Order of the President of the Court of First Instance of 22 October 2001. - Entorn, Societat Limitada Enginyeria i Serveis v Commission of the European Communities. - Proceedings for interim relief - Prima facie case - Urgency - Cancellation of Community financial assistance. - Case T-141/01 R.



European Court reports 2001 Page II-03123



Parties

Grounds

Operative part



Parties

In Case T-141/01 R,

Entorn, Societat Limitada Enginyeria i Serveis, established in Barcelona (Spain), represented by M.C. Belard-Kopke Marques-Pinto, lawyer, with an address for service in Luxembourg,

applicant,

v

Commission of the European Communities, represented by L. Visaggio and S. Pardo Quintillán, acting as Agents, with an address for service in Luxembourg,

defendant,

APPLICATION for suspension of the operation of Commission Decision C(1999) 534 of 4 March 1999 cancelling Community financial assistance,

THE PRESIDENT OF THE COURT OF FIRST INSTANCE

OF THE EUROPEAN COMMUNITIES

makes the following

Order

Grounds

Facts and procedure

1 By Decision C(93) 3394 of 26 November 1993 adopted under Article 8 of Council Regulation (EEC) No 4256/88 of 19 December 1988 laying down provisions for implementing Regulation (EEC) No 2052/88 as regards the EAGGF Guidance Section (OJ 1993 L 374, p. 25), the Commission granted the applicant, named Entorn S.L., in the administrative procedure before the Commission, financial assistance for Project No 93.ES.06.030 (hereinafter the decision to grant assistance) entitled Project demonstrating sumac cultivation using new cultivation techniques (hereinafter the project). It is apparent from the documents before the Court that Mr J. Tasias Valls was, as managing director, the only legal representative empowered to bind the applicant.

2 The total cost of the project was ECU 1 381 132 and the Community financial contribution was fixed at a maximum amount of ECU 1 035 849.

3 By letter of 30 November 1993 the Commission was informed that Entorn S.L. had changed its address and bank details. The letter was signed by a person named A. López Gargallo.

4 A new address for Entorn S.L. in Seville, Spain, was notified to the Commission by letter of 29 March 1994, signed in the name of J. Tasias Valls. In that letter Messrs D. Garcia Rodriguez and J. Tasias Valls were presented as the technical officer and the project officer respectively.

5 In accordance with the provisions of Annex 2 to the decision to grant assistance, two advances amounting to a total of ECU 725 094 were paid into the bank account mentioned in the letter of 30 November 1993.

6 On 10 July 1997 the Commission addressed a letter to Entorn S.L. in Seville informing it that its services had undertaken a technical and accounting review of the financial assistance already granted by the Commission under Article 8 of Regulation No 4256/88.

7 The inspections were made at the place where the project was being carried out in Seville on 24 and 25 July 1997 in the presence of Messrs J. Tasias Valls and D. Garcia Rodriguez.

8 Following those inspections, the Commission, by letter of 3 April 1998, notified Entorn (Sumac) at the Seville address of its findings. The Commission found certain facts which might amount to irregularities and indicated that it had decided to initiate the procedure provided for in Annex 2, point 10, of the decision to grant assistance and in Article 24 of Council Regulation (EEC) No 4253/88 of 19 December 1988 laying down provisions for implementing Regulation (EEC) 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). Entorn (Sumac) was also informed that recovery of all amounts granted to date could be requested. Finally, Entorn (Sumac) was invited to furnish proof, within six weeks, that it had fulfilled all its obligations under the decision to grant assistance.

9 The Commission received a reply by letter of 24 May 1998 sent from Seville and signed by D. Garcia Rodriguez who at that moment was the technical officer for the project.

10 On 4 March 1999 the Commission adopted a decision, which it notified to the applicant on 10 April 2001 and which was also addressed to the Kingdom of Spain (hereinafter the contested decision). By that decision the Commission ordered the cancellation of the financial assistance in question and repayment by the applicant and, where appropriate, by those persons liable in law for its debts, of all advances already paid within 60 days of the date of notification of the contested decision. The grounds for the contested decision read:

(1) The request for assistance was made by the company ENTORN S.L., having its head office in Barcelona; it was to this company that the Community assistance was granted although a company by the name of Entorn Trading Limited had been established in Dublin and, at the request of M. Biego, a branch of that company was opened in Seville under the name of ENTORN S.L.; all payments relating to the project and made by the Commission were addressed to the last-mentioned company; that operation was presented to the Commission as a simple change of management of the beneficiary whereas in reality it was a matter of changing the beneficiary of the project without the Commission's agreement;

(2) during the abovementioned inspection at the head office notified by the beneficiary, it was found that that head office belonged to the company MB Consultores y Auditores; the inspectors were not able to inspect any supporting documents, whether of an administrative or accounting nature, relating to the project although, in paragraphs 5 and 6 of Annex 2 to [the decision to grant assistance], the Commission requires that all documentation relating to the project must be kept at the disposal of the Commission services at the head office of the company; on the other hand, at the same time the inspectors found that the signatures of various documents presented to the Commission had been falsified in the context of the project and that none of the equipment in the pictures in the photographs in the technical annex to the final report had been used in this context;

(3) finally, it is apparent from a reading of a copy of the balance sheet presented to the Spanish Ministry of Finance in the tax declaration of the company ENTORN S.L., that the cost of the project had risen to more or less 23 million [Spanish pesetas (ESP)], whereas the total costs declared amounts to ESP 233 623 004;

whereas, in those conditions it is necessary to cancel the assistance and to proceed, in accordance with Article 24(3) of Council Regulation (EEC) No 4253/88, to recover the amounts granted to date in respect of the project;

whereas, under the applicable national company law the "members of any company are liable for all its debts;

..."

11 As regards the company Entorn Trading Limited, the documents before the Court show that Mr D. Garcia Rodriguez was designated as its authorised representative and that, in that capacity, he had signed an instrument establishing a branch in Spain, named Entorn Sociedad Limitada-Sucursal en Espana (hereinafer Entorn S.L. Sucursal). The latter had as its address in Seville that corresponding to the address given to the Commission in the letter of 30 November 1993. In February 1996 the branch was transferred to Tenerife before disappearing.

12 As regards the role of Mr J. Tasias Valls as technical officer for the project, it is apparent from the documents before the Court that he presented a number of invoices for his services to Entorn S.L. Sucursal via the intermediary of the company Codema SA and that the latter had received the first payment in regard to those invoices on 18 January 1994. It is apparent from the Court file that Codema holds 99.98% of the shares of the applicant and Mr J. Tasias Valls 0.02%. The latter is the principal shareholder in and the director of Codema and is now the subject of criminal proceedings in Spain.

13 By application lodged at the Court Registry on 20 June 2001 the applicant brought an action for annulment of the contested decision pursuant to Article 230 EC.

14 By separate document lodged at the Court Registry on 25 June 2001 the applicant submitted to the Court the present application for suspension of operation of the contested decision.

15 On 9 July 2001 the Commission submitted its observations on the present application.

16 The parties presented oral argument on 12 September 2001. During the hearing the applicant lodged a document containing its balance sheet for the year 2000 as well as its balance sheet for the period 1 January to 30 June 2001.

Law

17 By virtue of the combined provisions of Articles 242 EC and 243 EC and Article 4 of Council Decision 88/591/ECSC, EEC, Euratom of 24 October 1988 establishing a Court of First Instance of the European Communities (OJ 1988 L 319, p. 1), as amended by Council Decision 93/350/ECSC, EEC, Euratom of 8 June 1993 (OJ 1993 L 144, p. 21) the Court may, if it considers that circumstances so require, order the operation of the contested act to be suspended or prescribe any other necessary interim measures.

18 Article 104(2) of the Rules of Procedure provides that applications for interim measures must state the circumstances giving rise to urgency and the pleas of fact and law establishing a prima facie case for the measures applied for. Those requirements are cumulative, so that an application for suspension of operation must be dismissed if either is not met. The judge hearing the application for interim relief also proceeds, where appropriate, to balance the interests at stake (orders in Case T-222/99 R Martinez and de Gaulle v Parliament [1999] ECR II-3397, paragraph 22, and Case T-17/00 R Rothley and Others v Parliament [2000] ECR II-2085, paragraph 37).

Arguments of the parties

Prima facie case

19 The applicant argues that the contested decision, firstly, is founded on an erroneous assessment of the facts, secondly, is insufficiently and incoherently reasoned, thirdly, infringes the essential procedural requirements prescribed for its adoption and clearly infringes the general principle of Community law guaranteeing respect for the rights of defence in any procedure initiated against a person and which may result in a measure detrimental to that person.

20 As regards the alleged erroneous assessment of the facts, the applicant contends that, in accepting the change of identity of the beneficiary of the financial assistance granted and in proceeding with the payment to Entorn S.L. Sucursal of the two advances of financial assistance awarded under the decision to grant assistance, the Commission recognised, albeit tacitly, that the applicant therefore ceased to be the beneficiary of the financial assistance and could no longer be considered responsible for carrying out the project. That means that the applicant cannot be the addressee of the contested decision. In that regard, the applicant points out that it had never changed address outside of Barcelona, which is confirmed in the Commercial Register.

21 As far as the absence of sufficient and coherent reasoning of the contested decision is concerned, the Commission ought to have demonstrated, with clarity and coherence, the reasons justifying the treatment of the applicant as if it were the real addressee of the decision to grant assistance and, consequently, the beneficiary of the financial assistance in its capacity as the party responsible for carrying out the project.

22 Since, moreover, the decision is one which seriously penalises the applicant - the repayment of EUR 725 094 is sought - the Commission is required to submit well-founded arguments showing in clear and irrefutable terms that the applicant actually received the amounts in question. Arguments of this nature are not put forward in the contested decision.

23 It is not sufficient, in order to show the existence of a single entity, to mention the existence of an apparent similarity between the business name of the applicant and that of Entorn S.L. Sucursal.

24 Moreover, the contested decision is devoid of well-founded reasoning to justify the fact that, in accordance with Annex 2, point 4(2), first and second indents, of the decision to grant assistance, the payments were made to a legal entity distinct from the applicant. The principle of prudent administration would have suggested that, in such a situation, the Commission should have explained to the applicant the change that had occurred.

25 Finally, the contested decision was adopted in breach of essential procedural requirements and of the fundamental principle of the right to a fair hearing. In particular, that decision was adopted without observance of the procedure prescribed in Annex 2, paragraph 10, of the decision granting assistance, namely the possibility for the applicant to put forward the grounds of defence that it considers the most proper and appropriate before the adoption of the contested decision.

26 The applicant was never invited to submit its observations in writing after the inspections in question had been carried out by Commission officials. It is the case that the applicant's managing director was present during the inspections. Nevertheless, he was present in his capacity as technical officer for the project. The applicant considers that the Commission was under an obligation to ask both him and Mr J. Tasias Valls for additional explanations in order to dispel the doubts as to the identity of those two companies, namely the applicant and Entorn S.L. Sucursal.

27 The Commission denies having approved, whether tacitly or explicitly, the change in beneficiary of the financial assistance for the project for the sole reason that that change was never communicated to the Commission. The letters that it did receive in November 1993 and in March 1994, notifying the changes to bank account numbers and head-office addresses, seem merely to notify changes of references.

28 In those circumstances the applicant cannot claim to have been released from its responsibility with respect to the carrying out of the project. Moreover, an unnotified change of beneficiary of the project constitutes an important amendment for the purposes of Article 24(2) of Regulation No 4253/88 and thus justifies the reduction or cancellation of the assistance.

29 As regards the alleged lack of reasoning the Commission contends that it was not necessary to justify the cancellation of the assistance over and above what was done in the contested decision, namely the explanation that the applicant is the beneficiary of the Community financial assistance, the party responsible for carrying out the project, and the addressee of the decision to grant assistance. Similarly, the Commission did not approve a change of beneficiary and was not even aware that the new company was being created. The Commission was therefore deliberately misled in order to complicate the allocation of responsibility for the irregularities affecting the carrying out of the project.

30 As regards the alleged infringement of the essential procedural requirements to be observed in adopting the contested decision, the Commission notes that the letter of 3 April 1998, giving the applicant the opportunity to express its views on the facts justifying the cancellation of the Community financial assistance, was sent to the Seville address. It is that address which had been indicated to the Commission as being the address from which the project was being managed and which corresponded to the place where the inspection of the project was carried out and where the Commission's inspectors met Mr J. Tasias Valls. With respect to the links between the applicant to Entorn S.L. Sucursal and their members, directors or authorised representatives, the Commission contends that it cannot be criticised for having used the Seville address for the notification of its request for observations. The Commission used that address for all correspondence intended for the beneficiary since that was the address communicated to it.

Urgency

31 The applicant claims that the urgency of the interim measures at issue is based on the need to prevent the immediate repayment of EUR 725 094, the subject of the contested decision, from causing the undertaking to cease business definitively.

32 The applicant states that it is a small-sized limited liability company in the sense contemplated in the order of the Court of Justice in Case C-152/88 R Sofrimport v Commission [1988] ECR 2931, which employs at most 10 workers under a contract of employment. The authorised capital of the undertaking is EUR 30 050.

33 Since its creation on 4 June 1993, the applicant's financial situation has evolved in a positive manner. Specifically, its turnover for 1994 rose to ESP 30 373 833 (EUR 182 550.41) and the profits to ESP 2 899 905 (EUR 17 428.78). It appears from the applicant's corporation tax for 1999 that its total turnover was ESP 138 387 025 or EUR 831 722. Profits for 1999 rose to ESP 7 652 264 or EUR 45 991.03. The data relating to the undertaking's turnover and profits show the serious and irreparable damage that the applicant would suffer as a result of the obligation to repay immediately EUR 725 094 resulting from the contested decision.

34 In view of the fact that EUR 725 094 corresponds to practically the entire turnover of the undertaking and to nearly 15 times the profits for 1999, the implementation of the contested decision would entail immediate cessation of the undertaking's business since it would not be able to pay that amount immediately without irreparably jeopardising its possibility of survival pending the Court's judgment in the main proceedings.

35 Furthermore, the applicant points out that under Article 104 of the Spanish Law on limited liability companies and the Spanish Commercial Code it will be obliged to cease business if the contested decision is implemented. In that event, therefore, the undertaking would be dissolved because it would sustain losses that would reduce its authorised capital by almost half.

36 As regards the possibility of a contribution from the members of the applicant, as claimed by the Commission, the applicant points out that Article 1 of the Spanish law on companies clearly delimits the liabilities of members. The latter do not have to cover personally the debts of the undertaking. Nor is it possible for a financial entity or third party to provide a guarantee for the required amount.

37 In the light of the disproportionate effects that the contested decision is having on the company, it is evident that the contested decision causes serious and irreparable damage to the applicant and that therefore the interim measure sought must be regarded as urgent.

38 The Commission maintains that the applicant has not given concrete information to enable it to assess the precise consequences likely to arise from non-suspension of the operation of the contested decision. The applicant admits that it has been in good economic health since its incorporation. The information on its turnover and profits shows that it has made constant economic progress since its creation.

39 Furthermore, it is settled case-law, in the context of examination of the financial viability of a company, that its material situation may be assessed by taking into account the characteristics of the group to which it belongs by virtue of its shareholding. The applicant did not, however, provide any information on the financial status of its shareholders.

40 Moreover, the Commission considers that the alleged risk of cessation of the applicant's business is purely hypothetical and could be avoided if the applicant addressed a duly reasoned request to the Commission for an extension of the date for payment or for payments by instalments.

Findings of the President of the Court

41 As a preliminary point, it should be observed that the system of subsidies established by the Community legislation is founded in particular on the performance by the beneficiary of a series of obligations entitling him to receive the financial assistance provided for. If the beneficiary does not fulfil all those obligations, Article 24(2) of Regulation No 4253/88 authorises the Commission to reconsider the extent of its obligations under the decision to grant that assistance (see, by analogy, judgment of the Court of First Instance in Joined Cases T-551/93 and T-231/94 to T-234/94 Industrias Pesqueras Campos and Others v Commission [1996] ECR II-247, paragraph 161).

42 Those requesting and receiving Community financial assistance are, in particular, required to ensure that they give the Commission reliable information that is not likely to mislead it, failing which the system of checks and evidence set up to verify whether the conditions attaching to the grant of the assistance are satisfied cannot function correctly. Without reliable information projects that do not fulfil the requisite conditions would be able to receive financial assistance. It follows that the duty of information and of sincere cooperation which falls on those requesting or receiving assistance is inherent in the system of assistance under the EAGGF and is essential to its proper functioning.

43 In the present case the applicant, as the beneficiary of the financial assistance, did not inform the Commission of the alleged cessation of the implementation of the project, nor did it satisfy itself that the Commission had been informed of this by a third party. On the contrary, as the applicant admits in its application for interim relief, Mr J. Tasias Valls did not take all the necessary steps to prove clearly and definitively to the Commission that the applicant had abandoned the implementation of the project.

44 It must therefore be held that, at first sight, there is nothing to confirm the applicant's assertion that the Commission acknowledged that the applicant was no longer beneficiary of the financial assistance and that, as a result, the contested decision was based on an erroneous assessment.

45 As regards the argument concerning inadequacy of the reasoning of the contested decision, it is sufficient to observe that, prima facie, the Commission indicated in a sufficiently clear manner not only the reasons for which it considered itself to have been misled by the applicant with respect to the project but also the reason for which the applicant, to which the contested decision is addressed, may be held responsible for the irregularity found in the contested decision.

46 As regards the alleged infringement by the Commission of the applicant's rights of defence, it is sufficient, prima facie, to observe that in its letter of 3 April 1998 the Commission specifically requested the applicant to provide it with evidence that the applicant had met its obligations under the decision to grant assistance.

47 Finally, the applicant cannot, prima facie, criticise the Commission for having used the Seville address for notification of the request for observations. In that regard, it should be borne in mind that the applicant avoided informing the Commission of the alleged cessation of the project. The applicant's managing director, in particular because he was present during the inspections carried out by the Commission, gave the latter further reason to persist in the error alleged by the applicant, namely believing that the applicant's address was indeed the Seville address.

48 For those reasons the applicant's arguments do not justify, prima facie, the requested suspension.

49 In any event, even supposing that the applicant's arguments justified, prima facie, the requested suspension, it must be observed that circumstances establishing urgency are lacking.

50 In that regard, it is necessary to bear in mind the information set out above, in particular at paragraph 12, on the shareholders of the applicant. It shows that the applicant is a limited liability company of which Codema holds 99.8% and Mr J. Tasias Valls 0.02% of the shares, the latter being the principal shareholder and director of Codema.

51 It is important to recall that, in the context of the examination of the applicant's financial viability, its material situation may be assessed by taking into account in particular the characteristics of the group to which it belongs by virtue of its shareholding (order of the President of the Court of Justice in Case C-12/95 P Transacciones Marítimas and Others v Commission [1995] ECR I-467, paragraph 12; orders of the President of the Court of First Instance in Cases T-18/96 R SCK and FNK v Commission [1996] ECR II-407, paragraph 35 and T-13/99 R Pfizer Animal Health v Council [1999] ECR II-1961, paragraph 155, confirmed by order of the President of the Court of Justice in Case C-329/99 P (R) Pfizer Animal Health v Council [1999] ECR I-8343, paragraph 67).

52 That approach is based on the idea that the objective interests of the undertaking concerned are not of an autonomous character vis-à-vis those of the persons, natural or legal, who control it and that the serious and irreparable nature of the damage alleged must therefore be assessed at the level of the group comprising those persons. That coincidence of interests constitutes a ground for, in particular, not assessing the interests of the undertaking in question in surviving independently of the interest the persons who control it have in its survival (see order of the President of the Court of First Instance in Case T-241/00 R Le Canne v Commission [2001] ECR II-37, paragraph 40).

53 The fact that the person who, as principal owner of the authorised capital of the undertaking in question, exercises the control is a natural person who does not himself constitute an undertaking is irrelevant (see order of the President of the Court of Justice in Case C-335/99 P (R) [1999] ECR I-8705, paragraph 64 and order in Case T-241/00 R, cited above, at paragraph 42).

54 In this case it must be observed that, even though the applicant's accounts show that it is a small-sized company of low financial power, the applicant has not given the slightest information on the financial situation of its shareholders, namely Codema and Mr J. Tasias Valls, such as would make it possible to assess specifically whether they have sufficient resources to safeguard its interests.

55 Finally, the applicant has not attempted to reach, in agreement with the Commission, an arrangement which, in return for a bank guarantee that the applicant must provide, would enable it either not to repay the amount claimed before the main proceedings are disposed of or to repay that sum within an extended time-limit or by instalments. In that regard, it must be borne in mind that, in view of the paramount interest of the Community in prosecuting and penalising serious irregularities in the use of Community subsidies, irregularities which, in the light of the documents before the Court, there are, prima facie, reasonable grounds for suspecting, the President of the Court could not in any event suspend the operation of the decision in the absence of provision of a bank guarantee (see order of the President of the Second Chamber of the Court of First Instance in Case T-143/99 R Hortiplant v Commission [1999] ECR II-2451, paragraph 30).

56 It follows that the applicant has not succeeded in establishing that, failing the grant of suspension sought, it would suffer serious and irreparable harm.

57 Consequently, the application for interim relief must be dismissed.

Operative part

On those grounds,

THE PRESIDENT OF THE COURT OF FIRST INSTANCE

hereby orders:

1. The application for interim relief is dismissed.

2. The costs are reserved.