CELEX: 62001TJ0217
Language: en
Date: 2003-04-09
Title: Judgment of the Court of First Instance (Fourth Chamber) of 9 April 2003. # Forum des migrants de l'Union européenne v Commission of the European Communities. # Community financial support - Operating costs - Decision to terminate financial support - Principle of sound financial management - Interpretation of the conditions of support - Right to a fair hearing - Protection of legitimate expectations. # Case T-217/01.

Case T-217/01 Forum des migrants de l'Union européennevCommission of the European Communities
            «(Community financial support – Operating costs – Decision to terminate financial support – Principle of sound financial management – Interpretation of the conditions of support – Rights of the defence – Protection of legitimate expectations)»
            
               
                  Judgment of the Court of First Instance (Fourth Chamber), 9 April 2003  
                     
                
               
            
                   
               
               
            
            Summary of the Judgment
         
         
                  1..
                  Community law – Principles – Rights of the defence – Compliance when the Commission adopts a decision to terminate Community financial support  
         
                  2..
                  Acts of the institutions – Statement of reasons – Obligation – Scope – Reference to a document annexed – Whether permissible  (Art. 253 EC) 
         
                  3..
                  Community law – Principles – Protection of legitimate expectations – Protection refused to person committing a manifest infringement of the rules in force  
         
         1.
          Observance of the right to be heard is, in all proceedings initiated against a person which are liable to culminate in a measure
         adversely affecting that person, a fundamental principle of Community law which must be guaranteed even in the absence of
         any rules governing the proceedings in question. That principle requires that the addressees of decisions which significantly
         affect their interests should be placed in a position in which they may effectively make known their views. The Commission decision to terminate Community financial support, concluded with the applicant, within the framework of a
         grant agreement, when the latter had the opportunity to make observations on the factors taken into account by the Commission
         as the basis of its decision complies with that principle, even if the auditors' annual report carried out by the Commission
         staff concerning the audit of the applicant's accounts, to which the decision refers, was only sent when the applicant was
         notified of the decision. see paras 56, 61, 63
         
         2.
          Pursuant to Article 253 EC, the reasons stated for a measure must disclose clearly and unequivocally the reasoning of the
         Community authority which adopted it, so as to make the persons concerned aware of the reasons for the measure and thus enable
         them to defend their rights, and so as to enable the Community judicature to exercise its power of review. The extent of the
         obligation to state reasons depends on the nature of the measure at issue and the context in which it was adopted, as well
         as on all of the legal rules applicable to the subject-matter in question. In addition, when reference is made to a document annexed to a decision and therefore to its contents, the duty to give reasons
         for that decision may be satisfied by such a document. see paras 68-69
         
         3.
          The right to rely on the principle of protection of legitimate expectations extends to any economic operator to whom an institution
         has given justified hopes. However, it is settled law that the principle of protection of legitimate expectations may not
         be relied upon by an undertaking which has committed a manifest infringement of the rules in force. see para. 76
      

      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
            
            JUDGMENT OF THE COURT OF FIRST INSTANCE (Fourth Chamber)9 April 2003 (1)
         
         
               ((Community financial support – Operating costs – Decision to terminate financial support – Principle of sound financial management – Interpretation of the conditions of support – Right to a fair hearing – Protection of legitimate expectations))
               
             In Case T-217/01, 
            
            
            Forum des migrants de l'Union européenne,   having its registered office in Brussels (Belgium), represented initially by E. Degrez and subsequently by N. Crama, lawyers,
            
            
            applicant, 
            
            v
            Commission of the European Communities, represented by A.-M. Rouchaud-Joët and L. Parpala, acting as Agents, with an address for service in Luxembourg,
            
            defendant, 
            
             APPLICATION for annulment of the Commission's decision of 11 July 2001 to terminate the financial support granted to the applicant
            under Article A0-3040 of the Community budget,
            
            
            THE COURT OF FIRST INSTANCE OF THE EUROPEAN COMMUNITIES (Fourth Chamber),
            
             composed of: V. Tiili, President, P. Mengozzi and M. Vilaras, Judges, 
            
             Registrar: D. Christensen, Administrator, 
            
            
            having regard to the written procedure and further to the hearing on 12 December 2002,
         gives the following
         
         
         Judgment
            
                Facts
            
         
         1
            
          The applicant is an international non-profit-making association promoting information and protection of the rights of migrants
         at the European institutions. It brings together several non-governmental organisations active in the sphere of asylum and
         immigration. 
         
         
         2
            
          The main part of its budget is financed by the European Community. To that end, the applicant concluded a grant agreement
         with the Commission on 23 May 2000 for a maximum amount of EUR 800 000 (
         the Grant Agreement). Under Article 1 of the Grant Agreement the grant was to cover the applicant's operating costs for the year 2000. Under
         Article 3 the grant was calculated at EUR 800 000, equivalent to 86.65% of the total estimated costs eligible for Community
         financing. That sum was to be paid in three instalments. 
         
         
         3
            
          The financial guarantee required for the payment of the first instalment of the grant was sent by the applicant to the Commission
         on 18 July 2000, and the first instalment of EUR 400 000 was paid by the Commission on 8 August 2000. 
         
         
         4
            
          On 15 November 2000, the applicant sent the Commission the audit report which it had undertaken following notice by the Commission
         of its intention to carry out an audit. 
         
         
         5
            
          By letter of 28 November 2000 the applicant requested payment of the second instalment of the grant, 25% of the total, and
         produced for that purpose the interim financial report for the first three quarters of the year 2000 (
         the interim report). Taking the view that the report was insufficient to justify the payment of the second instalment, the Commission sent a
         request for further information and documents to the applicant by letter of 5 December 2000. The applicant responded to that
         request by letter dated 11 December 2000. 
         
         
         6
            
          Commission staff carried out an audit of the applicant's accounts on 11 and 12 December 2000. 
         
         
         7
            
          Following that audit another request for further information was sent to the applicant on 18 December 2000. 
         
         
         8
            
          The Commission informed the applicant of its decision to suspend payment of the grant for the year 2000 by letter of 19 January
         2001. In that letter it also informed the applicant that its file would be sent to the European Anti-Fraud Office (OLAF).
         
         
         
         9
            
          By letters of 24 and 31 January 2001, the applicant complained that it had not received the audit report carried out by the
         Commission's staff. It also requested to be informed in writing of the Commission's complaints. 
         
         
         10
            
          By letter of 5 February 2001, the Commission responded to the applicant, informing it that the OLAF investigation was actually
         under way and that it would be informed of the results of the investigation as soon as possible. 
         
         
         11
            
          A visit to the applicant's premises was organised by the Commission on 1 March 2001, in the presence of OLAF, Commission staff
         and Mr Charchira, the applicant's president. 
         
         
         12
            
          By letter of 30 April 2001, the applicant requested a meeting with the responsible Member of the Commission in order to discuss
         its position. On 18 May 2001, the responsible Member of the Commission informed the applicant that he had instructed his staff
         to carefully consider that letter. 
         
         
         13
            
          On 3 May 2001, the competent staff of the Commission went to the applicant's head office in order to determine the eligibility
         of all the financial transactions in the financial year 2000. That examination was not possible because of the state of the
         applicant's accounts. The same day the Commission sent a letter to Mr Charchira, requesting him to produce a series of missing
         bank statements and to reorganise the accounting documents in chronological order of execution of the payments. 
         
         
         14
            
          By letter of 22 May 2001 the Commission informed the applicant that the audit undertaken by its staff and OLAF was still under
         way. 
         
         
         15
            
          By registered letter of 11 July 2001, the Commission informed the applicant of its decision to terminate financial support
         for the financial year 2000 (
         the contested decision). The audit report, on the basis of which the decision was taken, was attached to the decision. 
         
         
         16
            
          The contested decision stated in particular: I refer to the various correspondence exchanged between you and Commissioner Antonio Vitorino and his staff at the Directorate-General
         of Justice and Home Affairs. I must inform you of the decision which has been taken in respect of the future financing of
         the Forum. The audits which have been undertaken by the Commission, whose conclusions have not been contradicted in any way
         by the investigation recently completed by the Anti-Fraud Office, have revealed not only important lacunae in terms of management
         but also serious irregularities. Consequently, I am obliged to put an end to the Commission's financial support under Article
         A0-3040 of the Community budget on the basis of Article 1 of the general conditions of the Grant Agreement for the financial
         year 2000. Please find attached the audit report by my staff on which this decision is based. The possible financial consequences
         will be notified to you shortly.
         
         
         17
            
          The file of the OLAF investigation was sent to the Public Prosecutor in Brussels on 2 July 2001. 
         Procedure and forms of order sought
         
         18
            
          By application lodged at the Registry of the Court of First Instance on 11 September 2001 the applicant brought the present
         proceedings. 
         
         
         19
            
          By a document lodged at the Registry of the Court of First Instance on 24 April 2002, KBC Bank SA requested permission to
         intervene in the present proceedings. That request was rejected as inadmissible by order of the President of the Fourth Chamber
         of the Court of First Instance on 28 June 2002. 
         
         
         20
            
          Following the report of the Judge-Rapporteur the Court of First Instance (Fourth Chamber) decided to open the oral procedure.
         
         
         
         21
            
          The parties presented oral argument and answered the questions put to them by the Court at the hearing on 12 December 2002.
         
         
         
         22
            
          The applicant submits that the Court of First Instance should: 
         
         
         ─
             annul the contested decision; 
          annul the contested decision; 
         
         
         
         ─
             order the Commission to pay the costs. 
          order the Commission to pay the costs. 
         
         
         
         
         23
            
          The Commission contends that the Court of First Instance should: 
         
         
         ─
             dismiss the action as unfounded; 
          dismiss the action as unfounded; 
         
         
         
         ─
             order the applicant to pay the costs. 
          order the applicant to pay the costs. 
         
         
         Law The first plea: infringement of Article 1(2) of the general conditions governing the Grant Agreement
          Arguments of the parties
         
         
         24
            
          The applicant takes the view that the contested decision is unlawful, because it is not in accordance with Article 1(2) of
         the general conditions governing the Grant Agreement. By putting an end to that agreement on the ground that the investigations
         showed lacunae of management and serious irregularities, the Commission relied on a ground of termination which is not provided
         for in the Grant Agreement. That agreement only provides for termination in two situations: the bankruptcy or liquidation
         of the beneficiary and the production of false or incomplete statements by the beneficiary in order to obtain the grant. 
         
         
         25
            
          The applicant argues that its requests for payment of the final instalments of the grant are not based on false or incomplete
         statements. Moreover, it is neither in bankruptcy nor in liquidation nor in any similar situation. Furthermore, the contested
         decision does not show the existence of false statements intended to obtain the grant provided for in the Grant Agreement.
         
         
         
         26
            
          The contested decision, which terminates the financing for the year 2000 and which dates from 2001, has no purpose, given
         that all the expenditure, eligible or ineligible, has already been made for the year 2000. The premature termination of the
         Grant Agreement could only have been contemplated during the year 2000, the year covered by the agreement. 
         
         
         27
            
          The applicant points out that neither the problems of internal organisation nor the questions of eligibility of expenditure
         can justify a decision to terminate the Grant Agreement. 
         
         
         28
            
          By choosing to terminate the agreement voted by the European Parliament on behalf of the applicant, the Commission failed
         to comply with its duty to implement the budget under Article 272 EC et seq. The applicant takes the view that it is clear
         that  
         cutting the subsidies of an organisation which contributes to the public good does not satisfy the principle of good administration, and condemns
         that organisation to disappear, even though the Parliament and the Commission acknowledge its usefulness. 
         
         
         29
            
          The Commission observes, first, that the Grant Agreement is not, strictly speaking, a contract but rather a unilateral decision
         by the Commission granting financial support to an organisation which pursues objectives of Community interest.  That agreement
         sets out in Article 3 the general terms for the award of the grant and the expenditure eligible for Community financing. 
         
         
         30
            
          The Commission takes the view that it was entitled to terminate the Grant Agreement without notice, in accordance with Article
         1(2) of the general conditions, because the applicant made false or incomplete statements. The recommendations of Westen &
         Co., the company which carried out the audit at the applicant's request, clearly demonstrate the failings in the applicant's
         administration and their consequences for the content of the actions which it undertakes. Western & Co. pointed out that the
         applicant had neither internal auditing, nor an approved bookkeeper, nor a cash-book. Doubts were also expressed with regard
         to the documents in support of cash expenditure. 
         
         
         31
            
          According to the Commission, the interim financial report did not satisfy the requirements laid down by the Grant Agreement.
         It was a simple statement which did not correspond in any way to accounting practice. In particular, as was pointed out during
         the audit on 11 and 12 December 2000, the accounts produced included numerous items of expenditure not in fact incurred and
         which was therefore ineligible. 
         
         
         32
            
          The cancellation of the grant must not be confused with its liquidation, that is to say the payment of the amounts provided
         for by the agreement for the period covered, on acceptance by the Commission of accounting documents proving the eligible
         expenditure. Thus by providing documentary evidence of eligible expenditure the applicant could have claimed payment of the
         sums stipulated by the Grant Agreement, to the full amount duly documented. 
         
         
         33
            
          On the basis of the only supporting documents available the Commission has established the amount of the applicant's eligible
         expenditure. Setting off those sums against the amount of the first instalment paid in August 2000 left a balance of EUR 53
         608.94 in favour of the Commission. It has issued a recovery order for that amount. 
         
         
         34
            
          The Commission points out that the applicant does not even attempt to show that the documents provided in support of its claim
         for payment of the second instalment of the grant are in accordance with the requirements laid down by the Grant Agreement.
         
         
         
         35
            
          Under Article 2(2) of the Grant Agreement, the agreement only comes to an end at the date of payment of the final instalment.
         The Commission thus remains free to terminate the agreement under Article 1(2) of the general conditions governing the Grant
         Agreement until the date of the final payment. 
         
         
         36
            
          The Commission refutes the assertion that the application of Article 1(2) of the general conditions governing the Grant Agreement
         requires an element of intent. According to the text, it is sufficient that the beneficiary makes a false or incomplete statement.
         
         
         
         37
            
          Finally, the Commission takes the view that the applicant has introduced a new plea in its reply which challenges the legality
         of the contested decision, alleging that the Commission has failed to fulfil its duty to implement the budget under Article
         272 EC et seq. Consequently, the Commission takes the view that pursuant to Article 48(2) of the Rules of Procedure that plea
         should not be taken into account. 
         
         
         38
            
          Alternatively, the Commission states that it has implemented the budget relating to the grant at issue in accordance with
         the Community financial rules in force. The fact that the budget heading at issue was entered by the Budgetary Authority does
         not give rise to an automatic obligation on the Commission to implement it. 
          Findings of the Court
         
         
         39
            
          As a preliminary point, it must be observed that notwithstanding a certain ambiguity in its wording the contested decision
         only concerns, as the Commission confirmed during the hearing in response to a question by the Court of First Instance, the
         grant for the year 2000. 
         
         
         40
            
          It is clear from the Grant Agreement that Community financing for the applicant was subject to compliance by it with a certain
         number of conditions listed in the agreement and in the general conditions which are annexed to it. 
         
         
         41
            
          Article 1(2) of the general conditions governing the Grant Agreement clearly states that the Commission may terminate the
         agreement and decide to withdraw the grant without notice or compensation if the beneficiary has made false or incomplete
         statements in order to obtain the grant stipulated by the agreement. 
         
         
         42
            
          Furthermore, the terms used in the Grant Agreement and in the general conditions which are annexed to it clearly show that
         an interim report and a final report had to be lodged and accepted before the payment of the two final instalments of the
         grant. 
         
         
         43
            
          In addition, Article 4 of the Grant Agreement provides that 25% of the total amount of the grant referred to in Article 3.1
         is to be paid to the beneficiary within 60 days of the recept and acceptance of an interim report and a claim for payment,
         and that the balance is to be paid within 60 days of receipt and approval of a definitive financial report and claim for final
         payment. 
         
         
         44
            
          It is clear from those provisions that the Commission, before paying the balance of a grant awarded, was entitled to ensure
         that the conditions laid down by the Grant Agreement had been satisfied. It is also clear that the Commission could terminate
         the Grant Agreement if the beneficiary gave incomplete information on its operating costs in order to obtain payment of the
         grant. 
         
         
         45
            
          In this case it is common ground that with the claim for payment of the second instalment of the grant, dated 28 November
         2000, the applicant provided the Commission with a financial report which, far from being accepted by the Commission, gave
         rise to requests for further information in the light of both the fact that it was incomplete and the audits of the applicant's
         accounts. 
         
         
         46
            
          It appears from the file that the audits of the applicant's accounts revealed serious irregularities whose existence is not
         contested by the applicant. Thus it appears from the audit report annexed to the contested decision that as regards the receipts
         all the documents available for the financial year 2000 showed a total amount of expenditure of BEF 197 811, of which BEF
         142 555 has been estimated to be ineligible. Among those receipts there are,  
         inter alia, supporting documents which are not in conformity with requirements (documents 1, 7, 8, 10, 12, 25, 26), reimbursement of
         expenses without any supporting documents (documents 2, 3, 4, 9) or reimbursement of unwarranted expenses (documents 17, 18,
         20, 24) and receipts which were inadmissible as ineligible under the Grant Agreement (documents 5, 6, 11, 14, 15, 16, 21,
         22). As regards the banking documents, all the available evidence for the first quarter of 2000 shows a total amount of expenditure
         of BEF 3 229 323, of which the sum of BEF 851 211.97 has been held to be ineligible. Among those pieces of evidence, some
         relate to reimbursement of mission expenses submitted on incomplete and unsigned forms or without supporting documents (documents
         1, 2, 6, 10, 12, 16, 18), entertainment expenses which are either ineligible or unsubstantiated (documents 3, 4, 5, 13, 15),
         fees for non-defined services (document 7), payments of services without appropriate supporting documents (documents 8, 9,
         11, 20, 21 to 25), and expenses paid in cash without explanation (document 17). 
         
         
         47
            
          In those circumstances the Commission was entitled to terminate the financial support granted to the applicant for the year
         2000, under Article 1(2) of the general conditions governing the Grant Agreement, in the light of the statements, which are
         at the very least incomplete, made by the applicant in order to obtain the grant at issue. 
         
         
         48
            
          As to the applicant's argument alleging that the Commission could not adopt a decision in 2001 to cancel financial support
         granted for the year 2000, it must be observed that such a decision could only be made at the end of the financial year in
         question, and after completion of the formalities required by the verification of the eligibility of the applicant's expenses,
         and that within a reasonable time. By adopting the contested decision on 11 July 2001 the Commission has not committed any
         irregularity. 
         
         
         49
            
          Finally, as regards the applicant's argument that the Commission was bound, in the course of its implementation of the Community
         budget, to pay the grant allocated to the applicant under the relevant budget heading, it must be pointed out that independently
         of the question whether that is a new plea, that argument is without any foundation, since the entry in the budget of an item
         of expenditure only requires payment of the amount provided for if the conditions for payment of that expenditure are fulfilled,
         which was not the case here. 
         
         
         50
            
          In the light of the foregoing, the applicant's plea alleging that the contested decision was taken in breach of Article 1(2)
         of the general conditions governing the Grant Agreement must be dismissed. 
          The second plea: infringement of the right to a fair hearing
          Arguments of the parties
         
         
         51
            
          The applicant takes the view that the contested decision is based on investigations which were undertaken without regard to
         the applicant's right to be heard. The audit report was only communicated to it in the annex to the contested decision. Moreover,
         that report was drafted in terms so vague that it was not possible for it to explain itself. No member of its staff was present
         during the investigation, in breach of the principle of the right to be heard. 
         
         
         52
            
          Additionally, the Commission ordered several other audits (in December 2000, March 2001 and May 2001) of which neither the
         preliminary findings nor the results were communicated to it despite several requests by the president. The applicant states
         that it was not able sufficiently to safeguard its rights of defence. 
         
         
         53
            
          The Commission takes the view that the second plea is based on the mistaken premiss that the auditors' report is the source
         of the contested decision. However, the  
         suspension of the grant is based on the applicant's failure to comply with the requirements stipulated by the Grant Agreement, that is, the obligation
         to provide accurate and complete information. Therefore the Commission had no obligation to send the audit report to the applicant
         whereas the applicant, on the contrary, was obliged to provide supporting documents for the payment of the grant. However,
         those documents were not produced. 
         
         
         54
            
          The Commission states that its staff regularly informed the applicant, orally or in writing, of the deficiencies and irregularities
         in the documents provided in support of the claim for payment of the second instalment of the grant. It makes reference, in
         particular, to the applicant's letter of 24 January 2001. As regards the investigation conducted by its staff on 11 and 12
         December 2000, it states that Mr Charchira, the applicant's president, and Mr Van den Eede, the applicant's accountant, were
         present. 
         
         
         55
            
          Furthermore, Mr Charchira was present both during the mission carried out by OLAF on 1 March 2001 and the visit of the Commission
         staff on 3 May 2001 which sought to determine the eligibility of the expenditure for the financial year 2000. Mr Charchira
         was also present at the meeting organised at his request on 20 July 2001, following the adoption of the contested decision.
         
          Findings of the Court
         
         
         56
            
          According to settled case-law, observance of the right to be heard is, in all proceedings initiated against a person which
         are liable to culminate in a measure adversely affecting that person, a fundamental principle of Community law which must
         be guaranteed even in the absence of any rules governing the proceedings in question. That principle requires that the addressees
         of decisions which significantly affect their interests should be placed in a position in which they may effectively make
         known their views (Case C-32/95 P  
         Commission v  
         Lisrestal and Others [1996] ECR I-5373, paragraph 21). 
         
         
         57
            
          In the present proceedings, it is common ground that the applicant only received the audit report when it was notified of
         the contested decision. Consequently, it is appropriate to consider whether, in those circumstances, the applicant was in
         a position to fully explain its view on the cancellation of the grant. 
         
         
         58
            
          The first point to note in that regard is that according to settled case-law applicants for and beneficiaries of Community
         financial aid have an obligation to provide information and to act in good faith, and are thus required to satisfy themselves
         that they are submitting to the Commission reliable information (Case T-180/00  
         Astipesca v  
         Commission [2002] ECR II-3985, paragraph 93). Accordingly, the applicant had a duty to provide supporting documents for the purpose
         of the payment of the grant. It is common ground that those documents were not provided. 
         
         
         59
            
          The Commission asked the applicant for information on ineligible expenditure on several occasions. After having received the
         request for payment of the second instalment of the grant on 28 November 2000 the Commission sent several requests for further
         information and documents to the applicant,  
         inter alia on 5 and 18 December 2000 and 3 May 2001. In addition, the Commission undertook several audits at the applicant's head office,
         in particular on 11 and 12 December 2000, 1 March 2001 and 3 May 2001. Its audits were always undertaken in the presence of
         one or more of the applicant's representatives, as the applicant confirmed at the hearing. On several occasions the Commission
         drew the applicant's attention to the fact that its accounts did not permit verification that the conditions for the payment
         of the outstanding amount of the grant had been satisfied. In particular, the Commission emphasised in its letter of 19 January
         2001 that following the audit of December 2000 it was concerned as to the manner in which the grant was administered. By letter
         of 3 May 2001, the Commission informed the applicant that the verification of the eligibility of all the financial transactions
         made in the course of the financial year 2000 required  
         the revision of the banking ledger (copies of missing bank statements) and refiling of account documents in chronological
         order of the execution of the relevant payments. It added that during the audit of 3 May 2001  
         it was observed that the banking ledger [was] incomplete (several statements were missing), and that the organisation of the
         account documents did not permit [the establishment] of a direct link (references and chronological order) with the bank statements
         relating to their payment. 
         
         
         60
            
          It is clear from the foregoing that the Commission offered the applicant on several occasions the chance to organise its accounts
         so as to include supporting documents for the payment of the balance of the grant. In addition, as it is clear from paragraph
         46 above, all the banking and cash receipts available for the financial year 2000 were examined. On the basis of the available
         supporting documents the Commission established the amount of the applicant's eligible expenditure. Setting off those sums
         against the amount of the first instalment paid in August 2000 left a balance of EUR 53 608.94 in favour of the Commission.
         Nothing prevented the applicant from providing the appropriate supporting documents required under the Grant Agreement in
         order to receive the remainder of the grant or to contest the Commission's assessment of its accounts. 
         
         
         61
            
          Therefore, in spite of the fact that the final auditors' report was only sent to the applicant when it was notified of the
         contested decision, the applicant had ample opportunity to present its observations on the factors taken into account by the
         Commission as the basis for the contested decision. 
         
         
         62
            
          In addition, the Commission has clearly stated that the factors considered in the course of the various audits were likely
         to constitute irregularities for the purpose of Article 1(2) of the general conditions governing the Grant Agreement and might
         justify the cancellation of the financial aid at issue and the recovery of the sums already paid. It expressly mentioned the
         types of irregularities observed, that is, a lack of supporting evidence and the existence of ineligible expenditure. 
         
         
         63
            
          It is clear from the foregoing that the applicant had the opportunity to make observations on all the irregularities complained
         of. In those circumstances, it must be held that the contested decision was taken in compliance with the principle of the
         right to be heard even if the audit report was only sent to the applicant when it was notified of the contested decision.
         
         
         
         64
            
          In addition, the applicant does not contest the existence of the facts referred to in the audit report. In those circumstances
         the applicant's complaint that the Commission infringed its right to be heard by failing to send it the audit report before
         the adoption of the contested decision is invalid. In so far as the applicant does not consider that the findings of the audit
         report were incorrect, it has no grounds for arguing that its right to be heard has been infringed. 
         
         
         65
            
          It follows that the second plea must be dismissed. 
          The third plea: infringement of the duty to give reasons
          Arguments of the parties
         
         
         66
            
          The applicant takes the view that the statement of reasons in the contested decision is inadequate as it does not clearly
         indicate the provision of the Grant Agreement on which it is based or the allegedly false statements which it made. It still
         does not know whether the contested decision terminates the Grant Agreement or whether that decision refuses to take account
         of certain expenditure considered not to be eligible. Consequently, it is unable to submit its views and to organise its defence.
         
         
         
         67
            
          The Commission considers that the statement of reasons in the contested decision is adequate because the applicant could not
         be unaware of which paragraph of Article 1 of the general conditions governing the Grant Agreement was referred to by the
         contested decision. 
          Findings of the Court
         
         
         68
            
          It is well established in case-law that, pursuant to Article 253 EC, the reasons stated for a measure must disclose clearly
         and unequivocally the reasoning of the Community authority which adopted it, so as to make the persons concerned aware of
         the reasons for the measure and thus enable them to defend their rights, and so as to enable the Community judicature to exercise
         its power of review. The extent of the obligation to state reasons depends on the nature of the measure at issue and the context
         in which it was adopted, as well as all of the legal rules applicable to the subject-matter in question (see Case C-350/88
          
         Delacre and Others v  
         Commission [1990] ECR I-395, paragraphs 15 and 16; Case T-126/97  
         Sonasa v  
         Commission [1999] ECR II-2793, paragraph 64). 
         
         
         69
            
          In addition, according to settled case-law, when reference is made to a document annexed to a decision and therefore to its
         contents, the duty to give reasons for that decision may be satisfied by such a document (see, to that effect, Joined Cases
         T-551/93 and T-231/94 to T-234/94  
         Industrias Pesqueras Campos and Others v  
         Commission [1996] ECR II-247, paragraphs 142 to 144). 
         
         
         70
            
          In this case it is sufficient to observe that the contested decision makes express reference to Article 1 of the general conditions
         governing the Grant Agreement. In the light of the applicant's position and the content of the three paragraphs which make
         up that article the reference could only relate to the situation referred to in the second subparagraph of paragraph 2. Furthermore
         the audit report, which is annexed to the contested decision, clearly states the reasons which led the Commission to cancel
         the grant. In those circumstances it must be held that the statement of reasons in the contested decision was sufficient to
         enable the applicant to defend its rights and for the Court of First Instance to exercise its power of review. 
         
         
         71
            
          Accordingly, the third plea cannot be upheld. 
          The fourth plea: infringement of the principle of legitimate expectations
          Arguments of the parties
         
         
         72
            
          The applicant alleges that the Grant Agreement created a debt towards it equivalent to 86.65% of its eligible expenditure.
         By waiting more than eight months after the submission of the interim report and more than seven months after the expiry of
         the period covered by the Grant Agreement, the Commission gave it justified hopes that the Grant Agreement would be honoured,
         given that the payment of the second instalment of the grant was supposed to take place within 60 days of the acceptance of
         the interim report. 
         
         
         73
            
          Neither the letter of 19 January 2001 nor the various audits undertaken by the Commission was evidence sufficient to preclude
         the creation of legitimate expectations on the applicant's part. 
         
         
         74
            
          The Commission argues that it did not provide the applicant with any precise, unconditional and consistent assurances such
         as to give rise to a legitimate expectation on its part. 
         
         
         75
            
          The Commission adds that the applicant was aware of the procedure which led to the cancellation of the grant at issue. 
          Findings of the Court
         
         
         76
            
          The right to rely on the principle of protection of legitimate expectations extends to any economic operator to whom an institution
         has given justified hopes.  However, it is settled law that the principle of protection of legitimate expectations may not
         be relied upon by an undertaking which has committed a manifest infringement of the rules in force (
         Sonasa v  
         Commission, paragraphs 33 and 34). 
         
         
         77
            
          According to the applicant, by waiting more than eight months after the lodging of the interim report and more than seven
         months after the expiry of the period covered by the Grant Agreement, the Commission gave the applicant justified hopes that
         the Grant Agreement would be honoured, given that the payment of the second instalment of the grant was supposed to take place
         within 60 days of acceptance of the interim report. 
         
         
         78
            
          In that regard it must be observed, first of all, that that statement has no factual basis. The award of the grant was subject
         to production of supporting financial statements in accordance with Article 3 of the Grant Agreement. That provision made
         payment of the grant conditional upon acceptance by the Commission of the financial report. In this case, the Commission informed
         the applicant by letter of 19 January 2001, that is, within 60 days of the sending of the interim report on 28 November 2000,
         that payment of the grant had been suspended. Furthermore, as the file shows, the Commission had already informed the applicant
         in December 2000 that it should provide further information in support of its claim for payment of the second instalment of
         the grant. 
         
         
         79
            
          Next, it must be recalled that, as was held during consideration of the first plea, the applicant has not fulfilled the obligation
         incumbent on it under the Grant Agreement to provide documents capable of justifying payment of the Community grant at issue.
         
         
         
         80
            
          In those circumstance it cannot claim that the Commission gave it justified hopes as to payment of that grant. 
         
         
         81
            
          In the light of the foregoing the fourth plea and therefore the present application must be dismissed. 
         
         Costs
         82
            
          Under Article 87(2) of the Rules of Procedure of the Court of First Instance, the unsuccessful party is to pay the costs if
         they have been applied for in the successful party's pleadings. Since the applicant has been unsuccessful and the defendant
         has applied for costs, the applicant must be ordered to pay the costs of the defendant. 
         
         On those grounds, 
         
         
         
            
            THE COURT OF FIRST INSTANCE (Fourth Chamber)
         
         
          hereby: 
         
            
            1.
             Dismisses the application; 
            
            
            2.
             Orders the applicant to pay its own costs and those of the defendant. 
            
            
                  Tiili
               
               
                  Mengozzi 
               
               
                  Vilaras 
               
            
                  
               
               
                  
               
               
                  
               
            
                  
               
               
                  
               
               
                  
               
            
                  
               
               
                  
               
               
                  
               
            
                  
               
               
                  
               
               
                  
               
            
            
            
            
            
            
            
            
         
         
          Delivered in open court in Luxembourg on 9 April 2003. 
         
         
         
         
                  H. Jung 
               
               
                  V. Tiili  
               
            
         
         
         
                  Registrar
               
               
                  President
               
            
         
            
         
      
          1 –
            
             Language of the case: French.