Judgment of the Court (Sixth Chamber) of 24 January 2002. - Conserve Italia Soc. Coop. arl v Commission of the European Communities. - Appeal - Agriculture - EAGGF - Discontinuance of financial aid - Regulation (EEC) No 355/77 - Regulation (EEC) No 4253/88 - Principle of proportionality. - Case C-500/99 P.



European Court reports 2002 Page I-00867



Summary

Parties

Grounds

Decision on costs

Operative part



Keywords

1. Appeals - Grounds - Incorrect assessment of the facts - Inadmissible - Review by the Court of Justice of assessment of evidence - Excluded unless the sense of evidence has been distorted

(Art. 225(1) EC; EC Statute of the Court of Justice, Art. 51)

2. Economic and social cohesion - Structural assistance - Community funding for national projects - Assessment of eligible expenses - Commission's measure of discretion

(Council Regulation No 4253/88, Art. 15(2), first and second subparas)

3. Acts of the institutions - Withdrawal - Unlawful acts - Conditions - Observance of the principles of legal certainty and the protection of legitimate expectations

Summary

1. Under Article 225(1) EC and Article 51 of the EC Statute of the Court of Justice, an appeal may lie only on grounds relating to the infringement of rules of law. The Court of Justice does not have jurisdiction to find the facts. Nor, in principle, does it have jurisdiction to examine the evidence which the Court of First Instance accepts as establishing those facts. It is for the Court of First Instance alone to assess the weight that should be attached to the evidence adduced before it. That assessment does not constitute, save where the clear sense of that evidence has been distorted, a point of law which is subject, as such, to review by the Court of Justice.

( see para. 59 )

2. It is clear from the second subparagraph of Article 15(2) of Regulation No 4253/88, laying down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments that that provision is intended to confer on the Commission a measure of discretion. Furthermore, that provision constitutes an exception to the rule laid down in the first subparagraph of Article 15(2) of Regulation No 4253/88, according to which expenditure may not be considered eligible for assistance if incurred before the date on which the corresponding application reaches the Commission. The necessarily restrictive interpretation of such an exception means that the word may in the second subparagraph of Article 15(2) of the regulation cannot be construed as granting more than a mere power to the Commission.

( see para. 68 )

3. The administration may withdraw with retroactive effect an advantageous administrative act vitiated by illegality, provided that it does not infringe either the principle of legal certainty or that of the protection of legitimate expectations. That possibility, which arises where the beneficiary of the act did not contribute to its illegality, applies a fortiori where, as in this case, the illegality is attributable to him.

( see para. 90 )

Parties

In Case C-500/99 P,

Conserve Italia Soc. Coop. arl, formerly Massalombarda Colombani SpA, established in San Lazzaro di Savena (Italy), represented by M. Averani, A. Pisaneschi, P. de Caterini and S. Zunarelli, avvocati, with an address for service in Luxembourg,

appellant,

APPEAL against the judgment of the Court of First Instance of the European Communities (Third Chamber) of 12 October 1999 in Case T-216/96 Conserve Italia v Commission [1999] ECR II-3139, seeking to have that judgment set aside,

the other party to the proceedings being:

Commission of the European Communities, represented by F. Ruggeri Laderchi, acting as Agent, assisted by M. Moretto, avvocato, with an address for service in Luxembourg,

defendant at first instance,

THE COURT (Sixth Chamber),

composed of: F. Macken (Rapporteur), President of the Chamber, C. Gulmann, R. Schintgen, V. Skouris and J.N. Cunha Rodrigues, Judges,

Advocate General: S. Alber,

Registrar: L. Hewlett, Administrator,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 30 May 2001, at which Conserve Italia Soc. Coop. arl was represented by P. Manzini and A. Masutti, avvocati, and the Commission by L. Visaggio, acting as Agent, assisted by M. Moretto,

after hearing the Opinion of the Advocate General at the sitting on 12 July 2001,

gives the following

Judgment

Grounds

1 By application lodged at the Registry of the Court on 22 December 1999, Conserve Italia Soc. Coop. arl (hereinafter Conserve Italia) brought an appeal under Article 49 of the EC Statute of the Court of Justice against the judgment of the Court of First Instance in Case T-216/96 Conserve Italia v Commission [1999] ECR II-3139 (hereinafter the contested judgment). By that judgment, the Court of First Instance dismissed the action for annulment brought by Conserve Italia against Decision C (96) 2760 of the Commission of 3 October 1996 (hereinafter the contested decision), discontinuing financial aid from the European Agricultural Guidance and Guarantee Fund (EAGGF) awarded to Massalombarda Colombani SpA by Decision C (90) 950/356 of the Commission of 29 June 1990 (hereinafter the decision to grant aid) and, in so far as necessary, any measure of the Commission related to that decision, in particular working document VI/1216/86-IT (hereinafter the working document) fixing the maximum amount of aid which may be granted from the Guidance Section of the EAGGF under Council Regulation (EEC) No 355/77 of 15 February 1977 on common measures to improve the conditions under which agricultural products are processed and marketed (OJ 1977 L 51, p. 1).

Legal background to the dispute

Regulation No 355/77

2 Articles 1(3) and 2 of Regulation No 355/77 provide that the Commission may grant aid for common measures by financing, through the Guidance Section of the EAGGF, projects which are designed to develop or rationalise the treatment, processing or marketing of agricultural products.

3 Article 19(2) of that regulation states:

Throughout the period during which aid is granted from the [EAGGF], the authority or agency appointed for that purpose by the Member State concerned shall, at the request of the Commission, forward to it all supporting documents which are of relevance in proving that the financial or other conditions laid down for each project have been fulfilled ...

... the Commission may decide, ... to suspend, reduce or discontinue aid from the [EAGGF]:

- if the project has not been carried out as planned, or

- if certain of the conditions laid down have not been fulfilled ...

- ...

...

The Commission shall recover any sums the payment of which was not or is no longer justified.

Regulation (EEC) No 2515/85

4 Commission Regulation (EEC) No 2515/85 of 23 July 1985 on applications for aid from the Guidance Section of the EAGGF for projects to improve the conditions under which agricultural and fish products are processed and marketed (OJ 1985 L 243, p. 1), specifies in the annexes thereto the information and documents which applications for aid made under Regulation No 355/77 must contain.

5 Those annexes include, firstly, models of forms to be completed by the applicants for aid and, secondly, explanatory notes to assist applicants in submitting their applications.

6 The Explanatory notes for each heading in Annex A to Regulation No 2515/85 state, in relation to Point 5.3 of the form to be filled in by applicants for aid, that projects begun before the application reaches the Commission cannot qualify for aid. Under that point of the form, applicants for aid must undertake not to start work on the project before receipt of application for aid by the EAGGF Guidance Section.

The working document

7 The working document was drawn up by the EAGGF in 1986. Paragraph 5 of point B.1 excludes completely from aid operations or work which are started before the application is submitted. However, paragraph 5 provides for exceptions to that exclusion in respect of:

...

(b) the purchase of machines, equipment and building materials, including metal skeletons and prefabricated components (order and supply), provided that assembly, installation, incorporation and work on site, in so far as building materials are concerned, have not taken place before the application for aid was submitted;

(c) costs relating to the purchase of equipment and machines subjected to tests before submission of the project;

....

8 Paragraph 5 of point B.1 of the working document specifies that the operations referred to at (b) are eligible, but the measures referred to at (c) and (d) are not although they will not render the project inadmissible.

9 Under paragraph 12 of point B.1 of the working document, the following are also ineligible for aid: charges for the hire of equipment and investments financed by leasing. For example: hire charges for the use of Tetra Pak machines; projects partially or completely financed by leasing. However, such investments may be eligible where the hire-purchase agreement ... stipulates that the beneficiary will become the owner of the equipment hired or of the measure financed during the five years following the date on which the aid was granted. That period will be reduced to four years in respect of projects financed as of 1985.

Regulation (EEC) No 4253/88

10 On 24 June 1988 the Council adopted Regulation (EEC) No 2052/88 on the tasks of the Structural Funds and their effectiveness and on coordination of their activities between themselves and with the operations of the European Investment Bank and the other existing financial instruments (OJ 1988 L 185, p. 9).

11 On 19 December 1988 the Council adopted, on the basis of that regulation, Council Regulation (EEC) No 4253/88 laying down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments (OJ 1988 L 374, p. 1). Pursuant to Article 34 thereof, that regulation entered into force on 1 January 1989.

12 The first subparagraph of Article 15(2) of Regulation No 4253/88 provides:

... expenditure may not be considered eligible for assistance from the Funds if incurred before the date on which the corresponding application reaches the Commission.

13 Nevertheless, the second subparagraph of Article 15(2) of Regulation No 4253/88 granted the Commission the power to derogate from that rule in certain cases. It states:

However, for the part-financing of projects and aid schemes, expenditure may be deemed to be eligible for assistance from the Funds if incurred during the six months preceding the date on which the Commission received the corresponding application.

14 The possibility of derogation provided for in the second subparagraph of Article 15(2) of Regulation No 4253/88 was expressly repealed as from 3 August 1993 by Council Regulation (EEC) No 2082/93 of 20 July 1993 amending Regulation (EEC) No 4253/88 (OJ 1993 L 193, p. 20).

15 Article 24 of Regulation No 4253/88 as amended by Regulation No 2082/93 (hereinafter Regulation No 4253/88 as amended) is entitled Reduction, suspension and cancellation of assistance. It provides as follows:

1. If an operation or measure appears to justify neither part nor the whole of the assistance allocated, the Commission shall conduct a suitable examination of the case ...

2. Following this examination, the Commission may reduce or suspend assistance in respect of the operation or a measure concerned if the examination reveals 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.

3. Any sum received unduly and to be recovered shall be repaid to the Commission ...

Regulation (EEC) No 4256/88

16 Council Regulation (EEC) No 4256/88 of 19 December 1988, laying down provisions for implementing Regulation (EEC) No 2052/88 as regards the European Agricultural Guidance and Guarantee Fund (EAGGF) Guidance Section (OJ 1988 L 374, p. 25), adopted on the same day as Regulation No 4253/88, also entered into force on 1 January 1989.

17 Article 10(1) of Regulation No 4256/88 provides as follows:

The Council ... shall by 31 December 1989 decide upon the forms of and the conditions for the [EAGGF] contribution to measures to improve the conditions under which agricultural ... products are processed and marketed ... with a view to achieving the objectives of Regulation ... No 2052/88 and on the basis of the rules laid down by Regulation ... No 4253/88.

18 Article 10(2) of Regulation No 4256/88 states that Regulation No 355/77 is to be repealed with effect from the date of entry into force of the Council decision referred to in Article 10(1). Article 10(3) of Regulation No 4256/88 provides that Articles 6 to 15 and 17 to 23 of Regulation No 355/77 are none the less to continue to apply to projects submitted by the date of entry into force of that decision.

19 That decision of the Council was adopted on 29 March 1990 in the form of Council Regulation (EEC) No 866/90 on improving the processing and marketing conditions for agricultural products (OJ 1990 L 91, p. 1). The date of entry into force of that regulation is 1 January 1990, that is, the same day as that on which the repeal of Regulation No 355/77 took effect.

Facts giving rise to the dispute

20 It appears from the contested judgment that:

20 On 27 October 1988 the Commission received an application for the grant of aid from the EAGGF lodged by the Italian Government under Regulation No 355/77. That application had been submitted on behalf of Fedital SpA ("Fedital") by the Federazione Italiana dei Consorzi Agrari, an association of agricultural cooperatives which administered a large proportion of the Italian agri-foodstuffs sector until it was wound up in May 1991. The aid for which the application was made was intended to support a project for the development, rationalisation and technical modernisation of a Fedital establishment in the municipality of Massa Lombarda.

...

22 While the application was being considered Fedital sold its Massa Lombarda establishment to Colombani Lusuco SpA, which the Federazione Italiana dei Consorzi Agrari also controlled, on 31 December 1989. The business name of the acquiring company was then changed to "Massalombarda Colombani SpA" (hereinafter "Massalombarda Colombani"). On 18 October 1994 that company was sold to Frabi SpA (which subsequently became Fincoserve SpA), the finance company of the group Conserve Italia Soc. Coop. arl ... . It specialises in the processing, preservation and marketing of products intended for use as food, such as fruit and vegetables, agricultural products, fishery products, meats, pre-cooked products and foodstuffs in general.

23 On 23 March 1990 the Commission asked Fedital to specify the nature, cost and starting and finishing dates of the work to be financed and to state whether it had been started before the date on which the application was received by the Commission (27 October 1988). Furthermore, the Commission asked for the balance sheet for 1988 and a copy of the contracts of sale relating to the various acquisitions made by the company.

24 On 17 April 1990 Massalombarda Colombani replied that the work had been started on 31 October 1988 and completed by 30 June 1990 and attached copies of the contracts to its reply. One of them, signed on 22 December 1988, concerned the sale of a Tetra Pak packing machine.

25 By decision of 29 June 1990 the Commission granted Massalombarda Colombani aid amounting to ITL 2 002 932 326 in respect of an overall investment of ITL 8 036 600 000 ... .

26 By decision of 18 November 1991 the Italian Government awarded Massalombarda Colombani a grant of ITL 2 008 000 000 in addition to the financial aid from the EAGGF.

27 On 22 November 1991 the Italian authorities carried out a final inspection of the work and approved it on the ground that it satisfied all the conditions laid down in the decision to grant aid.

28 Following inspections carried out jointly by the Italian authorities and the Commission in March 1993 and from 26 to 30 September 1994, the Commission found that certain purchases had been made and work carried out before the date on which the application for aid had been received and that, contrary to the copy of the contract of sale relating to a Tetra Pak machine which had been forwarded to it on 17 April 1990 in response to its request for information of 23 March 1990, the original showed that the machine in question had already been installed at the purchaser's establishment, under a contract for hire, before the date on which the application was received. Furthermore, a large number of delivery notes relating to machines acquired for the project bore a date before the date on which the application was received, whereas others were missing.

29 By fax to the Commission of 3 November 1994 the Italian authorities stated that they were in favour of initiating a procedure for the discontinuance of the aid granted by the EAGGF in view of the serious irregularities that had been found.

30 On 22 May 1995 the Commission informed Massalombarda Colombani and the Italian authorities of its intention to initiate such a procedure and recover the amounts wrongly paid and asked them to submit their observations on this.

31 Massalombarda Colombani submitted its observations on 3 August and 22 September 1995. It stated that it had in fact purchased the equipment before the Commission received the application for aid, but that those purchases had been made on a trial basis. Moreover, it acknowledged that the project related to some work that was carried out before the application for aid was submitted. Following discussions with officials of the competent services of the Commission on 19 January 1996, it submitted an additional statement on 27 February 1996.

32 On 3 October 1996 the Commission adopted Decision C (96) 2760 discontinuing the aid granted to the company Massalombarda Colombani by Commission Decision C (90) 950/356 of 29 June 1990 on the grant of aid from the EAGGF Guidance Section pursuant to Regulation No 355/77 in connection with EAGGF project No 90.41.IT.109.0 entitled "Potenziamento e aggiornamento tecnologico degli impianti di uno stabilimento ortofrutticolo in Massa Lombarda (Ravenna)"... .

33 The main grounds of that decision are reproduced below:

"...

Whereas the aid was granted having regard in particular to the technical description of the planned work and the period set aside to carry out the work referred to in the file attached to the application for aid and contained in the wording of the decision;

...

Whereas during [a] check it was found that certain definitive purchases had been effected and certain work carried out before the Commission received the application for aid from the beneficiary, that is to say before 27 October 1988, and that was contrary to the undertaking which the beneficiary entered into pursuant to the provision laid down on page 5 of Annex A 1 to Regulation ... No 2515/85 ..., in that application for aid;

Whereas it was also found that a contract of sale relating to a Tetra Pak packing machine had been falsified to conceal the fact that it had already been installed at the establishment before the date on which the application for aid was received;

...

Whereas, in view of the information provided above, the irregularities found affect the conditions of the project in question ...".

21 In 1997, Massalombarda Colombani was absorbed by Conserve Italia as part of a merger.

The procedure before the Court of First Instance and the contested judgment

22 On 23 December 1996 the appellant brought an action for annulment of the contested decision.

23 The appellant claimed that the Court of First Instance should:

- annul the contested decision;

- in so far as may be necessary, annul, on the basis of Article 184 of the EC Treaty (now Article 241 EC), any measure carried out in relation to the contested decision, in particular the working document;

- order the Commission to pay the costs.

24 The defendant contended that the Court of First Instance should:

- declare inadmissible the claim for annulment, in so far as may be necessary, of the working document;

- as for the remainder, dismiss the action as unfounded;

- order the appellant to pay the costs.

25 In support of its action before the Court of First Instance the appellant alleged various infringements of rules of law relating to the application of the EC Treaty and in particular Article 15(2) of Regulation No 4253/88, paragraphs 5 and 12 of point B.1 of the working document, and Article 24(2) of Regulation No 4253/88 as amended. By those pleas it alleged in particular that the defendant had failed to observe the principles of legality of penalties, the protection of legitimate expectations and proportionality and that it had misused its powers. Finally, the appellant also pleaded infringement of essential procedural requirements on the ground that insufficient reasons were given for the contested decision.

Findings of the Court of First Instance on the plea alleging infringement of Article 15(2) of Regulation No 4253/88 and paragraphs 5 and 12 of Point B.1 of the working document

26 As regards the starting date of the projects, the appellant claimed that account must be taken of the date of payment for the purchases or work, or at least the date of invoicing. In this case all the payments were made after the date on which the application for aid was received by the Commission and all the invoices bear a date after the commencement of the operation. Furthermore, no delivery note was drawn up more than six months before the commencement of the operation. The beneficiary of the aid never made any false declarations as to the date of the purchases or the work. The transactions carried out before the date on which the Commission received the application of aid, in particular the contract for the hire of the Tetra Pak packing machine, were not covered by definitive contracts but only by preliminary relationships or contracts subject to a condition having suspensory effect.

27 The appellant acknowledged that the beneficiary of the aid had forwarded to the Commission a copy of the contract for the sale of a Tetra Pak packing machine which did not contain the reference, which appeared in the original, to the effect that the machine had already been installed at the purchaser's establishment pursuant to a contract for hire registered in Modena (Italy) on 30 November 1987. However, it claimed that that act did not stem from any fraudulent intent but merely constituted a procedural defect which was not substantive and did not justify discontinuance of the aid. Furthermore, since the contract for the purchase of the machine was signed on a date after the date on which the Commission received the application, the rule concerning ineligibility laid down in paragraph 5(b) of point B.1 of the working document did not apply. According to the appellant, the derogation laid down in paragraph 12 of point B.1 of that document should have applied to the contract for hire. The appellant further claimed that the working document also infringed Article 15(2) of Regulation No 4253/88 in that it departed from the rule that expenditure incurred during the six months preceding the date on which the measure was started is eligible.

28 In that regard the Court of First instance found as follows in the contested judgment:

- Purchases and work before the Commission received the application for aid

...

59 ... Article 19(2) of ... [R]egulation [No 355/77] states that the Commission may decide to suspend, reduce or discontinue aid "if the project has not been carried out as planned" and "if certain of the conditions laid down have not been fulfilled".

60 That provision does not state what those conditions are but refers expressly to the "financial or other conditions laid down for each project". It follows that all the conditions laid down for each project, irrespective of whether they are technical or financial or whether they lay down a time-limit, are covered by that expression.

61 Article 1(1) of Regulation No 2515/85 provides that "[a]pplications for aid from the EAGGF Guidance Section ... shall contain the information and documents specified in the Annexes". It follows that the instructions contained in the aid application form, in particular those relating to the undertaking which the applicant must enter into when submitting his application, examined in the light of point 5.3 of the "Explanatory notes for each heading" in Annex A to that regulation (see paragraph 6 above), have binding force identical to that of the provisions of the regulation to which the models and explanatory notes are annexed (see, to this effect, Joined Cases T-551/93, [T-231/94,] T-232/94, T-233/94 and T-234/94 Industrias Pesqueras Campos and Others v Commission [1996] ECR II-247, at paragraph 84). Moreover, the company Massalombarda Colombani entered, by its signature, into an express, solemn and unequivocal personal undertaking not to start work on the project before receipt of the application for aid by the EAGGF Guidance Section. Since that undertaking was accepted by the Commission, it became part of the measure granting the aid and is imbued with the legal force of that measure. The condition relating to the point in time to which the undertaking refers, which, amongst other things, makes for legal certainty and helps to further equal treatment of applicants for aid, constitutes a "condition laid down" within the meaning of Article 19(2) of Regulation No 355/77 and failure to comply with it therefore means that the project financed has not been carried out as planned.

62 However, that undertaking - as prescribed in the aid application form and entered into by the beneficiary when he submits his application - does not refer to a six-month period before the application is received. It is therefore necessary to consider whether, as the applicant claims, the entry into force of Article 15(2) of Regulation No 4253/88 on 1 January 1989 amended the undertaking so as to allow expenditure to be incurred during the six months preceding the date on which the Commission received the application.

63 It is clear from the first subparagraph of Article 15(2) of Regulation No 4253/88 and the term "may" in the second subparagraph thereof that, as a general rule, expenditure is eligible only if incurred after the date on which the Commission received the corresponding application. It is only in exceptional cases that the Commission has the power to consider expenditure eligible if it was incurred during the six months preceding the date on which the Commission received the application.

64 By the decision to grant aid ... the Commission approved the application containing the personal undertaking not to start work on the project before receipt of the application for aid, without specifying that it intended to use the power provided for in the second subparagraph of Article 15(2) of Regulation No 4253/88.

65 Even if it were necessary to accept the argument that the undertaking must be interpreted in the light of Article 15(2) of Regulation No 4253/88, the criterion to be taken into consideration for determining the date from which the work may be started is that set out in the first subparagraph of that provision, unless otherwise indicated by the Commission.

66 It is therefore necessary to ascertain the date to be taken into consideration for determining whether the work was started before receipt by the Commission of the application for aid, bearing in mind the undertaking entered into at the time the application for the aid at issue was submitted. In particular, it is necessary to consider whether, as the applicant claims, that date is the date on which the initial purchases or subsidised work were paid for or, possibly, the date on which they were invoiced.

67 The conclusion of contracts, even subject to a condition having suspensory effect, as part of a supported investment project has a decisive effect on the manner in which it is carried out. Such contracts therefore constitute a measure executing a project. Accordingly, it is their conclusion which determines the date on which work is started for the purposes of the undertaking entered into by the beneficiary.

68 The applicant does not deny that the contracts relating to the machines which are covered by the supported project were concluded before the date on which the Commission received the application for aid.

69 Consequently, the beneficiary acted in breach of the undertaking, entered into in the application form, not to start work on the project before that date. It follows that the condition laid down in the decision to grant aid was not fulfilled and that the project was not carried out as planned.

70 The applicant's submission that the relevant date is the date of payment, or at least the date of invoicing, cannot be upheld. It is doubtful that the beneficiary of the aid could have thought that no start had been made on the work on the project before the invoices had been drawn up or paid. Even assuming that the beneficiary had no fraudulent intent, it must at the very least have had doubts as to its interpretation of the undertaking not to start work on the project before the Commission had received the application for aid. In such circumstances it was for the beneficiary to inform itself of the significance of the undertaking required, not only so as not to commit itself lightly but also to avoid any risk of misleading the Commission.

71 Applicants for, and beneficiaries of, aid are required to satisfy themselves that they are submitting to the Commission reliable information which is not liable to mislead it, otherwise the system of controls and evidence set up to determine whether the conditions for granting aid are fulfilled cannot function properly. In the absence of reliable information projects which do not fulfil the conditions required could become the subject of aid. It follows that the obligation on applicants for, and beneficiaries of, aid to provide information and act in good faith is inherent in the EAGGF aid system and essential for its effective functioning.

72 The fact that, in this case, the information relating to the date on which work was started was concealed or presented in such a way as to mislead the Commission constitutes breach of that obligation and, consequently, of the applicable rules.

73 Accordingly, there is no valid ground for charging the defendant with an infringement of Article 15(2) of Regulation No 4253/88.

74 Since the complaint alleging breach of the principle of the protection of legitimate expectations is based on the premiss that Article 15(2) of Regulation No 4253/88 has been infringed and the argument which the applicant derives from the alleged infringement of that provision is unfounded for the reasons set out above, it must also be rejected.

- Falsification of a contract for the purchase of a packing machine

75 The applicant acknowledges that the copy of the contract for the sale of a Tetra Pak packing machine forwarded to the Commission in response to a request for information did not show, as the original did, that the machine in question had been installed at the beneficiary's establishment pursuant to a contract for hire ... by the date on which the Commission received the application for aid.

76 The beneficiary of the aid should have assumed that complete information concerning the contract in question was essential to enable the Commission to exercise its powers correctly, particularly as it had requested the relevant information. Consequently, the beneficiary should have forwarded a copy that was consistent with the original of the contract in question ... . The forwarding of a document that was not a true copy of that contract constitutes a manifest and serious irregularity which, even if it were not intentional, is at the very least the result of gross negligence.

77 Contrary to the contention of the applicant, that irregularity could have affected the amount of the aid. The purpose of Regulation No 355/77, as is clear from its title, the fourth recital in its preamble and the provisions under Title II, is to improve the conditions under which agricultural products are processed and marketed. Improvement is determined by comparing the situation which is intended to result from the measure financed with that which existed before the project was started. Since work on that project may not start before the Commission receives the application for aid, improvement must be assessed in relation to the situation prior to that date. However, it is possible that the definitive purchase of a packaging machine, which has already been installed, under a contract for hire, at the establishment of the undertaking receiving the aid, may not constitute such an improvement. The applicant has in any event failed to show that the purchase of the machine would bring about improvement in the conditions under which the agricultural products in question are processed and marketed.

78 It cannot be inferred from the working document that the irregularity in question has no effect. First, even assuming that paragraph 5(b) of point B.1 of the working document relates to machines of the type at issue, it applies, on any view, only to machines which were not installed before the application for aid was submitted, which is not the case here. Second, paragraph 12 of point B.1 of the working document provides that investments financed by leasing are eligible only where the contract stipulates that the beneficiary will become the owner of the equipment financed during the four years following the date on which the aid is granted. In this instance the contract for hire contained no clause stipulating a transfer of ownership within such a period.

...

80 It follows from all the foregoing that the pleas alleging infringement of Article 15(2) of Regulation No 4253/88 and paragraphs 5 and 12 of point B.1 of the working document must be rejected.

Findings of the Court of First Instance on the plea alleging infringement of Article 24(2) of Regulation No 4253/88 as amended

29 The appellant submitted as its primary plea that, since the irregularities found did not affect the conditions for implementing the project, Article 24(2) of Regulation No 4253/88 as amended was not applicable. In the alternative, it contended that the Commission could not discontinue the aid under Article 24(2) of Regulation No 4253/88 as amended, but at most reduce it by the amount obtained wrongly as a result of the irregularities.

30 In that regard the Court of First Instance found as follows in the contested judgment:

90 As is clear from paragraphs 69 and 72 to 76 above, the beneficiary of the aid did not carry out the project as planned and certain conditions laid down were not fulfilled. Article 19(2) of Regulation No 355/77 allows the Commission to suspend, reduce or discontinue aid which has been granted beforehand where the project has not been carried out as planned or certain conditions laid down have not been fulfilled. Consequently, that provision constitutes a sufficient legal basis for the adoption of the contested decision.

91 The infringements found by the Court at paragraphs 69 and 72 to 76 above constitute irregularities within the meaning of Article 24(2) of Regulation No 4253/88. It follows that that provision is also applicable in this case.

92 Although the wording of Article 24(2) does not expressly provide for the possibility for the Commission to adopt a measure to cancel assistance, the fact remains that it is entitled "Reduction, suspension and cancellation of assistance". Where there is a discrepancy between the wording of a provision and the title thereof, both must be construed in such a manner that all the terms employed serve a useful purpose. Having regard, first, to that rule of interpretation and, second, to the existence of another provision, also applicable to the aid in question, which provides for the possibility of discontinuing aid from the EAGGF in certain circumstances (Article 19(2) of Regulation No 355/77 ...), Article 24(2) of Regulation No 4253/88 must be construed as meaning that all the terms employed by the legislature, in particular the word "cancellation" in the title of that provision, serve a useful purpose. That article must therefore be construed as meaning that it allows the Commission to discontinue aid from the EAGGF in the event of an irregularity, in particular where a significant change to the operation affecting its nature or the conditions governing its execution is involved, for which the Commission's prior approval has not been sought.

93 Since the existence of a legal basis empowering the Commission to discontinue aid has been established, the complaints alleging infringement of the principle of legality of penalties and a misuse of powers cannot succeed.

Findings of the Court of First Instance on the plea alleging infringement of the principle of proportionality

31 The appellant submitted that since the irregularities complained of did not result in any discrepancy between the project approved and the operation carried out and did not stem from any fraudulent intent or an effort to obtain financial assistance greater than the amount of the investments made, they did not justify the discontinuance of the aid at issue. The contested decision was therefore disproportionate and consequently illegal.

32 The Court of First Instance found as follows in the contested judgment:

101 It is settled case-law that by virtue of the principle of proportionality ... the measures adopted by Community institutions must not exceed what is appropriate and necessary for attaining the objective pursued ... .

102 The Court of Justice has held, furthermore, that where the evaluation of a complex situation is involved, which is the case with respect to the common agricultural policy, the Community institutions enjoy a wide measure of discretion (see, to this effect, in particular Case 29/77 Roquette [1977] ECR 1835, at paragraph 19). In reviewing the legality of the exercise of such discretion, the Court must confine itself to examining whether it discloses a manifest error or constitutes a misuse of powers or whether the institution has clearly exceeded the limits of its discretion ... .

103 Furthermore, the Court of Justice has held that the infringement of obligations whose observance is of fundamental importance to the proper functioning of a Community system may be penalised by forfeiture of a right conferred by Community legislation, such as entitlement to aid (see, to this effect, Case C-104/94 Cereol Italia [1995] ECR I-2983, at paragraph 24 ...) .

104 As has been pointed out at paragraph 77 above, the purpose of Regulation No 355/77 is to improve the conditions under which agricultural products are processed and marketed, improvement being assessed by comparing the situation which was intended to be the result of the operation funded with that which existed before the commencement of the project. It also follows from the seventh recital in the preamble to Regulation No 355/77 that the legislature sought to lay down an effective control procedure in order to ensure that beneficiaries comply with the conditions laid down when the EAGGF aid is granted. It follows from paragraph 71 above that the submission by the applicants for, and beneficiaries of, aid of reliable information which is not liable to mislead the Commission is essential for the proper functioning of the system of controls and evidence set up in order to determine, in particular, whether the condition that work on the project is not to be started before the Commission has received the application for aid has been fulfilled.

105 At the hearing the applicant acknowledged, first, that the work had been started before the Commission had received the application for aid in the sum of ITL 1 780 663 116 and, second, that the irregularity relating to the contract for the sale of the Tetra Pak packing machine involved a sum of ITL 470 000 000. A total of ITL 2 250 663 116 was thus involved. Since the aid granted from the EAGGF was ITL 2 002 932 326 and the overall investment was ITL 8 036 600 000, the irregularities complained of therefore represent 112% of the aid and 28% of the investment. The fact that the applicant failed to comply with its undertaking not to start work on the project before receipt of the application for aid by the Commission, failed to inform the Commission of this and, in response to a request for information, forwarded a copy which was not consistent with the original of the contract for the sale of a machine referred to in the subsidised project constitutes a serious breach of fundamental obligations.

106 Although the circumstances of this case differ from those which the Court of First Instance had to consider in the case which gave rise to the judgment in Industrias Pesqueras Campos and Others v Commission, ... it was reasonable for the Commission to take the view that any measure other than discontinuance of the aid might constitute an invitation to commit fraud. Beneficiaries might be tempted to supply false information or to conceal certain information in order to increase artificially the amount of investment eligible for financing, so that greater financial aid from the Community could be obtained, their risk being confined to having that aid reduced only by the amount of the investment which did not fulfil a condition governing the grant of the aid.

107 Furthermore, the applicant's argument that the discontinuance of the aid is disproportionate, on the ground that Fedital but not the applicant itself can be held responsible for the irregularities complained of, must be rejected since the applicant assumed Fedital's rights and obligations following ... successive purchases ... .

...

109 Consequently, the applicant has failed to show that the discontinuance of the aid was disproportionate in the light of the infringements committed and the objective of the legislation at issue.

The appeal

33 By its appeal, Conserve Italia claims that the Court of Justice should:

- annul and/or vary the contested judgment;

- accordingly, annul the Commission's Decision No C (96) 2760 of 3 October 1996;

- order the defendant to pay the costs.

34 The Commission contends that the Court of Justice should:

- dismiss the appeal in its entirety;

- order the appellant to pay the costs.

35 Conserve Italia relies on four grounds of appeal.

The first ground of appeal, alleging infringement and misinterpretation of Article 19(2) of Regulation No 355/77 as regards the working document, and of the principle of the protection of legitimate expectations, and infringement and misinterpretation of paragraph 12 of point B.1 of the working document

Arguments of the parties

36 Conserve Italia challenges the finding of the Court of First Instance that the Commission was entitled to apply Article 19(2) of Regulation No 355/77 to its detriment on the ground that some of the conditions for receiving aid had not been observed.

37 More particularly, Conserve Italia challenges the findings at paragraphs 67 to 69 of the contested judgment that it is a breach of the condition that work must not start on a project before submission of the application for aid for the contracts implementing the project to be concluded before the application is submitted. In Conserve Italia's submission, it is not the date when an order for a machine is placed or the contract signed that should determine the date of commencement of the project but the date on which the expenditure is incurred. That interpretation finds confirmation in the legislation and, in particular, Article 15 of Regulation No 4253/88, which provides that expenditure may not be considered eligible for assistance from structural funds if it is incurred before the date on which the corresponding application reaches the Commission. It is at the time when the price is paid that the financial commitment made by the originator of the project crystallises and thus that the project commences.

38 Conserve Italia argues that, although point 5.3 of the application form which appears in Annex A to Regulation No 2515/85 implies that projects commenced before the application for aid has reached the Commission cannot qualify for aid under Regulation No 355/77, there is no indication as to when a project must be regarded as having commenced.

39 It further submits that, given the length of time it takes for files to be examined at Community level and the fact that undertakings need to be able to enter into contracts for the purchase of machines in advance, it is logical that the date of commencement of a project should not be that when tools and machines are purchased.

40 Conserve Italia points out that even the working document never refers to the conclusion of contracts to determine the date of commencement of the project. It argues in that regard that the principle of the protection of legitimate expectations was infringed because the working document acted as a point of reference both for itself and for the Commission.

41 As regards the contract relating to a Tetra Pak packing machine, Conserve Italia acknowledges that the machine was installed at the premises of the beneficiary of the aid before the project's implementation period had started. However, it argues first of all that the machine was not installed under a contract of purchase but under a contract for hire and that the latter type of contract is not ruled out by paragraph 5 of point B.1 of the working document. Next, it argues that, contrary to what is stated at paragraph 77 of the contested judgment, it had demonstrated that purchase of such a machine would lead to improvement in the conditions under which the agricultural products in question are processed and marketed. Thus, in terms of the repercussions on agricultural producers, the investments in question actually gave them a boost. Finally, contrary to the findings of the Court of First Instance at paragraph 78 of the contested judgment, ownership of the Tetra Pak packing machine was transferred during the project's implementation period, that is to say, properly. The transaction was therefore not incompatible with paragraph 12 of point B.1 of the working document.

42 The Commission argues that the Court of First Instance applied Article 19(2) of Regulation No 355/77 correctly in finding, at paragraph 67 of the contested judgment, that it was at the date of conclusion of the contract that the project started. Paragraph 5 of point B.1 of the working document in no way contradicts that conclusion, but confirms the principle that operations or work begun before submission of the application are wholly excluded from aid, and simply provides for some exceptions.

43 The Commission adds that, if one accepts Conserve Italia's proposition that a project only starts once payments are made, an applicant for aid could simply defer such payments in order to circumvent the obligation not to start the project before submitting the application for aid.

44 In this case, the beneficiary of the aid carefully omitted, both when it submitted its application for aid and in its reply to a request for information from the Commission, to send information relating to purchases already made and work already carried out. Furthermore, the Commission found, in the course of a check carried out in September 1994, that the assembly, installation and work on site had largely been carried out before the application for aid was submitted.

45 As regards Conserve Italia's argument that the interpretation of the Court of First Instance does not take into account undertakings' need to conclude contracts early because of the length of time it takes for files on aid to be examined, the Commission submits that this is without foundation either in fact or in law. The Commission only begins its examination of a file after the application for aid has been submitted, so that any delays could not have the effect of preventing contracts from being concluded or a project from being started.

46 As regards the alleged infringement by the Court of First Instance of the principle of the protection of legitimate expectations, the Commission claims that Article 19(2) of Regulation No 355/77 and the working document did not entitle Conserve Italia to rule out the possibility that concluding contracts before submitting the application for aid might amount to premature implementation of the project.

47 As regards the contract for the Tetra Pak packing machine, the Commission argues that Conserve Italia acknowledged from the start that it provided a falsified document concealing the fact that the machine was already installed on the premises under an earlier contract for hire. As the Court of First Instance held at paragraph 76 of the contested judgment, the forwarding of a document that was not a true copy of the purchase contract constitutes a manifest and serious irregularity.

48 As regards Conserve Italia's argument that the Court of First Instance erred in law, firstly, in holding that it had failed to show in this case that the definitive purchase of the Tetra Pak packing machine which was already installed at the establishment would bring about improvement in the conditions under which the agricultural products in question were processed and marketed and, secondly, in holding that the irregularity in question could have inflated the potential amount of aid awarded, the Commission argues that, on appeal, the Court of Justice does not have jurisdiction to find the facts and it is therefore not within its competence to examine the evidence accepted by the Court of First Instance in support of those facts. In this case Conserve Italia did not submit any argument whatsoever to show that the Court of First Instance erred in law in its findings and this plea is therefore inadmissible.

Findings of the Court of Justice

49 It must first of all be observed that it is not contested in this appeal that the requirement that an applicant for aid is not to start work on a project before the Commission receives his application for aid constitutes one of the conditions referred to in Article 19(2) of Regulation No 355/77. Conserve Italia does, on the other hand, challenge the finding by the Court of First Instance that the conclusion by it of contracts amounted to starting work on the project.

50 It is appropriate to begin by evaluating the merits of that finding in the light of the provisions governing to the application for aid submitted by Conserve Italia.

51 It is apparent from the findings of the Court of First Instance that that application for aid was received by the Commission on 27 October 1988, that is to say before the repeal of Regulation No 355/77, which took effect on 1 January 1990. The repeal was the result, pursuant to Article 10(2) of Regulation No 4256/88, of the entry into force of Regulation No 866/90.

52 Under Article 10(3) of Regulation No 4256/88, Articles 6 to 15 and 17 to 23 of Regulation No 355/77 continued to apply to projects submitted before the repeal of the latter regulation.

53 However, neither those articles of Regulation No 355/77 nor Regulation No 2515/85, which was adopted on the basis of Article 13(5) of Regulation No 355/77, and which relates to the information that applications for aid must contain, provide any indication as to which events amount to commencement of work on a project.

54 It must be recalled that the working document proceeds from the premiss that work on a project starts once a contract for the provision of services is concluded, and not when those services are subsequently supplied or paid for.

55 It follows from those considerations that the finding of the Court of First Instance to the effect that the conclusion of a contract constitutes the commencement of the project is not contradicted by any of the provisions applicable to aid. On the contrary, it is consistent with the approach suggested by the wording of the working document.

56 Secondly, that finding is consistent with the objective pursued by the Community legislation, which is to ensure efficient use of the Community's financial resources. If the date of commencement of the project were considered to be that on which payment is made rather than that on which the contract is concluded, applicants for aid could easily artificially postpone that date by reference to the date of effective commencement of the project. There would then no longer be any direct connection between the decision to invest and the EAGGF aid. The opportunity for the Commission to evaluate the suitability of the project in the light of the original situation and, if appropriate, to influence the project would be reduced or eliminated since it would receive the application for aid after the project had commenced.

57 As regards the alleged infringement of the principle of the protection of legitimate expectations, it is sufficient to observe, first, that it is clear from the working document that placing an order and thus concluding a contract amounts to starting the project and, second, that the beneficiary of the aid was not unaware of this, given that it submitted a falsified contract to the Commission in order to conceal the fact that a Tetra Pak packing machine was already installed on its premises under an earlier contract for hire.

58 As regards Conserve Italia's complaint that the Court of First Instance erred in law in finding that it had not shown that the definitive purchase of the Tetra Pak packing machine installed on its premises would bring about an improvement in the conditions under which the agricultural products in question were processed and marketed, and that the irregularity in question could have inflated the potential amount of aid liable to be awarded, it must be observed that, by that complaint, Conserve Italia is in reality challenging before the Court of Justice the findings of fact made by the Court of First Instance.

59 Under Article 225(1) EC and Article 51 of the EC Statute of the Court of Justice, an appeal may lie only on grounds relating to the infringement of rules of law. The Court of Justice does not have jurisdiction to find the facts. Nor, in principle, does it have jurisdiction to examine the evidence which the Court of First Instance accepts as establishing those facts. It is for the Court of First Instance alone to assess the weight that should be attached to the evidence adduced before it. That assessment does not constitute, save where the clear sense of that evidence has been distorted, a point of law which is subject, as such, to review by the Court of Justice (see, in particular, the order in Case C-497/99 P Irish Sugar v Commission [2001] ECR I-5333, paragraphs 39 and 59). Since there is no allegation that the clear sense of the evidence has been distorted in this case, this complaint by Conserve Italia must be rejected as inadmissible.

60 Similarly, in so far as Conserve Italia criticises the finding by the Court of First Instance that the contract relating to the Tetra Pak packing machine did not satisfy the conditions laid down at paragraph 12 of point B.1 of the working document, it is challenging a finding of fact which it was for the Court of First Instance alone to make. That complaint by Conserve Italia must also therefore be rejected as inadmissible.

61 It follows that the first ground of appeal must be dismissed in its entirety.

The second ground of appeal, alleging infringement and misinterpretation of the second subparagraph of Article 15(2) of Regulation No 4253/88

Arguments of the parties

62 Conserve Italia argues that the Court of First Instance was wrong not to hold the second subparagraph of Article 15(2) of Regulation No 4253/88 to be applicable in this case given that all the expenditure in question was incurred during the six months preceding the date of commencement of the project. According to Conserve Italia, the second subparagraph of Article 15(2) of Regulation No 4253/88 does not confer on the Commission a discretionary power to decide which expenditure incurred before that date may be considered eligible. That provision is intended to render the principle laid down in the first subparagraph of Article 15(2) of the regulation more flexible by allowing expenditure incurred in the six months preceding that date so as to enable undertakings to act more quickly and to adapt their plant and equipment easily.

63 The Commission argues in response to that plea that the Court of First Instance confined itself to stating that, unless otherwise indicated by the Commission, expenditure incurred during the six months preceding receipt of the application is not eligible for aid. The Court of First Instance did not find it necessary to examine the question of the applicability of the second subparagraph of Article 15(2) of Regulation No 4253/88 to the case, given that there could in any event be no question of the application of that provision giving rise to a different assessment of the undertaking entered into by the beneficiary of the aid or, consequently, to a different conclusion as to whether there was an irregularity.

64 The Commission claims that Conserve Italia distorts both the spirit and the letter of the second subparagraph of Article 15(2) of Regulation No 4253/88. That provision is not intended to cause expenditure incurred during the six months preceding the date of receipt of the application to be accepted in order to enable undertakings to act more quickly and to adapt their plant and equipment more easily. On the contrary, it confers on the Commission a power of derogation to enable the Member States to adapt to the new regulatory context established as a result of the reform of the structural funds.

65 Apart from the question of the applicability to the case of the power of derogation provided for in the second subparagraph of Article 15(2) of Regulation No 4253/88, the Commission argues that, when it submitted the application for aid, the beneficiary of the aid formally and solemnly undertook not to start work on the project before receipt of that application by the EAGGF, and that it had already breached that undertaking before the provision had even entered into force.

66 The Commission concludes that the Court of First Instance therefore neither infringed nor misinterpreted the second subparagraph of Article 15(2) of Regulation No 4253/88, and that it correctly held that, even if that provision is applicable to this case, the purchases made and work carried out during the six months preceding the date of submission of the application for aid must be considered to be improper unless otherwise indicated by the Commission.

Findings of the Court of Justice

67 The Court of First Instance held at paragraph 63 of the contested judgment that the term may in the second subparagraph of Article 15(2) of Regulation No 4253/88 confers on the Commission the power to deem expenditure eligible for aid even if it was incurred before the date on which the Commission received the application for aid.

68 That finding of the Court of First Instance is not vitiated by any error of law. That provision is clearly intended to confer on the Commission a measure of discretion. Furthermore, the second subparagraph of Article 15(2) of Regulation No 4253/88 constitutes an exception to the rule laid down in the first subparagraph of that provision, according to which expenditure may not be considered eligible for assistance if incurred before the date on which the corresponding application reaches the Commission. The necessarily restrictive interpretation of such an exception means that the word may in the second subparagraph of Article 15(2) of the regulation cannot be construed as granting more than a mere power to the Commission.

69 The Court of First Instance therefore rightly rejected Conserve Italia's argument that the second subparagraph of Article 15(2) of Regulation No 4253/88 requires the Commission to regard all expenditure incurred during the six months preceding the application for aid as eligible.

70 The second ground of appeal must therefore be dismissed as unfounded.

The third ground of appeal alleging infringement and misinterpretation of Article 24(2) of Regulation No 4253/88 as amended

Arguments of the parties

71 Conserve Italia argues, on the one hand, that the measure prescribed by the applicable legislation was the reduction, and not the cancellation, of the assistance, in accordance with the wording of the provision on which the contested decision was based, namely Article 24(2) of Regulation No 4253/88 as amended. The Court of First Instance artificially extended the scope of that provision. In order to add the measure of cancellation of the assistance to those of its reduction or suspension, prescribed by that provision, the Court of First Instance had recourse to Article 19(2) of Regulation No 355/77, which provides for the possibility of discontinuance, and to an interpretation based on the purpose served by the term cancellation in the title of Article 24 of Regulation No 4253/88 as amended.

72 Conserve Italia challenges the reference thus made to Article 19(2) of Regulation No 355/77 on the ground that that provision was no longer applicable at the date of the contested decision.

73 As regards the interpretation based on the purpose served by the term cancellation in the title of Article 24 of Regulation No 4253/88 as amended, Conserve Italia refers to the rules of interpretation codified in Articles 31 and 32 of the Vienna Convention on the law of Treaties of 1969 and claims that the Court of First Instance, contrary to those rules, revised the wording of Article 24(2) of Regulation No 4253/88 as amended, which makes no reference to cancellation of assistance, even though that wording is quite clear. Conserve Italia argues that the reference to the measure of cancellation in the title of Article 24 of Regulation No 4253/88 as amended can be explained by reference to Article 24(3) of that regulation concerning the recovery of sums unduly received.

74 Secondly, Conserve Italia claims that the Court of First Instance avoided ruling on the question as to when the Commission must reduce aid and when it must, in contrast, cancel it. Conserve Italia argues that it cannot be claimed, as the Commission submitted and the Court of First Instance essentially held, that any irregularity must result in cancellation. That would be incompatible with the principle of gradation of measures which is not only one of the general principles of Community law but also follows from Article 24(2) of Regulation No 4253/88 as amended.

75 According to the Commission, the Court of First Instance rightly held that Article 24(2) of Regulation No 4253/88 as amended conferred on the Commission a power to cancel assistance and therefore constituted a sufficient legal basis for the contested decision. On the one hand, where there is a discrepancy between the wording of a provision and the title thereof, both must be construed in such a manner that all the terms employed serve a useful purpose. On the other hand, a different provision, Article 19(2) of Regulation No 355/77, also applicable to the aid in question, provides for the possibility of discontinuing aid from the EAGGF in certain circumstances. Accordingly, Article 24(2) of Regulation No 4253/88 as amended must be construed as allowing the Commission to cancel assistance from the EAGGF in the event of impropriety.

76 The Commission adds that, even following the purely literal approach adopted by Conserve Italia, Article 24(2) of Regulation No 4253/88 as amended must be regarded as allowing for the possibility of cancellation, given that the Community legislature did not lay down any quantitative limit to the power to reduce assistance, and that the reduction could extend to the full amount.

77 The Commission contends that the reference to the Vienna Convention on the law of Treaties of 1969 is irrelevant. Even if the rules of interpretation established in that convention are material to the interpretation of the rules of secondary Community law, the Court of First Instance did not artificially extend the scope of Article 24(2) of Regulation No 4253/88 as amended. The Commission submits that the meaning attributed by the Court of First Instance to that provision betrayed neither its letter nor its spirit. Cancellation is a measure entirely compatible with the requirement underlying that provision, which is that the financial resources of the structural funds should be managed properly, efficiently and in a non-discriminatory manner.

78 Furthermore, Conserve Italia's argument that provision for cancellation is made not in Article 24(2) of Regulation No 4253/88 as amended but in Article 24(3) of that regulation, is without foundation in logic or law. The Commission argues that its power under Article 24(3) to require recovery of sums unduly paid is a direct consequence of its right to reduce or cancel aid.

79 Furthermore, the argument that cancellation of aid should not be permitted unless the irregularities relate to all the expenditure indicated in the project, regardless of the extent and seriousness of the infringements of the applicable legislation, is unacceptable. First, dishonest undertakings would be encouraged to commit irregularities since they would only be risking the aid being reduced by the amount corresponding to the irregularities. Second, in the majority of cases, there would be a risk that the expenditure incurred improperly might not be recovered in full.

80 The Commission also argues that the Court of First Instance was under no obligation to rule on the criteria for grading the measures of reduction and cancellation provided for in Article 24(2) of Regulation No 4253/88 as amended. All it was required to do was to review the legality of the cancellation in the circumstances of the case and in the light of the pleas put forward by the appellant in support of its application for annulment. Furthermore, by omitting to lay down, in Article 24(2) of Regulation No 4253/88, the criteria for grading the measures, the Community legislature meant to leave it to the Commission to determine, in the exercise of its discretion, whether, in a particular case, the circumstances as a whole are such as to justify reduction only, or cancellation, of the aid.

Findings of the Court of Justice

81 As the Court of First Instance pointed out at paragraph 92 of the contested judgment, Article 24(2) of Regulation No 4253/88 as amended does not expressly provide for the cancellation of assistance, even though Article 24 of that regulation is entitled Reduction, suspension and cancellation of assistance.

82 Furthermore, Article 19(2) of Regulation No 355/77, which expressly provided for the possibility for the Commission to discontinue aid, ceased to be applicable in August 1993, that is to say, some three years before the contested decision. The transitional regime provided for in Article 10(3) of Regulation No 4256/88, whereby Article 19(2) continued to be applicable to projects submitted prior to 1 January 1990 and thus to the project in question here, ended on the entry into force, on 3 August 1993, of Council Regulation (EEC) No 2085/93 of 20 July 1993 amending Regulation (EEC) No 4256/88 (OJ 1993 L 193, p. 44). The applicability of Article 19(2) of Regulation No 355/77 was therefore not extended by Regulation No 2085/93, so that that provision was not applicable on 3 October 1996, the date when the contested decision was adopted.

83 The Court of First Instance was therefore wrong in holding, at paragraph 90 of the contested judgment, that Article 19(2) of Regulation No 355/77 constituted a sufficient legal basis for the adoption of the contested decision.

84 However, as the Court of First Instance pointed out at paragraph 91 of the contested judgment, the infringements which were found to have occurred when the project was implemented constituted irregularities within the meaning of Article 24(2) of Regulation No 4253/88, with the result that that provision was applicable to the case.

85 It must therefore be determined whether the conclusion of the Court of First Instance, at paragraph 92 of the contested judgment, that Article 24(2) of Regulation No 4253/88 as amended authorises the Commission to cancel assistance, is vitiated by an error of law.

86 Article 24(1) of Regulation No 4253/88 as amended provides that the Commission is to conduct a suitable examination if an operation or measure appears to justify neither part nor the whole of the assistance allocated. That provision, which relates to the preliminary phase of examination by the Commission, therefore expressly envisages the possibility of cancellation of the assistance.

87 Article 24(3) of Regulation No 4253/88 as amended for its part relates to recovery from the beneficiary of the aid of sums unduly paid and provides that interest is to be charged on sums not repaid. Contrary to the view advanced by Conserve Italia, it cannot constitute a legal basis for a decision to cancel assistance.

88 It must therefore be held that it is Article 24(2) of Regulation No 4253/88 as amended which constitutes the legal basis for any claim for recovery by the Commission. That provision would be partly deprived of its effectiveness if the Commission could not cancel the entirety of the assistance, even though the prior examination conducted under Article 24(1) of that regulation had revealed that the assistance was unjustified in its entirety.

89 Furthermore, limiting the possibilities open to the Commission to a reduction of the assistance in proportion exclusively to the amount to which the irregularities found to exist relate would have the effect of encouraging fraud on the part of applicants for aid, since they would then only risk loss of the benefit of the sums unduly paid.

90 In any event, according to case-law of the Court of Justice, the administration may withdraw with retroactive effect an advantageous administrative act vitiated by illegality, provided that it does not infringe either the principle of legal certainty or that of the protection of legitimate expectations (judgments in Joined Cases 7/56 and 3/57 to 7/57 Algera and Others v Common Assembly of the ECSC [1957] ECR 81, at p. 116; Case 14/81 Alpha Steel v Commission [1982] ECR 749, paragraphs 10 to 12; Case 15/85 Consorzio Cooperative d'Abruzzo v Commission [1987] ECR 1005, paragraphs 12 to 17 and Case C-90/95 P De Compte v Parliament [1997] ECR I-1999, paragraph 35). That possibility, which arises where the beneficiary of the act did not contribute to its illegality, applies a fortiori where, as in this case, the illegality is attributable to him.

91 It follows from the foregoing that the plea that the Court of First Instance infringed Article 24(2) of Regulation No 4253/88 as amended must be dismissed as unfounded.

The fourth ground of appeal, alleging infringement and misapplication of the principle of proportionality, misappraisal of the Commission's discretion and infringement of the rule of precedent

Arguments of the parties

92 Conserve Italia claims that the contested judgment, and in particular paragraph 106 thereof, misapplies the principle of proportionality, misappraises the Commission's discretion and infringes the rule of precedent.

93 First, as regards the principle of proportionality, Conserve Italia states that the Court of First Instance, despite acknowledging at paragraph 106 of the contested judgment that the irregularities found in this case by the Commission were less serious than those found in Industrias Pesqueras Campos and Others v Commission, cited above, found that the Commission was still entitled to cancel the aid in full in this case.

94 Next, Conserve Italia contends that, contrary what is stated by the Court of First Instance at paragraph 102 of the contested judgment, this case does not involve the evaluation by the Commission of complex economic situations. All that is concerned is a problem of correct application of legislative instruments implementing political choices made at a higher level. The Commission's power cannot be as extensive as that which it enjoys when called upon to make real choices of economic policy in the agricultural sector. Accordingly, the Court of First Instance was wrong in holding that this was a case where the Commission enjoyed a wide discretion, reviewable only for manifest error of assessment or misuse of powers.

95 Finally, as regards infringement of the rule of precedent, Conserve Italia challenges the reference made by the Court of First Instance, at paragraph 103 of the contested judgment, to the Cereol Italia case, cited above, according to which infringement of obligations whose observance is of fundamental importance to the proper functioning of a Community system may be penalised by forfeiture of a right conferred by Community legislation, such as entitlement to aid. According to Conserve Italia, the dispute which gave rise to the judgment in Cereol Italia related to the application of a rule explicitly permitting the Commission, subject to its observing the principle of legality, to impose sanctions. Unlike the situation in that case, it is undisputed that Regulation No 4253/88 as amended did not confer on the Commission any type of power to impose a penalty.

96 The Commission maintains first of all that the Court of First Instance took ample account of the genuinely serious nature of the irregularities committed by the beneficiary of the aid, classifying them as serious infringements of essential obligations. Those irregularities artificially and significantly inflated the amount of the potential investment.

97 Next, the Commission maintains that the Court of First Instance did not consider that the offences committed in this case were less serious than those found in Industrias Pesqueras Campos and Others v Commission, cited above. It merely noted that there were differences in the circumstances of the two cases.

98 Finally, the Commission claims that, in examining whether the project in question complied with the objectives of improving the conditions for processing and marketing agricultural products, both when it was deciding to finance the project and when it had to choose the most appropriate response to the irregularities committed by the beneficiary of the aid, it was making economically complex assessments of common agricultural policy. The Commission's decision to cancel the assistance cannot be regarded as no more than an ordinary administrative or purely mechanical act.

99 The Commission argues that the extent and nature of the irregularities potentially detrimental to the objectives referred to at paragraph 98 above are so great that it is essential that it be accorded a wide discretion. The Commission acknowledges the need to guarantee that the principle of proportionality is observed but argues that what is important is the fact that, in the circumstances of this case, cancellation was the only measure capable of ensuring that the objective laid down was attained.

Findings of the Court

100 As regards, first of all, the alleged infringement of the principle of proportionality, it must be observed that it is essential for the proper functioning of the system of controls set up to ensure proper use of Community funds that applicants for aid provide the Commission with information which is reliable and not liable to mislead it.

101 Only the possibility that an irregularity 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 the resources of the EAGGF.

102 As the Court of First Instance found at paragraph 105 of the contested judgment, the fact that the beneficiary of the aid failed to fulfil its undertaking not to start work on the project before receipt by the Commission of the application for aid, and that it forwarded to the Commission a copy which was not consistent with the original of the contract for sale of a machine referred to in the project in question constitute serious breaches of fundamental obligations. The Court of First Instance also pointed out that the irregularities found represented 112% of the amount of the aid and 28% of the amount of the investment. In those circumstances, the contested judgment did not misapply the principle of proportionality.

103 Secondly, Conserve Italia's objection to the reference by the Court of First Instance to the judgment in Cereol Italia, cited above, is of no consequence. That case, like the present one, involved an assessment, in the light of the principle of proportionality, of a decision of the Commission cancelling financial aid.

104 The fourth ground of appeal must therefore be dismissed as unfounded.

105 In the light of the foregoing, Conserve Italia's appeal must be dismissed in its entirety.

Decision on costs

Costs

106 Under Article 69(2) of the Rules of Procedure, which is applicable to the appeal procedure by virtue of Article 118, 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 costs and the appellant has been unsuccessful, the appellant must be ordered to pay the costs.

Operative part

On those grounds,

THE COURT (Sixth Chamber)

hereby:

1. Dismisses the appeal;

2. Orders Conserve Italia Soc. Coop. arl to pay the costs.