calculations submitted by it intended to demonstrate that the irregularities found did not give rise to any over-financing or undue financing by the ESF. 29. I should state at once that I am not persuaded by the Irish Government’s arguments. 30. As a matter of fact, the Commission decided to reduce the ESF assistance on the basis of an audit report (14) which, as noted above, brought to light three types of irregularity in the implementation of the operational programmes (see point 17 above). However, the Irish authorities did not deny the existence or the systematic nature of those irregularities, either during the administrative procedure or before the Court, but merely attempted to demonstrate that their financial impact was limited. 31. The view can therefore be taken that the Irish Government accepted the results of the checks conducted by the Commission. In any event, the Commission was certainly not mistaken in its finding of systematic failures in the implementation stage of those programmes since those failures, as I have said, had been expressly acknowledged by the Irish authorities themselves. 32. As the Court has stated on several occasions, once the Commission discovers the existence of irregularities in the management of Community funds on the part of a Member State, the Commission ‘is required to correct the accounts presented by that Member State’. (15) Moreover, that is the express requirement of the principle of ‘sound financial management’ stated in Article 274 EC and, more specifically, in Article 24 of Regulation No 4253/88 which governs the ‘reduction, suspension and cancellation’ of assistance in the event of irregularities. 33. The Irish Government bases its argument, however, on what it claims is the ‘technical’ nature of the failures in question. In its view, since those errors did not cause the ESF financial loss, it cannot be a question of ‘irregularities’ within the meaning of Article 24 of Regulation No 4253/88. 34. Without its being necessary to examine the arguments put forward by Ireland on the limited scope of its ‘procedural errors’ which in any event essentially constitute purely factual evaluations, I think it suffices to point out that the proposed interpretation of Article 24 has no basis in the wording or purpose of that article. 35. The provision in question provides that the Commission may reduce or suspend the grant of Community assistance in the event of ‘an irregularity or a significant change affecting the nature or conditions for the implementation of the operation or measure for which the Commission’s approval has not been sought’. In that regard it does not make any distinction, however, in terms of the ‘financial value’ of the irregularity or change in question. 36. Furthermore, it is well known, and also borne out by the extensive Community case-law on the subject, (16) that failures or inadequacies (for example in the procedures for management and control of funds) which do not have a specific financial impact may be seriously prejudicial to the financial interests of the Union and to compliance with Community law, and for that reason they justify the application of financial corrections on the part of the Commission. That is particularly so where, as in this case, there are systematic infringements of the relevant provisions, such as, inter alia, inaccurate declarations and adjustments ex post of co-financeable and non-co-financeable expenditure, which are likely to compromise the transparency of the flow of funding and the regularity of operations and overall, therefore, the sound financing of the entire system. 37. Finally, the Irish Government claims that the Commission was wrong to refuse to take account of the corrections which the Irish authorities made in 2001, in reply to the objections raised in the audit report, to the claims for financing submitted by them for the three operational programmes. Those corrections were essentially intended to demonstrate that the irregularities found by the Commission had not given rise to any overclaims or over-financing, since their amount did not exceed the maximum limit for ESF co-financing (in this case 75%). 38. Irrespective of the issue of the reliability of the Irish authorities’ calculations, (17) I am of the opinion that the Commission was correct to reply that those corrections were inadmissible as they were submitted out of time. Having identified expenditure and/or national sources of co-financing which had not previously been declared, those corrections necessarily involved reprogramming of the ESF commitments which had been fixed on the basis of the annual declarations made by the Irish authorities during the 1994 to 1999 programming period. As may be clearly inferred from the relevant rules, (18) no change to the financing plans could be made after 31 December 1999, which was the deadline laid down for Community commitments in respect of the three operational programmes in question. In other words, after that date the financing plans were definitively closed and could no longer be changed to take account, as necessary, of the corrections submitted by Ireland. 39. In the light of the foregoing considerations, I think I can conclude that the Commission did not commit a manifest error of assessment by reducing the ESF financial assistance in issue and that the first plea in the application should therefore be dismissed. (2) Infringement of legal rules on the application of the Treaty 40. By its second plea, the Irish Government denies the infringement of three provisions of delegated legislation concerning the Structural Funds. 41. (a) First of all, it claims that the Commission infringed Article 23(1) of Regulation No 4253/88 because: – contrary to the terms of that provision, it did not adopt the necessary implementing measures on financial control before the date of entry into force of the regulation (3 August 1993), but only in April 1997, in Regulation No 2064/97; – the contested decision applies Regulation No 2064/97 retroactively to the ESF co-financing projects for the years 1994 to 1997, in particular the notion of audit trail in Article 2 of that regulation, although at the time of the facts in question that notion had not yet been clearly defined (point 10 above). 42. On the first point, however, I have to agree with the Commission when it maintains that the late adoption of the implementing provisions of Regulation No 4253/88 could be challenged only by means of an action for failure to act as provided for in Article 232 EC or, possibly, by challenging Regulation No 2064/97, within two months of its adoption, by means of an action for annulment as provided for in Article 230 EC. The delay in question cannot, on the other hand, be challenged in a direct action intended to obtain, as in this case, the annulment of a decision reducing Community assistance. 43. As regards the alleged retroactive application of Regulation No 2064/97, I note first of all that the contested decision does not refer to any provision of that regulation. 44. Next, and more specifically, as regards the definition of ‘sufficient audit trail’ I note that, although that was not formalised until 1997, that does not mean that before that date a Member State could implement operational programmes co-financed by Structural Funds without delineating a clear and accurate path ‘by which the movement of data can be traced forwards and backwards within a management and internal control system’, (19) therefore making it possible to evaluate the sound financial management of the projects in question. As appears from paragraph 16 of the contested decision, even before April 1997 any mechanism which did not make it possible to reconcile the summary amounts submitted to the Commission with all the supporting documents regarding expenditure and to check all flows of funding relating to the grant of Community assistance was considered contrary to Articles 4(1) and 13(3) of Regulation No 2052/88 and Article 17(2) of Regulation No 4253/88. 45. In other words, the body of those provisions, in force prior to 1997, required the Member States to ensure the exact reconciliation of the expenditure actually incurred under the projects co-financed by the Structural Funds with the respective claims for Community assistance, and were alone sufficient to take action against the irregularities committed by the Irish authorities. 46. (b) Secondly, in the opinion of the Irish Government, the Commission infringed Article 24(1) and (2) of Regulation No 4253/88 because: – it did not conduct a suitable examination of all the aspects of the case and in particular it did not take account of the corrections made to the claims for Community assistance; – the irregularities found were not serious enough to justify reducing the financial assistance. 47. I think that that argument simply repeats what the Irish Government maintained in the first plea of the application concerning the impact of the irregularities found. I therefore refer to the remarks already made on that point above (points 29 to 32). 48. (c) Finally, Ireland maintains that the Commission infringed the principle of partnership provided for in Article 4(1) of Regulation No 2052/88. 49. I must point out, however, that the applicant does not give any reasons whatsoever for that charge. Like the Commission, I believe therefore that it is inadmissible since it infringes Article 21 of the Statute of the Court of Justice and Article 40 of the Rules of Procedure, under which an application must always contain the pleas in law relied on in order to enable the defendant to prepare its defence and the Court to rule on the application. (20) 50. In the light of the foregoing, I therefore think that the second plea in the application is in part unfounded and in part inadmissible. (3) Infringement of the principle of proportionality 51. By it third plea, Ireland claims that the Commission infringed the principle of proportionality because it reduced the ESF assistance, while it could have adopted a less restrictive approach and accepted the explanations and corrections submitted by the Irish authorities intended to demonstrate the purely ‘technical’ nature and limited impact of the failures in question. The Commission should also have taken account of the nature of the beneficiaries of the assistance, since NDTI is a non-profit-making body, and of the fact that the three operational programmes had always been implemented in a cost-effective manner in full compliance with all the material requirements imposed by Community law. 52. On that point, I note first of all that in this case also the Irish Government merely puts forward, for the most part, the same arguments raised in the first part of the application concerning the nature and impact of its own ‘errors’ in the management and implementation of the programmes. However, I have already expressed my view in that respect above (points 28 to 32). 53. Next, as far as concerns observance of the principle of proportionality more specifically, I think it appropriate to state that, according to settled case-law, reductions in Community assistance which are ‘directly linked to the irregularities detected and [are] designed solely to exclude reimbursement of unlawful or unnecessary expenditure’ (21) comply with that principle. 54. The contested decision clearly shows that the reduction made in this case corresponds exactly to the amounts of Community assistance which, according to the Commission’s calculations, were affected by the irregularities found which, I state once more, were not denied by the Irish Government. 55. I therefore consider that the third plea in the application should be dismissed. (4) Infringement of the principles of the protection of legitimate expectations and legal certainty 56. By the third and last plea in the application, the Irish Government maintains that, during the contacts it had with the Commission in 2001 and 2002 following the checks carried out by the latter, the Irish authorities were asked to check the claims for assistance affected by those investigations. In the opinion of the Irish Government, that gave rise to a legitimate expectation that the Commission would accept their explanations and the revised calculations requested by it and would not reduce the ESF assistance. Moreover, that legitimate expectation was strengthened also by the different and less restrictive approach taken by the Commission in evaluating accounting practices in previous controls of implementation of programmes funded by the ESF in Ireland. 57. In disappointing those expectations, adds the Irish Government, the Commission also infringed the principle of legal certainty. That principle was further infringed, in the Irish Government’s view, by the fact that the contested decision applied rules not provided for by the body of rules in force at the time of the facts of the case, in particular when it claimed that the ESF accounts were definitively closed on 31 December 1999 and that therefore after that date no revised claims or corrections could be made. 58. For my part, I note above all that, according to Community case-law, the principle of the protection of legitimate expectations can be relied on by ‘a person in a situation from which it appears that the Community administration, in providing them with specific assurances, has fostered legitimate expectations on their part’. (22) 59. The documents produced by the Irish Government itself do not, however, show any type of assurance on the part of the Commission that irregularity in the financial and accounting practices in question did not exist and/or that a reduction in the Community assistance would not be made. On the contrary, in the audit report referred to, the Commission had already concluded unequivocally that the irregularities found had caused an overclaim for ESF co-financing which ought to be the subject of a financial correction. 60. Next, I do not accept that any legitimate expectation may be based, as the Irish Government, on the other hand, seems to be suggesting, on the fact that the Commission had not found irregularities in the management of ESF assistance in previous control operations in Ireland. The Court has ruled on several occasions that ‘where the Commission has tolerated irregularities on grounds of fairness, the Member State concerned does not acquire any right to demand that the same position be taken with regard to irregularities committed in the following financial year by virtue of the principle of legal certainty or the principle of the protection of legitimate expectations’. (23) This applies a fortiori in cases in which the Commission had not detected the type of irregularities in question during the preceding financial years. (24) 61. I therefore consider that the contested decision of the Commission did not infringe the principle of legitimate expectations. 62. Finally, as regards the principle of legal certainty, I would point out that its application requires that ‘[the relevant] legal rules be clear and precise’, and that it ‘aims to ensure that situations and legal relationships governed by Community law remain foreseeable’. (25) However, I do not see how that principle can have been infringed in this case since, as stated above, first, the rules in force clearly provided for the possibility that financial assistance might be reduced in cases of irregularities of the type found by the Commission in this case in the management of the Structural Funds (points 30 to 36 and 44 to 45 above), and, secondly, no change could be made to the financing plans after 31 December 1999, because, as stated in point 38, those plans were definitely closed. 63. I therefore consider that the fourth plea also is unfounded and should be dismissed together with the entire application. V – Costs 64. Under Article 69(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 Commission has applied for those costs to be awarded and, given what I have said regarding the outcome of the application, I believe that the application should be granted. VI – Conclusion In the light of the considerations set out above, I therefore propose that the Court dismiss the application and order Ireland to pay the costs. 1 – Original language: Italian. 2 – OJ 1988 L 185, p. 9. That regulation is no longer in force and was replaced by Council Regulation (EC) No 1260/1999 of 21 June 1999 laying down general provisions on the Structural Funds (OJ 1999 L 161, p. 1). 3 – OJ 1993 L 193, p. 5. 4 – Article 1 of Regulation No 2052/88 defines that objective as follows: ‘promoting the development and structural adjustment of regions whose development is lagging behind’. 5 – OJ 1988 L 374, p. 1. That regulation is no longer in force and was replaced by Council Regulation (EC) No 1260/1999 of 21 June 1999 laying down general provisions on the Structural Funds (OJ 1999 L 161, p. 1). 6 – OJ 1993 L 193, p. 20. 7 – OJ 1997 L 290, p. 1. That regulation is no longer in force and was replaced by Commission Regulation (EC) No 438/2001 of 2 March 2001 laying down detailed rules for the implementation of Council Regulation (EC) No 1260/1999 as regards the management and control systems for assistance granted under the Structural Funds (OJ 2001 L 63, p. 21). 8 – The definition of the term ‘audit trail’ laid down by the Court of Auditors of the EC (Glossary of external control of public finances, Court of Auditors of the EC, 1989). 9 – OJ 1990 L 170, p. 36. That regulation is no longer in force and was replaced by Commission Regulation (EC) No 643/2000 of 28 March 2000 on arrangements for using the euro for the purposes of the budgetary management of the Structural Funds (OJ 2000 L 78 p. 4). 10 – OJ 1994 L 250, p. 12. 11 – C(94) 3226 of 29 November 1994. 12 – C(94) 1972 of 29 July 1994. 13 – C(94) 2613 of 15 November 1994. 14 – The text of the report, annexed to the contested decision, is set out in Annex 4 to the application. 15 – Case C-55/91 Italy v Commission [1993] ECR I-4813, paragraph 67. My italics. 16 – Community case-law has accorded the Commission the power to reduce or suspend Community assistance, inter alia, where funds have not been used in accordance with the general requirement of ‘sound financial management’ (see, for example, Case T-142/97 Branco v Commission [1998] ECR II-3567, paragraph 66), where the ‘obligation towards the Commission to provide information and act in good faith’ has been infringed (Case T-186/00 Conserve Italia v Commission [2003] ECR II-719, paragraph 50) and where national systems of checks are inadequate (see, for example, Case C-346/00 United Kingdom v Commission [2003] ECR I‑9293, paragraphs 35 to 37). 17 – I note, for example, that for the years 1994 to 1996 those calculations were made by means of extrapolations and not on the basis of definite data. 18 – See Ireland: Community Support Framework 1994-1999 Objective 1, paragraph 19, first indent, annexed to Commission Decision 94/626; Guidelines on financial closure of operational assistance (1994-1999) of the Structural Funds, SEC(1999) 1316 final, paragraph 6.1 and Commission Decisions C(94) 3226, Article 5, C(94) 1975, Article 5, and C(94) 2613, Article 6. 19 – Court of Auditors of the EC, Glossary of external control of public finances, cited above. 20 – See also Case T-154/01 Distilleria Palma v Commission [2004] ECR II-0000, paragraph 58, Case T-293/01 Ineichen v Commission [2003] ECR-SC I-A-83 and II-441, paragraph 84, and Joined Cases T-191/98, T-212/98 and T-214/98 Atlantic Container Line and Others v Commission [2003] ECR II-3275, paragraph 281. 21 – Case T-142/97 Branco v Commission [1998] ECR II-3567, paragraph 110. In cases of serious irregularity, the Court has even acknowledged that only the possibility that the beneficiary of assistance may be penalised ‘not by reduction of the aid by an amount corresponding to that irregularity but by complete cancellation of the aid can produce the deterrent effect required to ensure the proper management of [Community] resources’ (Case C-500/99 P Conserve Italia v Commission [2002] ECR I-867, paragraph 100). 22 – Case T-76/98 Hamptaux v Commission [1999] ECR-SC I-A-59 and II‑303, paragraph 47. My italics. 23 – See, in particular, Case C-339/00 Ireland v Commission [2003] ECR I-11757, paragraph 81, and Case C-54/95 Germany v Commission [1999] ECR I-35, paragraph 12. 24 – See Ireland v Commission, cited above, paragraph 81. 25 – Case C-63/93 Duff and Others [1996] ECR I-569, paragraph 20.