Judgment (extracts);Judgment;Abstract — ECLI:EU:T:2022:457
Date: 2022-07-13
Language of the case: English
Subject matter: Research and technological development
Procedure: Arbitration clause - successful
Origin: Sweden

summary financial statement consolidating the individual financial statements for all reporting periods and including the request for payment of the balance. 6 Article 21 of the Grant Agreement stated that the aim of pre-financing was to provide the beneficiary with a float and that it remained the property of the European Union until payment of the balance of the grant. The amount of pre-financing was EUR 1 092 301.88, from which an amount of EUR 109 230.19 was retained by EASME and transferred into a guarantee fund. Article 21 also stated that the amount of the balance was to reimburse the remaining part of the eligible costs incurred by the applicant for the implementation of the action. If, however, the total amount of earlier payments was greater than the final grant amount, the payment of the balance was to take the form of a recovery. It was stipulated that the balance was to be calculated by EASME by deducting the total amount of pre-financing and any interim payments already made from the final grant amount. At the time of payment of the balance, if the balance was positive, the amount retained for the guarantee fund was to be released and paid to the beneficiary. If, on the other hand, the balance was negative, thus taking the form of a recovery, it had to be deducted from the amount allocated to the guarantee fund. If the balance remained negative after deduction of the amount retained for the guarantee fund, the amount of the balance was to be recovered. 7 Annex 1 to the Grant Agreement consists of two parts, Part A and Part B. Part A includes a brief summary of the P‑TEV project, a description of the beneficiaries and a description of the implementation of the action. Part B of Annex 1 contains a detailed description by the applicant of the P‑TEV project, the technique used, the ambitions of the project, its impact, its implementation, the members of the consortium, and ethics and security. Section 4.1 of Part B of Annex 1 to the Grant Agreement, entitled ‘Third parties involved in the project’, thus lists the subcontractors to be used for the project as well as the estimated budget for subcontracting. Section 4.1 also lists the tasks to be subcontracted. 8 Section 4.1 of Part B of Annex 1 to the Grant Agreement included the description of seven tasks to be subcontracted either to the contract research organisation (CRO) active in Sweden, IRW Consulting AB (‘the CRO IRW’), or to the Department of Vascular Surgery in Oslo University Hospital (Norway). Accordingly, first, the CRO IRW was entrusted with tasks 1.3 ‘Data quality assurance, monitoring and auditing procedures’, 1.4 ‘Safety reporting to NoMA [(the Norwegian Medicines Agency)]’, 3.5 ‘Study monitoring, data collection and follow-up of patients’ and 3.6 ‘Data analysis, Clinical Trial Report and scientific paper development’. Secondly, the Department of Vascular Surgery at Oslo University Hospital was entrusted with tasks 3.2 ‘Subject recruitment and informed consent’, 3.3 ‘Preparation of personalised tissue-engineered veins’ and 3.4 ‘Surgery’. The total cost of those subcontractors was estimated at EUR 276 425 (EUR 125 372 for the Department of Vascular Surgery at Oslo University Hospital and EUR 151 053 for the CRO IRW). 9 By letter of 16 April 2018, the applicant notified EASME that it expected the Phase I safety studies in the project to be delayed, due to the necessary change of trial sites for clinical studies from Oslo University Hospital to trial sites located at Hospital de Valme in Seville (Spain) and at Kaunas Medical University Hospital (Lithuania), where preparations for Phase II efficiency trials were well underway. In that letter, the applicant asked for a change in the due date for deliverables within the Phase I study. A revised version of Annex 1 to the Grant Agreement, which included the change to the date of deliverables for the Phase I study, the change of trial sites, the change of name from NovaHep to VeriGraft and the change of collaboration partners, was enclosed with that letter (‘Revised Annex 1 to the Grant Agreement’). 10 Part B of Revised Annex 1 to the Grant Agreement contained a revised list of tasks to be subcontracted, including new subcontractors in view of the change in trial sites for the Phase I clinical studies. The tasks listed in that part B of Revised Annex 1 to the Grant Agreement were the same as those in Part B of the original Annex 1 to that agreement. Each of those tasks was to be subcontracted to the Department of Vascular Surgery at Hospital de Valme, to the Department of Vascular Surgery at Kaunas Medical University Hospital or to the CRO IRW, Clinical Accelerator and Iniciativa Andaluza en Terapias Avanzadas (IATA). The total cost of those subcontractors had remained the same as in the original budget, at an estimated EUR 276 425 (EUR 135 372 for the Department of Vascular Surgery and EUR 141 053 for the CRO). 11 EASME approved the Revised Annex 1 to the Grant Agreement on 16 April 2018. 12 On 18 October 2018, EASME sent the applicant an initial pre-information letter concerning its intention to terminate the Grant Agreement due to persist failures to comply with ethics obligations identified in three successive ethics checks carried out by a panel of external ethics experts. 13 On 1 November 2018, the applicant submitted to EASME, pursuant to Article 20 of the Grant Agreement, the technical and financial reports for the P‑TEV project covering RP1. 14 By letter of 12 November 2018, EASME informed the applicant that it would have to suspend the time limit for payment of the balance of the grant so that the applicant could revise certain aspects of the periodic report for RP1. That letter included, inter alia, a request for a ‘breakdown of the subcontracting expenses per task and per subcontractor’ and asked the applicant to resubmit the updated report and the requested information within 15 days of receipt of that letter. 15 On 20 November 2018, EASME sent the applicant a request for clarification in respect of unforeseen subcontracting costs in the RP1 financial report. In that letter, EASME explained that a ‘subcontracting expense [could] be regarded as foreseen if[, first,] the task was foreseen in the Table 4.1. Third parties involved in the project in the Annex 1 (Part B) to the Grant Agreement; [secondly,] the task [was] performed by the same entity as foreseen in this table and [thirdly,] the actual cost [did] not exceed the budgeted amount (all three conditions [had to] be met)’. In the same letter, EASME stated that it had noted that a number of costs declared in the financial report were linked to tasks which should not have been subcontracted, according to Part B of Annex 1 to the Grant Agreement, and had been invoiced by subcontractors which had also not been mentioned in that annex. Consequently, EASME asked that the costs in question be declared in the financial report as unforeseen subcontracting costs. 16 By letter of 22 November 2018, EASME informed the applicant that, on the basis of the review report concerning RP1 drafted by external experts, EASME considered the project implementation to be satisfactory. It stated, however, that the experts’ assessment of the use of the resources did not imply acceptance of the corresponding costs by itself. It further stated in that regard that the eligibility of the costs claimed would be assessed by its services on the basis of the financial statements submitted by each beneficiary. 17 By letter of 3 December 2018, EASME instructed the applicant to resubmit the costs incurred in respect of the P‑TEV project via an adjustment to RP1 together with the costs incurred during RP2. 18 On 18 February 2019, after receiving the applicant’s observations on the first pre-information letter, EASME sent the applicant a second pre-information letter in which it maintained its intention to terminate the Grant Agreement, but for different reasons, namely that the applicant’s co-founder, several of whose articles had been cited as the most relevant academic references for the P‑TEV project, had been found guilty of research misconduct by the Swedish National Ethics Committee, which justified termination of the Grant Agreement on the basis of Article 50.3.1(f) thereof. 19 By letter of 15 April 2019, after receiving the applicant’s observations on the second pre-information letter, EASME informed the applicant that it confirmed the termination of the Grant Agreement on the basis of Article 50.3.1(f) thereof. 20 After the termination of the Grant Agreement, the applicant submitted to EASME the technical report and the financial report for RP2, which, in view of that termination, covered the period from 1 September 2018 to 17 April 2019. 21 By letter of 7 August 2019, EASME informed the applicant that, in its view, based on the review report drafted by external experts concerning the periodic technical report for RP2, the implementation of the P‑TEV project was satisfactory, but that, since that project had been terminated, it did not recommend any changes to improve its implementation. 22 By letter of 22 August 2019, EASME informed the applicant that it had had to reject the RP2 report and suspend the payment of the balance of the grant because the report needed to be revised. In that letter, EASME thus informed the applicant that a number of changes had to be made to the RP2 financial report. EASME pointed out that, in order to be regarded as foreseen, a subcontracting expense had to satisfy three cumulative criteria, namely, it must be mentioned in Section 4.1 ‘Third parties involved in the project – Tasks to be subcontracted’ in Part B of Annex 1 to the Grant Agreement, it must not exceed the budgeted amount, and it must be carried out by the same subcontractor as the one foreseen. EASME thus took the view that an expense of EUR 118 293.30 incurred in connection with the performance of task 3.3 by Froceth, in the context of the adjustment to RP1, exceeded the foreseen budget and had been carried out by an unforeseen subcontractor. For those reasons, that expenditure had to be reported as unforeseen. EASME also stated that a number of subcontracting expenses incurred in RP2, in connection with tasks 3.2, 3.3 and 3.4, had been carried out by unforeseen subcontractors and exceeded the foreseen budget. According to EASME, those expenses therefore had to be reported as unforeseen subcontracting expenses. 23 On 27 August 2019, the applicant submitted its observations to EASME via the ‘Funding & Tenders’ portal. In its message, the applicant noted the following: ‘It appears to us that the evaluation of the financial report has not taken into account the Amendment to the Annex 1 Part B (approved by the Commission in April 2018). We are resubmitting the financial report without changes to foreseen/unforeseen classification of subcontracting costs with the following arguments’. The applicant then set out arguments for the subcontracting for task 3.3 in adjusted RP1 and for tasks 3.2, 3.3 and 3.4 in RP2 to be regarded as foreseen, due to the respective subcontractors having been included in the list of subcontractors in Part B of Revised Annex 1 to the Grant Agreement. 24 On 5 September 2019, EASME informed the applicant that the subcontracted tasks 3.2 and 3.3 had been allocated to the Department of Vascular Surgery in Section 4.1 of Part B of Revised Annex 1 to the Grant Agreement, that the change in subcontractors meant that those expenses were unforeseen and that the applicant was required to report them as such and to upload the certificate on the financial statements along with the final report. 25 On 3 October 2019, the applicant sent EASME its use of resources report and final financial statements in the format laid down in Annex 4 to the Grant Agreement. 26 On 8 October 2019, the applicant brought an action under Article 272 TFEU, registered by the Court Registry as Case T‑688/19, by which it sought a declaration from the Court that the termination of the Grant Agreement, as communicated by the letter referred to in paragraph 19 above, was invalid. 27 By letter of 14 November 2019, EASME sent the applicant a pre-information letter with a view to initiating the inter partes procedure set out in Article 44 of the Grant Agreement. In that letter, EASME informed the applicant that, since the latter had received payments exceeding the final grant amount, EASME intended to recover the difference partly from the applicant’s guarantee fund contribution, in the amount of EUR 109 230.19, and partly through a recovery procedure, in the amount of EUR 259 123.24. EASME also asked the applicant to submit to it its observations within 30 days and informed it that the deadline for payment of the balance of the grant would be suspended until the end of the inter partes procedure. 28 The pre-information letter of 14 November 2019 included three enclosures. The first, entitled ‘Project Overview’, set out all the payments made and all rejected and accepted costs for the duration of the project. The first table in that document clarified that the final grant amount, corresponding to the total amount of accepted costs, was EUR 723 948.45. The ‘Payments’ section of that document showed that the pre-financing payment of EUR 1 092 301.88 had been made, including the guarantee fund contribution of EUR 109 230.19, that no payments had been made after RP1, and that, after RP2 and given the termination of the Grant Agreement, the amount paid resulted in a negative balance of EUR 368 353.43. 29 The second document enclosed with the pre-information letter of 14 November 2019 was the ‘Financial Statement Assessment Sheet’. That sheet set out the eligible costs per budget category, in accordance with Articles 5 and 6 of the Grant Agreement. The document indicated that the rejected costs related to category B (direct costs of subcontracting). The relevant amount of rejected subcontracting costs was listed in each table: for RP1 (adjusted), out of a total of EUR 217 845 direct subcontracting costs, all the subcontracting costs for that period had been rejected; for RP2, out of a total of EUR 217 518 direct subcontracting costs, EUR 192 938.30 had been rejected. That document contained the note ‘unforeseen subcontracting rejected by the Project Officer’. 30 The third document enclosed with the pre-information letter of 14 November 2019, entitled ‘Payment of the Balance Calculation Sheet’, confirmed the total accepted EU contribution and negative balance. 31 On 12 December 2019, the applicant submitted to EASME its observations on the pre-information letter of 14 November 2019. In its observations, the applicant challenged EASME’s assessment of certain subcontracting costs as ineligible, maintaining, in essence, that those costs were linked to subcontracting activities foreseen in Revised Annex 1 to the Grant Agreement, or to subcontracting activities which had been mentioned in the RP1 technical report and approved by EASME. 32 Following those observations, EASME asked the applicant, on 16 January 2020 and then on 3 February 2020, for clarification of the breakdown between tasks in respect of an invoice for EUR 23 088 in adjusted RP1, declared as tasks 3.5, 3.6 and 1.1, and an invoice for EUR 243.40 in RP2, declared as tasks 3.5 or 3.6. Following an initial response from the applicant, and then a further request for clarification from EASME, the applicant finally allocated, on 6 February 2020, the breakdown of each cost by reference to the percentage of the tasks to which it related. 33 By letter of 6 March 2020, EASME informed the applicant that, as explained in the list of arguments enclosed with that letter, it had accepted some of the applicant’s explanations and had adapted its calculations accordingly. EASME then stated that, since the applicant had received payments which exceeded the final amount of the grant, it was going to recover the difference by using the applicant’s guarantee fund contribution, in the amount of EUR 109 230.19, and by recovering the rest, in the amount of EUR 106 928.74, through the debit note enclosed with that letter. EASME also stated that, if payment was not received by the date set out in that debit note, the applicant would be liable for late-payment interest and that EASME would enforce its claim by using one of the procedures provided for in the Grant Agreement, for example, by offsetting the debt or by adopting an enforceable decision. A document entitled ‘Division of final grant amount table,’ was also enclosed with the letter in question. 34 The ‘List of arguments’ enclosed with the letter of 6 March 2020 read: ‘1. List of arguments 1) [EU finding No 1] EASME rejected subcontracting costs for trial sites, for which the amendment has been signed in April 2018. The argument of the beneficiary is false. The beneficiary initiated the amendment after the first ethical check, where the ethical committee raised the issue of change of sites and therefore the [Project Officer] requested from the beneficiary to introduce an amendment. EASME did not reject the costs because they were not incurred. The costs that are rejected concern the tasks 1.1, 2.1, 2.3, 2.4, 3.1 and 3.6 related to the subcontracting that were not foreseen in the Description of the Action. … 2. Conclusion The reasons of the beneficiary are partially accepted. Recovery order in the amount of EUR 106 928.74.’ 35 By email of 24 March 2020, the applicant informed EASME that the debit note mentioned in the letter of 6 March 2020 was not enclosed with that letter, that the division of final grant amount table was difficult to read, and that it was not able to understand the calculations on which the letter was based. By email of the same date, EASME replied that the debit note was the letter itself, and it supplied a new, more legible version of the division of final grant amount table, stating that, with that table, the applicant would be able to understand exactly how the costs had been calculated. Later that day, a financial officer of EASME sent the applicant an email with an attached PDF-file entitled ‘Subcontracting’. 36 On 9 April 2020, EASME sent the applicant debit note No 3242004635, setting it a deadline of 25 May 2020 to pay the sum of EUR 106 928.74. Enclosed with that debit note was a table showing the calculation of the balance of the grant yet to be paid. 37 On 11 May 2020, EASME re-sent to the applicant the letter of 6 March 2020, together with its two annexes and the debit note of 9 April 2020. 38 On 20 May 2020, in response to a question from the applicant regarding the deadline for payment set in the debit note, EASME stated that the final date for payment was in fact 25 June 2020. 39 On 19 June 2020, the European Commission sent the applicant a first reminder for payment. On 24 June 2020, in response to a request for clarification from the applicant in that regard, EASME confirmed that the final date for payment set in the debit note was indeed 25 June 2020. Facts subsequent to the bringing of the action 40 By judgment of 2 March 2022, VeriGraft v Eismea (T‑688/19, EU:T:2022:112), the Court upheld the applicant’s action in Case T‑688/19 and, consequently, declared that the termination of the Grant Agreement was invalid. Forms of order sought 41 The applicant claims that the Court should: – find and declare that EASME’s recovery order concerning costs amounting in total to EUR 258 588.80 is invalid; – find and declare that the costs rejected by EASME (in whole or in part) amounting in total to EUR 258 588.80 constitute eligible costs; – find and declare that EASME’s debit note for EUR 106 928.74 is invalid; – order EASME to pay the costs. 42 Eismea contends that the Court should: – dismiss the action as unfounded; – order the applicant to pay the costs. Law 43 In support of its first three heads of claim, the applicant puts forward three pleas in law. The first plea alleges infringement of the right to good administration, enshrined in Article 41 of the Charter of Fundamental Rights of the European Union (‘the Charter’), in that the recovery order issued by EASME does not explain why the costs submitted by the applicant were rejected by EASME. The second plea alleges infringement of Article 6 of the Grant Agreement, in that EASME wrongly considered that the subcontracting costs submitted by the applicant were not eligible costs within the meaning of that provision. The third plea alleges infringement of the principle of the protection of legitimate expectations, in that EASME gave the applicant assurances as to the eligibility of the subcontracting costs which it subsequently rejected. 44 Furthermore, in support of its third head of claim, the applicant raises a fourth plea, alleging that the costs which it incurred in continuing the P‑TEV project after the unlawful termination of the Grant Agreement exceeded the amount that EASME sought to recover through the debit note. 45 It should be noted that, as is apparent from the application, the expression ‘recovery order’ mentioned in the first head of claim refers to EASME’s letter of 11 May 2020 in which EASME stated that the applicant had received payments exceeding the final grant amount and that, consequently, it intended to recover the difference from, first, the applicant’s guarantee fund contribution, in the amount of EUR 109 230.19, and, secondly, the debit note enclosed with that letter, in the amount of EUR 106 928.74. 46 It is also apparent from the annexes to the letter of 11 May 2020 that the difference between the sums already paid to the applicant under the grant and the final grant amount accepted by EASME results from the rejection of the subcontracting costs which were not specified in the Grant Agreement. 47 Furthermore, by its second and third heads of claim, the applicant asks the Court to find, respectively, that the subcontracting costs in question are eligible costs amounting to EUR 258 588.80 and that the debit note enclosed with the letter of 11 May 2020 is invalid. 48 It follows that the applicant’s first three heads of claim must be regarded as seeking a declaration from the Court that: (i) the subcontracting costs rejected by EASME constitute eligible costs under the Grant Agreement; (ii) debit note No 3242004635 issued by EASME in the amount of EUR 106 928.74 is, consequently, unfounded; and (iii) recovery of the sum of EUR 109 230.19 from the guarantee fund established by the Grant Agreement is also, as a result, unfounded. The first plea, relating to the right to good administration, enshrined in Article 41 of the Charter, in that the recovery order issued by EASME does not explain why the costs submitted by the applicant were rejected 49 The applicant claims that the statement of reasons provided by EASME in the list of arguments enclosed with the letter of 11 May 2020 is too sparse to enable it to determine which costs were rejected by EASME and why those costs were rejected, which constitutes an infringement of the obligation to state reasons laid down in Article 41 of the Charter. The applicant states in this regard that EASME also failed to provide it with that information during the inter partes procedure. 50 Eismea challenges the applicant’s arguments. 51 In that regard, it should be recalled that, under Article 41(2)(c) of the Charter, the administration is obliged to give reasons for its decisions. 52 Consequently, the Court has already had occasion to hold that the Charter, which forms part of primary law, provides, in Article 51(1), without exception, that its provisions ‘are addressed to the [EU] institutions, bodies, offices and agencies … with due regard for the principle of subsidiarity’ and that, therefore, fundamental rights are designed to preside over the exercise of the powers conferred on the EU institutions, including in contractual matters (see, to that effect, judgments of 3 May 2018, Sigma Orionis v Commission, T‑48/16, EU:T:2018:245, paragraphs 101 and 102, and of 3 May 2018, Sigma Orionis v REA, T‑47/16, not published, EU:T:2018:247, paragraphs 79 and 80; see also, by analogy, judgment of 13 May 2020, Talanton v Commission, T‑195/18, not published, EU:T:2020:194, paragraph 73). 53 Similarly, when the EU institutions, bodies, offices and agencies perform a contract, they remain subject to their obligations under the Charter and the general principles of EU law (see, to that effect, judgment of 16 July 2020, ADR Center v Commission, C‑584/17 P, EU:C:2020:576, paragraph 86). 54 The Court of Justice has also held that, if parties were to decide, in their contract, to confer on the EU Courts, by means of an arbitration clause, jurisdiction over disputes relating to that contract, those Courts would have jurisdiction, independently of the applicable law stipulated in that contract, to examine any infringement of the Charter or of the general principles of EU law (judgment of 16 July 2020, Inclusion Alliance for Europe v Commission, C‑378/16 P, EU:C:2020:575, paragraph 81). 55 Furthermore, it should be pointed out that the EU institutions, bodies, offices and agencies are not entirely comparable to private parties to a contract when they act in contractual matters. Thus, first, the grants awarded by them draw on EU public funds, with the result that, when awarding such grants, the EU institutions, bodies, offices and agencies remain bound, in particular, by the budgetary requirements arising from Article 317 TFEU and the financial rules laid down in that regard by the Financial Regulation applicable. Secondly, in the presence of a contract containing, as in the present case, an arbitration clause conferring jurisdiction on the EU Courts, in particular, the Commission has exorbitant prerogatives under ordinary law enabling it to formalise a finding of a contractual claim by unilaterally adopting, on the basis of Article 79(2) of Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002 (OJ 2012 L 298, p. 1) (‘the Financial Regulation’), an enforceable recovery order under Article 299 TFEU, the effects and binding force of which derive from those provisions (see, to that effect, judgment of 16 July 2020, ADR Center v Commission, C‑584/17 P, EU:C:2020:576, paragraphs 68 to 70 and 73). In addition, it must be held that, under the second subparagraph of Article 108(1) 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), and the second subparagraph of Article 121(1) of Regulation No 966/2012, a grant may be awarded either by means of a written agreement or by means of a Commission decision notified to the beneficiary. Thus, the EU legislature has provided that a grant may be awarded both by contract and by administrative procedure. However, the EU institutions, bodies, offices and agencies cannot, at their discretion, avoid their obligations under primary law, including the Charter, on the basis of their choice to award grants by agreement rather than by decision (judgment of 24 February 2021, Universität Koblenz-Landau v EACEA, T‑606/18, not published, EU:T:2021:105, paragraph 31). 56 The extent of the obligation to state reasons must be assessed depending on the specific circumstances including, inter alia, the content of the measure, the nature of the reasons given and the interest which the addressee of the measure may have in obtaining explanations, and it is important, in order to assess whether reasons have been sufficiently stated, to place it in the factual and legal context in which the measure in question was adopted. Thus, the reasons given for a measure are sufficient if that measure was adopted in a context which was known to the addressee concerned and which enables him or her to understand the scope of the measure concerning him or her (see, by analogy, judgments of 15 November 2012, Council v Bamba, C‑417/11 P, EU:C:2012:718, paragraphs 53 and 54 and the case-law cited; of 24 October 2011, P v Parliament, T‑213/10 P, EU:T:2011:617, paragraph 30; and of 27 September 2012, Applied Microengineering v Commission, T‑387/09, EU:T:2012:501, paragraphs 64 to 67). 57 The applicant claims that the letter sent to it by EASME on 11 May 2020 and the list of arguments enclosed with it did not enable it to understand which costs had been refused and why those costs had been refused by EASME. 58 In that regard, it should be noted that the applicant does not dispute that the document entitled ‘Financial Statement Assessment Sheet’ enclosed with the pre-information letter of 14 November 2019 initiating the inter partes recovery procedure provided for in Article 44 of the Grant Agreement indicated that the rejected costs represented direct costs of subcontracting and that the reason for that rejection was that they were unforeseen subcontracting costs that had been rejected by the Project Officer (see paragraph 29 above). 59 In addition, in its observations of 12 December 2019 on the pre-information letter of 14 November 2019, the applicant challenged EASME’s assessment of certain subcontracting costs as ineligible, maintaining, in essence, that those costs were linked to subcontracting activities foreseen by Revised Annex 1 to the Grant Agreement or to subcontracting activities which had been mentioned in the RP1 technical report and approved by EASME (see paragraph 31 above). 60 Furthermore, the applicant itself admits that, after contacting EASME in order to obtain additional information on how the rejected costs had been calculated in the letter initially sent to it on 6 March 2020 and subsequently re-sent to it on 11 May 2020, it had received on 24 March 2020, from a financial officer of EASME, a PDF file entitled ‘Subcontracting’ in which the rejected subcontracting costs were specifically identified (see paragraph 35 above). It was apparent from that table that, following the applicant’s observations, EASME had finally accepted certain subcontracting costs, namely those relating to subcontracting activities mentioned in Part B of Revised Annex 1 to the Grant Agreement. 61 In those circumstances, it must be held that, although succinct, the statement of reasons contained in the document ‘List of arguments’ enclosed with the letter of 11 May 2020, according to which ‘EASME did not reject the costs because they were not incurred[; t]he costs that are rejected concern the tasks 1.1, 2.1, 2.3, 2.4, 3.1 and 3.6 related to the subcontracting that were not foreseen in the Description of the Action’, was sufficient to enable the applicant to determine which costs had been rejected, namely the subcontracting costs related to tasks 1.1, 2.1, 2.3, 2.4, 3.1 and 3.6, and the reason for that rejection, namely that those costs were linked to subcontracting activities which were not mentioned in Part B of Revised Annex 1 to the Grant Agreement. 62 It follows that the first plea must be rejected as being unfounded. The second plea, alleging infringement of Article 6 of the Grant Agreement, in that EASME wrongly considered that the subcontracting costs submitted by the applicant were not eligible costs within the meaning of that provision 63 The applicant notes that EASME rejected all subcontracting costs not listed in the table set out under the heading ‘Tasks to be subcontracted’ in Section 4.1 of Part B of Annex 1 to the Grant Agreement. According to the applicant, that rejection is contrary to the provisions of the Grant Agreement. 64 In the first place, the applicant claims that the subcontracting costs rejected by EASME are all due to the change in clinical trial sites from Norway to Lithuania and Spain, which was itself approved by EASME in so far as it was mentioned in Revised Annex 1 to the Grant Agreement. The applicant claims that, prior to the request for amendment of the Grant Agreement, it had reported to EASME the consequences of the change of the clinical trial site and that it had, inter alia, described the subcontractors and the tasks which those subcontractors were going to perform. According to the applicant, those tasks included contract manufacturing preparation, preparation of an expanded set of regulatory documentation and the monitoring of clinical trials and vascular surgery. The applicant also notes that all subcontractors, with the exception of Research Institutes of Sweden (‘RISE’), are also listed in Revised Annex 1 to the Grant Agreement, and that, in its letter of 11 May 2020, EASME questioned neither that the rejected costs had in fact been incurred nor that they were justified. It follows that those subcontracting costs are eligible costs within the meaning of Article 126 of Regulation No 966/2012, to which Article 26 of the Rules for participation in Horizon 2020 grants refers, and that the rejection of those costs by EASME is therefore contrary to the Grant Agreement. 65 As regards the intrinsic link between the change of clinical trial sites and the subcontracting costs rejected by EASME, the applicant states that, originally, the P‑TEV project grafts were to be produced in Gothenburg (Sweden), where its offices are located, and then transported to Oslo. For the production of the P‑TEV grafts, a laboratory at Sahlgrenska University Hospital in Gothenburg was to be rented. The applicant explains that, had that been the case, it would have purchased all the raw materials and consumables necessary to produce the P‑TEV grafts and used its own personnel at the rented facility. According to the applicant, this set-up required no subcontracting for manufacturing. The laboratory rent, and all raw materials/consumables would fall into the ‘other direct costs’ category of the P‑TEV project. Furthermore, costs for manufacturing would fall into the ‘direct personnel costs’ category of the P‑TEV project. Moreover, according to the applicant, the Medicinal Products Agency in Norway considered the preclinical data to be complete, with the result that no additional animal safety studies were foreseen in the original grant application. 66 According to the applicant, the change in clinical trial sites from Norway to Lithuania and Spain meant that the P‑TEV grafts for the two trials had to be produced locally in those two countries, for regulatory and logistical reasons. It would not have been possible to transport such grafts from Gothenburg, where the applicant and its staff are located. According to the applicant, for the production of the P‑TEV grafts, local contract manufacturing organisations (‘CMOs’) were used. Those CMOs were to purchase all the raw materials and consumables necessary to produce the P‑TEV grafts. According to the applicant, the new set-up therefore required the manufacturing to be subcontracted. In addition, the Medicinal Products Agency in Spain (AEMPS) took the view that additional animal safety studies would be required before a clinical trial application could be submitted. The applicant states in this regard that such additional animal testing had also been required by the panel of experts appointed by EASME to conduct ethics checks. 67 As regards the subcontracting costs relating to the work carried out by RISE and rejected by EASME, the applicant states that RISE assisted it in generating regulatory documents as well as the additional regulatory data requested by the Spanish authorities, for example in the context of the animal studies that were not required in Norway. The need for such additional regulatory work was explained to EASME in a letter of 26 March 2018 in response to the external experts’ report on the implementation of the P‑TEV project. 68 In the same letter, the applicant explained to EASME the need to use IATA and Froceth as CMOs to produce clinical grade P‑TEV in order to carry out the clinical trials at their facilities. In the same letter, the applicant also explained to EASME the need to use IATA and Clinical Accelerator as CROs to conduct clinical trials in Spain and Lithuania, respectively. 69 The applicant further states that the costs associated with process development, manufacturing optimisation and improvement of quality control assays conducted by RISE had also become necessary due to the change in clinical trial sites. 70 Ultimately, according to the applicant, when approving Revised Annex 1 to the Grant Agreement, EASME was clearly aware that the change in trial sites from Norway to Spain would have the consequence that certain tasks that initially should have been performed by the applicant would need to be transferred to subcontractors. The applicant claims that, although the subcontracting costs had not been transferred from the categories ‘direct personnel costs’ and ‘other direct costs’ to the category ‘direct costs of subcontracting’, in Revised Annex 1 to the Grant Agreement, a second amendment of the Grant Agreement was being prepared in order to rectify that omission when EASME decided to terminate the agreement. The applicant observes, however, that the subcontracting costs rejected by EASME were included in the overall budget for the P‑TEV project, and that the fact that tasks which were originally to be performed by the applicant had instead been performed by subcontractors had not led to an increase in the total costs in the overall budget for the P‑TEV project. 71 In the second place, the applicant claims that, in any event, the changes in project structure and subcontracting were also reported in the periodic technical reports for RP1 and RP2, in which it had also specified the work conducted and the resources used in relation to each task. The applicant states that those periodic technical reports were reviewed by the Project Officer, as well as by an external reviewer whom EASME dedicated to the project, and that the report and project implementation have been approved. Having regard to the approval of the periodic technical reports, the subcontracting costs should be considered eligible, in accordance with the simplified approval procedure provided for in Article 13.1.1 of the Grant Agreement explained in the annotated model Grant Agreement for the Horizon 2020 Programme, which was available to all contractors (‘the AGA’). The applicant adds that it shares the opinion of Eismea that the simplified approval procedure concerns only the fact that a task has been subcontracted, and that the subcontracting costs associated with that task will still have to comply with the legal conditions in order to be considered eligible. However, it notes that EASME has always argued that the reason why EASME rejected certain costs was not because the costs had not been incurred, but because they had been subcontracted, which had not been mentioned in the Grant Agreement or its amendments. According to the applicant, since EASME approved the periodic technical reports, it also approved the subcontracting of the tasks specified therein. Accordingly, it argues that, had those costs not complied with the requirements in Article 126 of the Financial Regulation, they would certainly have been rejected, but that was not the case here. 72 Furthermore, the applicant notes that, up until now, EASME had never questioned that the rejected subcontracting costs had actually been incurred as part of the P‑TEV project, or that those costs were genuine, as Eismea appears to contend in the defence. In that regard, the applicant states that it reported every cost relating to the P‑TEV project in accordance with the criteria set by EASME. The applicant states that, in accordance with the requirements set by EASME, it asked an authorised accountant to revise the costs that it reported in the P‑TEV project. According to the applicant, the revision of those costs has been made in accordance with the detailed rules set by EASME and reported in the template set up by EASME. The applicant observes that it received no comments on the report in question, dated 24 July 2019 and appended to the reply. It is therefore very surprised that Eismea contends in its defence that the applicant hindered ‘EASME’s ability to carry out the proper checks and have the adequate level of oversight regarding the use of public money that the EU system of financial support requires’. 73 Eismea challenges the applicant’s arguments. 74 First, Eismea contends that it does not dispute that EASME approved the change of clinical trial sites by an amendment to the Grant Agreement dated 16 April 2018, or that that amendment provided for the use of subcontractors in the general sense. However, Eismea contends that it cannot follow that EASME considered that all the costs associated with that change of trial sites, and more particularly those related to subcontracting, were eligible, since they still needed to meet the conditions set out in Article 126 of Regulation No 966/2012, to which reference is made in Article 26 of the Rules for participation in Horizon 2020 grants. 75 Eismea argues in this regard that the rejected subcontracting costs corresponded to tasks which had not been foreseen as subcontracted tasks in Part B of Revised Annex 1 to the Grant Agreement and were not set out in Annex 2 to that agreement, contrary to Article 13.1.1 thereof. Eismea takes the view that, in those circumstances, EASME objectively assessed that those costs did not meet the conditions in Article 6.1(a)(iii) and (iv), Article 6.2B (Direct costs of subcontracting) and Article 13.1.1 (Rules for subcontracting action tasks) of the Grant Agreement. 76 Eismea rejects the applicant’s argument that EASME was aware of the implications that changing clinical trial sites from Norway to Spain and Lithuania would have on the need to use subcontractors. It thus claims that it was for the applicant to provide the necessary information in that regard in Revised Annex 1 to the Grant Agreement, which the applicant itself admitted that it did not do. Eismea also points out, as regards the applicant’s claim that it had prepared a second amendment to the Grant Agreement with a view to introducing the tasks to be subcontracted into Annex 1 to that agreement, that it never received any such request from the applicant. 77 Eismea also rejects the applicant’s argument that the rejected subcontracting costs, relating to additional regulatory requirements and specific manufacturing costs, were intrinsically linked to the change of clinical trial sites that it had approved and that those costs should therefore be regarded as eligible. It thus claims that the change of clinical trial sites constitutes an independent decision taken by the applicant and that, therefore, all the consequences arising from that decision and, in particular, from the selection of operators for the corresponding tasks had to be borne by the applicant. In addition, Eismea contends that, contrary to what is claimed by the applicant, the latter’s letter of 26 March 2018 did not contain any reference to additional or new regulatory work brought about by the change of clinical trial sites. 78 Eismea also disputes the applicant’s argument that some additional regulatory work which was the subject of subcontracting not provided for in Revised Annex 1 to the Grant Agreement was intended to address the criticisms made by the panel of external ethics experts instructed by EASME to conduct an ethics check on the P‑TEV project. It maintains in this regard that the decision to conduct an unforeseen long-term study on large animals resulted from the change of clinical trial sites from Norway to Lithuania, which the applicant itself stated in its use of resources report of 3 October 2019. 79 Eismea also claims that, generally, for any given subsidy, the beneficiary is expected to carry out the project itself, and subcontracting is an exception to that rule for which prior and specific approval is required since, as an executive agency, it must be in a position to supervise and monitor how the subsidy, which is ultimately financed by EU taxpayers, is implemented, in particular where it does not involve the beneficiary itself. It also notes in this regard that, in accordance with Article 8 of the Grant Agreement, the beneficiary must have the appropriate resources (technical and otherwise) to implement actions as presented in its proposal for funding and as set out in Annex 1 to the agreement in question. 80 Secondly, Eismea contends that the applicant cannot rely on the fact that the rejected subcontracting costs had been mentioned in the periodic technical reports for RP1 and RP2, in order to claim that those costs should have been considered eligible. Eismea thus argues that the accelerated approval procedure in Article 13.1.1, by which a beneficiary does not make a formal amendment, but rather includes subcontracted tasks in a technical report, does not mean that the assessment of eligible costs in accordance with the conditions laid down in the Financial Regulation and the Grant Agreement will not be carried out or that the costs will be accepted automatically. According to Eismea, the simplified procedure relates only to the presentation of the fact that a task was subcontracted, since the new costs presented will still have to comply with the legal conditions in order to be eligible. Consequently, EASME’s approval of the applicant’s periodic technical reports merely indicated that EASME had acknowledged that a subcontractor was used, but had assessed the costs separately in the light of the eligibility criteria and had not considered them to be eligible. Eismea refers in this regard to the AGA, from which it is apparent that approval is left entirely to the agency and cannot be automatically granted, and that beneficiaries using that accelerated procedure bear the full risk of non-approval and rejection of costs by the agency. 81 Eismea adds that the applicant fails to take account of the fact that, in the letters sent to it by EASME to approve the two periodic technical reports, it was explicitly indicated that the assessment of eligible costs was a matter that was separate from the approval of the two technical reports. 82 Thirdly, Eismea notes that the European Union can subsidise only expenses which have actually been incurred. Accordingly, in Eismea’s view, in order for the European Union to be able to carry out checks, the beneficiaries of such support must show that the costs attributed to subsidised projects are genuine. The provision by the beneficiaries of reliable information is indispensable for the successful operation of the system of control and evidence established in order to check whether the conditions for the grant of financial support are met. The applicant’s failure to define correctly the precise tasks that would be subcontracted and the amount of the costs of that subcontracting therefore constituted, according to Eismea, a serious failure on the part of the applicant, hindering EASME’s ability to carry out the proper checks and to have the adequate level of oversight regarding the use of public money that the EU system of financial support requires. EASME’s rejection of those costs was therefore entirely foreseeable and, in any event, justified under the Grant Agreement. In that regard, Eismea states that it was not aware of the accounting report, attached by the applicant to the reply, and that that report was never provided to it. Eismea states that it is for that reason not in a position to comment on that report, but notes that the applicant fails to demonstrate that it sent that report to Eismea or to show what impact it is supposed to have in this case. 83 In that regard, it should be noted that, in accordance with Article 5.2 of the Grant Agreement, the grant reimburses 100% of the eligible costs of the action. Under that same provision, eligible costs must be declared, for direct costs for subcontracting, as actually incurred costs (‘actual costs’). 84 Article 6.1 of the Grant Agreement lays out the general conditions for actual costs to be regarded as eligible costs. In accordance with that provision, in order for actual costs to be considered eligible, they must: (i) be actually incurred by the beneficiary during the implementation period; (ii) be indicated in the estimated budget set out in Annex 2; (iii) be incurred in connection with the action as described in Annex 1 and necessary for its implementation; (iv) be identifiable and verifiable; and, in particular, (v) be recorded in the beneficiary’s accounts in accordance with the accounting standards applicable in the country where the beneficiary is established and with the beneficiary’s usual cost accounting practices; (vi) comply with the applicable national law on taxes, labour and social security; (vii) be reasonable and justified; and (viii) comply with the principle of sound financial management, in particular regarding economy and efficiency. 85 Article 6.2 of the Grant Agreement provides that certain categories of costs, including ‘direct costs of subcontracting’, are eligible if they fulfil not only the general conditions laid down in Article 6.1 of that agreement, but also certain specific conditions. Under Article 6.2 of the Grant Agreement, direct subcontracting costs are eligible if the conditions laid down in Article 13.1.1 of that agreement are met. 86 Under Article 13.1.1 of the Grant Agreement, if necessary to implement the action, the beneficiary may award subcontracts covering the implementation of certain action tasks described in Annex 1 while ensuring the best value for money or, if appropriate, the lowest price, and avoiding any conflict of interests. It is also stated that subcontracting may cover only a limited part of the action. As regards the manner in which the use of subcontracting must be presented in the Grant Agreement, Article 13.1.1 provides that ‘the tasks to be implemented and the estimated cost for each subcontract must be set out in Annex 1 and the total estimated costs of subcontracting must be set out in Annex 2’. Under Article 13.1.1 of that agreement, ‘the Agency [in this case, EASME] may however approve subcontracts not set out in [Annexes] 1 and 2 without amendment’ if they are specifically justified in the periodic technical report and do not entail changes to the agreement which would call into question the decision awarding the grant or breach the principle of equal treatment of applicants. 87 It should be noted that, as is apparent from the list of arguments enclosed with the letter of 11 May 2020, EASME rejected certain subcontracting costs on the ground that they were related to the subcontracting of tasks that were not foreseen to be subcontracted in the description of the action. Eismea specified the subcontracting costs in question in Table 3 of the defence, reproduced below: No. Subcontractor Description of Action Amount (EUR) Reporting Period 1 Amount (EUR) Reporting Period 2 Task foreseen to be subcontracted in Annex 1? Costs accepted /rejected? 1 Research Institutes of Sweden (RISE) Task 2.3 and task 2.4 GMP Process scale-up support, QC Improvement 21 146.00 No Rejected 2 RISE Task 1.1 Regulatory support 4 339.00 No Rejected 3 Clinical Accelerator Task 1.1 Additional regulatory interactions due to change of sites 976.00 No Rejected 4 RISE Task 2.4 QC improvement 37 835.00 No Rejected 5 UAB Froceth Task 2.1 Process validation, GMP certification 13 143.70 No Rejected 6 Clinical Accelerator Task 1.1 Preparations in Lithuania for Phase I trial. Regulatory interaction support. Applications for clinical trial, preparation of data collection and processing for clinical trial 1 198.00 5 212.00 No Rejected 7 RISE Task 1.1 According to reports from IATA, AEMPS is expected to require more long-term large animal data to approve a phase 1/2 study for ATMP development with the option to continue into a larger phase 2 study. For that reason, a long-term large animal study of P‑TEV was initiated in task 1.1 together with tasks 2.3 and 2.4. Additional regulatory data preparation and quality assurance. 10% Although unforeseen in the application, this is a direct consequence of the amendment in the clinical trial program. 14 116.90 No Rejected 8 RISE Task 2.3 Additional regulatory data preparation and process adjustments. 10% Although unforeseen in the application, this is a direct consequence of the amendment in the clinical trial program. 14 116.90 No Rejected 9 RISE Task 2.4 Additional regulatory data preparation and quality control. 80% Although unforeseen in the application, this is a direct consequence of the amendment in the clinical trial program. 112 935.20 No Rejected 10 IATA Task 2.1 Process validation under GMP. The addition of a Spanish CRO/CMO became necessary due to the amendment in the clinical trial program. 27 881.60 No Rejected 11 IATA Task 3.1 Training. Due to the amendment in the clin[i]cal trial program, training at the Spanish site had to be added. 5 454.50 No Rejected 12 Clinical Accelerator Task 3.1 Training costs. Additional training at the new sites became necessary due to the amendment in the clinical trial program 234.00 No Rejected SUM 77 661.70 180 927.10 TOTAL 258 588.80 88 In that regard, it should be noted that, although the applicant maintains that that table contains an error as to the identity of the subcontractor mentioned in entry 6, which is IATA and not Clinical Accelerator, it is common ground between the parties that the subcontracting costs rejected by EASME relate to subcontracting activities which were not mentioned in Revised Annex 1 to the Grant Agreement, and that the costs in question were also not mentioned as direct subcontracting costs estimated in Annex 2 to that agreement. 89 It is also common ground between the parties that, first, the amendment to the Grant Agreement was intended to draw inferences from the change of clinical trial sites from Norway to Spain and Lithuania and, secondly, that amendment was requested by the applicant. 90 In those circumstances, the applicant cannot claim that the subcontracting costs rejected by EASME ought to have been regarded as eligible on the ground that EASME approved the amendment to Annex 1 to the Grant Agreement on 16 April 2018 and that it was aware of the implications that the change of clinical trial sites would have for the need to use subcontractors to implement the P‑TEV project, or that the subcontracting costs in question were intrinsically linked to the change of clinical trial sites. 91 It was for the applicant to include in Annex 1 and Annex 2 to the Grant Agreement the amendments which it considered necessary in order to take account of the change of clinical trial sites before they were approved by EASME. 92 However, it is necessary to determine whether, as the applicant claims, EASME was wrong to reject certain subcontracting costs on the ground that they were related to the subcontracting of tasks that were not foreseen to be subcontracted in Revised Annex 1 to the Grant Agreement and were not mentioned as such in Annex 2 to that agreement, even though the use of that subcontracting was justified in the periodic technical reports for RP1 and RP2, which were approved by EASME. 93 In that regard, it is apparent from a combined reading of Tables 3 (see paragraph 87 above) and 1 (reproduced below) provided by Eismea that the subcontracting costs rejected by EASME correspond to tasks which had not been foreseen as subcontracting tasks in Revised Annex 1 to the Grant Agreement, but were mentioned in the periodic reports for RP1 and RP2, which Eismea itself acknowledged at the hearing. Task Foreseen to be subcontracted in Original Annex 1 Foreseen to be subcontracted in Amended Annex 1 Claimed in Applicant’s Termination report (RP1 and RP2 consolidated) Accepted? 1.1: Various regulatory body discussions and support Not foreseen to be subcontracted. Not foreseen to be subcontracted. RISE, IATA, Froceth, Clinical Accelerator: EUR 25 841.90 No 1.3: Data quality assurance, monitoring and auditing procedures CRO: EUR 25 000 CRO: No amount stated. Clinical Accelerator, IRW: EUR 18 561.40 Yes 1.4: Safety reporting to the authorities CRO: EUR 26 053 CRO: No amount stated. IRW: EUR 1 195.90 Yes 2.1: Process validation Not foreseen to be subcontracted. Not foreseen to be subcontracted. UAB Froceth, IATA: EUR 41 025.30 No 2.3: GMP Process scale-up support Not foreseen to be subcontracted. Not foreseen to be subcontracted. RISE: EUR 14 116.90 No 2.4: QC improvement Not foreseen to be subcontracted. Not foreseen to be subcontracted. RISE: EUR 150 770.20 No 2.3 and 2.4: GMP Process scale-up support, QC Improvement Not foreseen to be subcontracted. Not foreseen to be subcontracted. RISE: EUR 21 146.00 No 3.1: Training of trial staff Not foreseen to be subcontracted. Not foreseen to be subcontracted. Clinical Accelerator, IATA: EUR 5 688.50 No 3.2: Subject recruitment and informed consent Department of Vascular Surgery: EUR 5 372 Department of Vascular Surgery No amount stated. Clinical accelerator: EUR 1 418.00 Yes 3.3: Preparation of personalised tissue engineered veins Department of Vascular Surgery: EUR 110 000 Department of Vascular Surgery No amount stated. Froceth, Clinical accelerator: EUR 119 484.10 Yes 3.4: Surgery Department of Vascular Surgery: EUR 5 000 Department of Vascular Surgery No amount stated. Clinical Accelerator, IRW: EUR 9 402.40 Yes 3.5: Study monitoring, data collection and follow-up of patients CRO: EUR 50 000 Department of Vascular Surgery: EUR 5 000 CRO: Department of Vascular Surgery No amount stated. Clinical Accelerator, IRW: EUR 23 004.52 Yes 3.6: Data analysis, Clinical Trial Report and scientific paper development CRO: EUR 50 000 CRO No amount stated. Clinical Accelerator, IRW: EUR 3 707.88 Yes Total all subcontracting EUR 276,425 (estimated for entire project) EUR 276,425 (estimated for entire project) EUR 435,363.00 (claimed across RP1 and RP2) Total accepted costs: EUR 176 774.20 94 It should also be noted that the applicant provided the reasons for using that subcontracting in the periodic technical reports for RP1 and RP2. 95 Thus, in the technical report for RP1, the applicant explained why it had changed clinical trial sites and the work that it carried out in the various tasks. In some of the tasks, the applicant also specified work being conducted by subcontractors. For example, under Task 1.1, the applicant explained that it has expanded interactions with different regulatory bodies, as new countries for the clinical trials were chosen and that: ‘In collaboration with our CMO in Lithuania (Froceth) we have achieved GMP approval for the clinical grade production of P‑TEV and have submitted a Clinical Trial Authorisation (CTA) application to the medicinal products agency, which is currently being processed. In Spain the interactions have been initiated with a tech transfer to IATA.’ 96 As regards Task 2.1, the applicant stated as follows: ‘During the reporting period, a tech transfer based on the process instructions developed at VeriGraft was performed to the CMO (Froceth) in Lithuania. After successful training of the personnel and establishment of the processes at the GMP facility, a final validation of the small-scale process was performed under GMP according to the processes described in the P‑TEV IMPD (D2.1). This initial scale of manufacturing will be sufficient for the manufacturing of clinical grade material for the Phase I study in Lithuania with 15 patients. A moderately scaled up process will be implemented in Spain to support the larger Phase II study.’ 97 The applicant further set out and explained the following, in relation to deviations made to the original project plan: ‘5. Deviations from Annex 1 and Annex 2 (if applicable) Originally, the plan was to perform a Phase 1/II clinical trial for safety and efficacy of the P‑TEV product in the ESS country Norway. GMP manufacturing was planned to be done by VeriGraft personnel at a GMP facility at Sahlgrenska University Hospital. The clinical development plans had to be adjusted. Now, a Phase I clinical trial for the safety of the P‑TEV product has been set up in the EU [Member State] Lithuania. Manufacturing under GMP has been set up with a CMO in Lithuania under VeriGraft’s quality management system and supervision. In parallel, a separate Phase II trial to demonstrate efficacy of the P‑TEV product is being set up in Spain using the established pan-European network described in T4.2. The Phase II trial will start once reliable positive safety data becomes available from the Phase I trial. VeriGraft will continue to work with ethical and regulatory documents and approvals for the Phase II trial in Spain while the Phase I trial in Lithuania is progressing. The change of structure for the P‑TEV product clinical development program and change of site for the first trial has led to delays in WP3. In addition, more extensive preclinical testing and a new set of regulatory documents and applications became necessary, before a first-in-human trial can be initiated. … 5.2.1 Unforeseen subcontracting (if applicable) When this project was originally designed and applied for, our preliminary plan was to produce the material in Sweden or Norway using VeriGraft’s own personnel. Therefore, we budgeted only a small amount for GMP-production of P‑TEV as subcontracting. However, as described elsewhere including in this report we have got a change of clinical trial site approved by EASME. Since the best strategy for our project is to produce the clinical material as close to the surgical theatres as possible, we have now an agreement with a Lithuanian CRO (Phase I trial) and with a Spanish CRO (for the Phase II trial). This led us to include these two new subcontracting organisations for GMP-production, the SME Froceth in Lithuania and the non-for-profit regional organisation IATA in Spain in our project plans going forward. Importantly, Froceth and IATA will use their own personnel to carry out the manufacturing. In addition to this, we have also teamed-up with UK-based Clinical Accelerator that helps us coordinate the Lithuanian Phase I study. This CRO has the necessary network and experience from the Lithuanian health care sector to be able to successfully initiate this important Phase I trial. The three organisations mentioned above are all European specialised small entities. They are carefully selected to be optimal partners for the specific tasks they are carrying out. In addition to that, we have meticulously negotiated the price for their services, and to the best of our knowledge and investigations we could not find a quality-wise equal partner that could compete with a lower price.’ 98 In the technical report for RP2, the applicant explained the work that it carried out in the various tasks. For each task, the applicant specified the subcontractors used. 99 For example, for Task 1.1 ‘Regulatory body discussions’, the applicant stated as follows: ‘Since the previous periodic report VeriGraft has now also achieved Clinical Trial Authorisation (CTA) from the medicinal products agency in Lithuania. This means that the trial is fully approved. In Spain, tech transfer to IATA (Iniciativa Andaluza en Terapias Avanzadas) in order to obtain a GMP manufacturing license has been completed. Interactions between IATA and the Spanish medicinal products agency AEMPS (Agencia Española de Medicamentos y Productos Sanitarios) are ongoing to prepare for GMP and CTA licensing. According to IATA’s reports, AEMPS currently agrees with the GMP process and its implementation but are expected to require more long-term large animal data to approve a phase 1/2 study for ATMP development with the option to continue into a larger phase 2 study. For that reason, a long-term large animal study of P‑TEV (unforeseen) was launched in this task together with task[s] 2.3 and 2.4. The study is coordinated by the governmental Research Institutes of Sweden (RISE), currently comprises seven minipigs and is ongoing since October 2018. Minipigs were chosen because the animal facilities cannot handle animals over 100 kg due to personnel safety regulations, and the rapid weight gain of the full-size pigs therefore limited the study duration to around five weeks in the original safety study. Use of resources: Subcontracting: RISE, IATA, Froceth, Clinical Accelerator’. 100 Task 2.1 ‘Final validation of small-scale processes under GMP’ was described as follows: ‘A tech transfer based on a scaled-up process has been performed to IATA’s GMP department in Spain in preparation for the clinical trial. VeriGraft’s modular quality management system form Task 2.2 has been applied for the transfer process. Use of resources: Subcontracting: IATA’. 101 Task 2.3 ‘Improved platform for DC/RC upscaling and automation’ was presented as follows: ‘Process improvements are being continued and scale-up is achieved by increasing the level of automation in the processes. The manufacturing process has become much more robust and reproducible and the processes can now be considered “closed” (i.e. not as exposed to potential contamination). The processes were approved for GMP manufacturing in Lithuania and have been positively received by the Spanish medicinal products agency in initial discussions. The results of process improvements and scale up are summarised in D2.3 “Description of scalable DC/RC platform”. VeriGraft could employ the improved processes to manufacture material for animal experiments performed by RISE and they will also facilitate manufacturing for other subcontractors. Use of resources: Subcontracting: RISE’. 102 Task 2.4 ‘Scalable QC methods for in process control and release testing’ was described as follows: ‘Quality control methods have been adapted to the requirements of scale-up and the improvements have been summarised in D2.4 “Description of scalable QC method collection”. In addition, this task has been supporting the unforeseen additional large animal study from Task 1.1 for the additional evaluation of the long-term safety of P‑TEV. Use of resources: Subcontracting: RISE’. 103 Task 3.1 ‘Training of trial staff’ was described as follows: ‘Trial staff in Lithuania is fully trained and the trial is ready to start. In Spain the training program is ongoing, covering all steps from tissue donation to delivery of the final product to patients at the hospitals. Use of resources: Subcontracting: Clinical Accelerator, IATA’. 104 Furthermore, under the heading ‘Unforeseen subcontracting (if applicable)’, the applicant provided the following clarifications: ‘On top of what has been discussed in 5.2 above, the report from IATA that the Spanish authorities are expected to require more regulatory data for ATMP development has led to proportionally more direct costs of subcontracting than originally foreseen. The subcontracting comprises the long-term large animal studies referenced to in task 1.1, task 2.3 and task 2.4’. 105 It must be borne in mind that, under Article 13.1.1 of the Grant Agreement, EASME may approve subcontracts not set out in Annexes 1 and 2 without amendment, if they are specifically justified in the periodic technical report and do not entail changes to the agreement which would call into question the decision awarding the grant or breach the principle of equal treatment of applicants. 106 That procedure is described in the AGA as the simplified approval procedure. The AGA states that the new subcontracting agreement which was not described in the Grant Agreement must be included and explained in the ‘Unforeseen subcontracting’ section of the periodic technical report and that approval will not be granted if the subcontract could substantially alter the nature of the project, that is to say, if there is doubt that the project is still, in essence, the same as the one selected or that the beneficiary still has the operational capacity to carry out the action. In that regard, the AGA contains an example of simplified approval, which is presented as follows: ‘A beneficiary loses some personnel specialised in a particular field, and as a result decides to subcontract some tasks it had originally foreseen to carry out itself. The beneficiary fails to inform the coordinator of this fact and therefore the [Grant Agreement] is not amended. These circumstances are declared in the periodic report and it is approved by the Commission.’ 107 Furthermore, under Article 4.2 of the Grant Agreement, ‘the estimated budget breakdown indicated in Annex 2 may be adjusted by transfers of amounts between budget categories. This does not require an amendment [of the Grant Agreement] according to Article 55, if the action is implemented as described in Annex 1’. Article 4.2 of the Grant Agreement provides, however, that ‘the beneficiary may not add costs relating to subcontracts not provided for in Annex 1, unless such additional subcontracts are approved by an amendment [to the Grant Agreement] or in accordance with Article 13’. 108 In that regard, the AGA also provides an example of approval by the simplified procedure in the following terms: ‘A beneficiary wants to subcontract a task that originally it was going to carry out by itself. It wants to transfer EUR 100 000 from personal costs to subcontracting. In order to make sure that this new subcontracting is possible and its cost is eligible, this will require an amendment to the [Grant Agreement] before the subcontracting takes place. However, the beneficiary doesn’t request an amendment, but declares the change only with the next periodic technical report (at its own risk). Since the Commission approves the report, the costs of the additional subcontract are eligible.’ 109 It is therefore apparent from Articles 13.1.1 and 4.2 of the Grant Agreement, and from the explanations contained in the AGA set out in paragraphs 106 and 108 above, that the approval of a periodic technical report in which the beneficiary justified the use of subcontracts not provided for in the description of the action in Annex 1 and Annex 2 to that agreement has the effect of rendering the corresponding subcontracting costs eligible within the meaning of Article 6.2 of that agreement. 110 In that regard, it must be pointed out that, contrary to what Eismea maintained at the hearing, it is not apparent from the Grant Agreement that the possibility of using the subcontracting approval procedure described in paragraphs 94 to 109 above is subject to the condition that Annex 1 to that agreement has not been amended beforehand on the initiative of the co-contractor. 111 In the present case, EASME itself stated in response to the submission of the periodic technical reports for RP1 and RP2 that, in its view, based on the report of the panel of external experts instructed for that purpose, the implementation of the P‑TEV project, as described in those technical reports, was satisfactory (see paragraphs 16 and 21 above), and that it did not therefore take the view that the use of subcontracting mentioned in those reports raised doubts as to whether the project was still, in essence, the same as the one which had been selected or as to whether the beneficiary still had the operational capacity to carry out that project. 112 It follows that EASME could not reject the subcontracting costs relating to tasks which had been foreseen as subcontracting tasks in the periodic technical reports which it had approved, on the ground that those costs corresponded to unforeseen subcontracting for the purposes of Article 13.1.1 of the Grant Agreement. 113 It must be pointed out that that finding is without prejudice to the possibility for EASME to reject the costs in question on the ground that they do not meet the general conditions of eligibility set out in Article 6.1 of the Grant Agreement. 114 However, in the present case, EASME itself stated in the list of arguments enclosed with the letter of 11 May 2020 that the subcontracting costs had not been rejected because they had not been incurred. 115 It is true that Eismea contends for the first time before the Court, in essence, that, by failing to define correctly the tasks to be subcontracted and the corresponding subcontracting costs, the applicant failed to fulfil its obligation to provide Eismea with sufficiently reliable information to check that those costs met the general conditions of eligibility set out in Article 6.1 of the Grant Agreement (see paragraph 82 above). 116 However, the formulation of that argument at the stage of the proceedings before the Court is contrary to Article 44.1.2 of the Grant Agreement, which provides that, in the event of recovery, EASME must notify the beneficiary by a pre-information letter of the reasons why it intends to recover a certain amount of the grant. 117 Furthermore, although EASME sent the applicant several requests for clarification regarding the breakdown of costs declared in the financial reports for RP1 and RP2 (see paragraphs 15, 22 and 32 above), Eismea does not explain how the responses provided by the applicant to those requests (see paragraphs 23 and 31 above) did not allow EASME to verify that those costs met the conditions for general eligibility set out in Article 6.1 of the Grant Agreement. Accordingly, that argument must, in any event, be rejected as unfounded. 118 Therefore, it must be held that the costs declared by the applicant, in the amount of EUR 258 588.80, corresponding to subcontracting mentioned for the first time in the periodic technical reports for RP1 and RP2 and approved by EASME constitute eligible costs within the meaning of Article 6 of the Grant Agreement. 119 The second plea and, consequently, the applicant’s first head of claim must therefore be upheld. 120 Furthermore, EASME’s finding that it allegedly had a claim against the applicant and the request for repayment of that claim by means of debit note No 3242004635, as well as by means of the applicant’s contribution to the guarantee fund set up by the Grant Agreement, was based on the rejection of subcontracting costs corresponding to unforeseen subcontracting (see paragraphs 45 and 46 above). 121 In the light of the finding in paragraph 118 above that the costs in question are eligible, the action must be upheld in its entirety, without it being necessary to examine the other pleas in the action. Costs 122 Under Article 134(1) of the Rules of Procedure of the General Court, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since Eismea has been unsuccessful, it must be ordered to pay the costs, in accordance with the form of order sought by the applicant. On those grounds, THE GENERAL COURT (Ninth Chamber) hereby: 1. Upholds VeriGraft AB’s request seeking a declaration that the subcontracting costs rejected by the Executive Agency for Small and Medium-sized Enterprises in the amount of EUR 258 588.80 constitute eligible costs under the Grant Agreement ‘Personalised Tissue-Engineered Veins as the first Cure for Patients with Chronic Venous Insufficiency – P‑TEV’, with reference 778620; 2. Upholds VeriGraft’s request seeking a declaration that debit note No 3242004635, issued by the Executive Agency for Small and Medium-sized Enterprises in the amount of EUR 106 928.74, is unfounded; 3. Upholds VeriGraft’s request seeking a declaration that the recovery of the sum of EUR 109 230.19 from the guarantee fund set up by the Grant Agreement ‘Personalised Tissue-Engineered Veins as the first Cure for Patients with Chronic Venous Insufficiency – P‑TEV’, with reference 778620, is unfounded; 4. Orders the European Innovation Council and SMEs Executive Agency (Eismea) to pay the costs. Costeira Kancheva Perišin Delivered in open court in Luxembourg on 13 July 2022. E. Coulon S. Papasavvas Registrar President * Language of the case: English. 1 This judgment is published in extract form.