Germany v Commission (Judgment) [2015] EUECJ C-549/12 (24 June 2015)

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(Appeals — European Regional Development Fund (ERDF) — Reduction of financial assistance — Method of calculation by extrapolation — European Commission’s procedure for the adoption of the decision — Failure to comply with the time-limit — Consequences)

TWO APPEALS under Article 56 of the Statute of the Court of Justice of the European Union, lodged on 29 November 2012 and 31 January 2013 respectively,

Federal Republic of Germany, represented by T. Henze, acting as Agent, and by U. Karpenstein, C. Johann, C. von Donat and J. Lipinsky, Rechtsanwälte,

French Republic, represented by G. de Bergues, D. Colas and N. Rouam, acting as Agents,

Kingdom of the Netherlands, represented by M. Bulterman and B. Koopman, acting as Agents (C‑54/13 P),

European Commission, represented by B. Conte and A. Steiblytė, acting as Agents, with an address for service in Luxembourg,

composed of A. Tizzano, President of the Chamber, S. Rodin, A. Borg Barthet, E. Levits (Rapporteur) and M. Berger, Judges,

having regard to the written procedure and further to the hearing on 9 January 2014,

after hearing the Opinion of the Advocate General at the sitting on 1 April 2014,

1 By its appeals the Federal Republic of Germany seeks that the judgments of the General Court of the European Union in Germany v Commission (T‑265/08, EU:T:2012:434) and Germany v Commission (T‑270/08, EU:T:2012:612) (‘the judgments under appeal’) be set aside. By those judgments the General Court rejected the Federal Republic of Germany’s applications for the annulment, respectively, of Commission Decision C(2008) 1690 final of 30 April 2008 reducing the financial assistance granted from the European Regional Development Fund (ERDF) to the Operational Programme in the Objective 1 area of the Land Thüringen (Germany) (1994-1999), in accordance with Commission Decision C(94) 1939/5 of 5 August 1994 (‘the decision relating to the Land Thüringen’), and of Commission Decision C(2008) 1615 final of 29 April 2008 reducing the financial assistance granted from the European Regional Development Fund (ERDF) by Commission Decision C(94) 1973 of 5 August 1994 to the Operational Programme for Berlin (East) (Germany) relating to Objective No 1 (1994-1999) (‘the decision relating to Berlin (East)’).

2 The European Regional Development Fund (‘the ERDF’) was established by Regulation (EEC) No 724/75 of the Council of 18 March 1975 (OJ 1975 L 73, p. 1, and corrigendum OJ 1975 L 110, p. 44), amended on numerous occasions then replaced, from 1 January 1985, by Council Regulation (EEC) No 1787/84 of 19 June 1984 on the European Regional Development Fund (OJ 1984 L 169, p. 1).

3 In the course of 1988, that body of rules relating to the Structural Funds was reformed by Council Regulation (EEC) No 2052/88 of 24 June 1988 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).

4 Regulation No 2052/88, which entered into force on 1 January 1989, had to be re-examined by the Council, acting on a proposal from the Commission of the European Communities, by a deadline expiring on 31 December 1993.

5 That regulation too was amended by Council Regulation (EEC) No 2081/93 of 20 July 1993 (OJ 1993 L 193, p. 5), which itself had to be re-examined by 31 December 1999.

6 Those regulations establish the Structural Funds (the Guidance Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), the European Social Fund (ESF) and the ERDF) which are intended to help redress the main regional imbalances in the European Union, in particular by promoting the development and structural adjustment of regions whose development is lagging behind (‘Objective 1’) and by reviving regions, cross-border regions or parts of regions (including employment catchment areas and urban communities) seriously affected by industrial decline (‘Objective 2’).

7 Article 7 of Regulation No 2052/88, as amended by Regulation No 2081/93 (‘Regulation No 2052/88’), entitled ‘Compatibility and checks’, provides in paragraph 1:

‘Measures financed by the Structural Funds or receiving assistance from the [European Investment Bank] (EIB) or from another existing financial instrument shall be in conformity with the provisions of the Treaties, with the instruments adopted pursuant thereto and with Community policies, including those concerning the rules on competition, the award of public contracts and environmental protection and the application of the principle of equal opportunities for men and women.’

8 Article 23, entitled ‘Financial control’, of Council Regulation (EEC) No 4253/88 of 19 December 1988 laying down provisions for implementing Regulation No 2052/88 as regards the 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), as amended by Council Regulation (EEC) No 2082/93 of 20 July 1993 (OJ 1993 L 193, p. 20) (‘Regulation No 4253/88’), provides:

‘1. In order to guarantee completion of operations carried out by public or private promoters, Member States shall take the necessary measures in implementing the operations:

– to verify on a regular basis that operations financed by the Community have been properly carried out,

– to recover any amounts lost as a result of an irregularity or negligence. Except where the Member State and/or the intermediary and/or the promoter provide proof that they were not responsible for the irregularity or negligence, the Member States shall be liable in the alternative for reimbursement of any sums unduly paid. ...

Member States shall inform the Commission of the measures taken for those purposes and, in particular, shall notify the Commission of the description of the management and control systems established to ensure the efficient implementation of operations. They shall regularly inform the Commission of the progress of administrative and judicial proceedings.

2. Without prejudice to checks carried out by Member States, in accordance with national laws, regulations and administrative provisions and without prejudice to the provisions of Article 206 of the [EEC] Treaty or to any inspection arranged on the basis of Article 209(c) of the Treaty, Commission officials or servants may carry out on-the-spot checks, including sample checks, in respect of operations financed by the Structural Funds and management and control systems.

3. For a period of three years following the last payment in respect of any operation, the responsible body and authorities shall keep available for the Commission all the supporting documents regarding expenditure and checks on the operation.’

9 Article 24 of Regulation No 4253/88 is entitled ‘Reduction, suspension and cancellation of assistance’ and provides:

‘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 in the framework of the partnership, in particular requesting that the Member State or authorities designated by it to implement the operation submit their comments within a specified period of time.

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.

10 Pursuant to Article 11 of Council Regulation (EEC) No 4254/88 of 19 December 1988 laying down provisions for implementing Regulation No 2052/88 as regards the European Regional Development Fund (OJ 1988 L 374, p. 15), as amended by Council Regulation No 2083/93 of 20 July 1993 (OJ 1993 L 193, p. 34), entitled ‘Monitoring of compatibility’, ‘[w]here appropriate and through procedures suitable to each policy, Member States shall supply the Commission with information concerning compliance with the provisions of Article 7(1) of Regulation … No 2052/88’.

11 After consulting the Advisory Committee on the Development and Conversion of Regions and the Committee under Article 147 of the EC Treaty, and referring to Article 23 of Regulation No 4253/88, the Commission adopted various implementing regulations, including Regulation (EC) No 2064/97 of 15 October 1997 establishing detailed arrangements for the implementation of Regulation No 4253/88 as regards the financial control by Member States of operations co-financed by the Structural Funds (OJ 1997 L 290, p. 1).

‘1. No later than at the time of the request for the final payment and the final declaration of expenditure in respect of each form of assistance, Member States shall present to the Commission a statement … drawn up by a person or organisation functionally independent of the implementing service. The statement shall summarise the conclusions of the control examinations made in the previous years and provide an overall conclusion as to the validity of the request for the final payment and the legality and regularity of the operations underlying the final declaration of expenditure.

2. If the presence of important management or control weaknesses or the high frequency of irregularities encountered does not allow the provision of a positive overall assurance as to the validity of the request for final payment and the final declaration of expenditure, the statement shall refer to these circumstances and shall estimate the extent of the problem and its financial impact.

In such a case the Commission may ask that a further control be carried out with a view to the identification and rectification of irregularities within a specified period of time.’

13 On 15 October 1997, the Commission also adopted internal guidelines concerning net financial corrections in the context of the application of Article 24 of Regulation No 4253/88. In points 5 and 6 of those internal guidelines the Commission states that, in derogation from the rule whereby every net financial correction must relate solely to the irregularity or irregularities discovered, provision is nevertheless made for a greater financial correction in cases where the Commission has good reason to believe that the irregularity was systemic, thus reflecting a systemic weakness of management, control or audit likely to be found in a series of similar cases. In order to quantify a greater financial correction, the Commission takes account of the level and the specific characteristics of the administrative system in which the weakness is present and the probable extent of the abuse.

14 Regulations No 2052/88 and No 4253/88 were repealed, with effect from 1 January 2000, by Regulation (EC) No 1260/1999 of 21 June 1999 laying down general provisions on the Structural Funds (OJ 1999 L 161, p. 1).

15 According to Article 2(1) thereof, Regulation No 1260/1999 applies to the ERDF, the ESF, the EAGGF, Guidance Section, and the Financial Instrument for Fisheries Guidance (FIFG).

‘1. The Member States shall, in the first instance, bear the responsibility for investigating irregularities, acting upon evidence of any major change affecting the nature or conditions for the implementation or supervision of assistance and making the financial corrections required.

The Member State shall make the financial corrections required in connection with the individual or systemic irregularity. The corrections made by the Member State shall consist in cancelling all or part of the Community contribution. The Community funds released in this way may be re-used by the Member State for the assistance concerned, in compliance with the arrangements to be defined pursuant to Article 53(2).

2. If, after completing the necessary verifications, the Commission concludes that:

(b) all or part of an operation justifies neither part nor the whole of the contribution from the Funds;

the Commission shall suspend the interim payments in question and, stating its reasons, request that the Member State submit its comments and, where appropriate, carry out any corrections, within a specified period of time.

If the Member State objects to the observations made by the Commission, the Member State shall be invited to a hearing by the Commission, in which both sides in cooperation based on the partnership make efforts to reach an agreement about the observations and the conclusions to be drawn from them.

3. At the end of the period set by the Commission, the Commission may, if no agreement has been reached and the Member State has not made the corrections and taking account of any comments made by the Member State, decide within three months to:

(b) make the financial corrections required by cancelling all or part of the contribution of the Funds to the assistance concerned.

The Commission shall when deciding the amount of a correction take account, in compliance with the principle of proportionality, of the type of irregularity or change and the extent and financial implications of the shortcomings found in the management or control systems of the Member States.

In the absence of a decision to do either (a) or (b) the interim payments shall immediately cease to be suspended.

17 Regulation (EC) No 1783/1999 of the European Parliament and of the Council of 12 July 1999 on the European Regional Development Fund (OJ 1999 L 213, p. 1), which repealed Council Regulation (EEC) No 4254/88, does not contain any rules on financial corrections.

18 Article 5 of Commission Regulation (EC) No 448/2001 of 2 March 2001 laying down detailed rules for the implementation of Council Regulation (EC) No 1260/1999 as regards the procedure for making financial corrections to assistance granted under the Structural Funds (OJ 2001 L 64, p. 13) is worded as follows:

‘1. The period of time within which the Member State concerned may respond to a request under the first subparagraph of Article 39(2) of Regulation (EC) No 1260/1999 to submit its comments and, where appropriate, make corrections, shall be two months, except in duly justified cases where a longer period may be agreed by the Commission.

2. Where the Commission proposes financial corrections on the basis of extrapolation or at a flat rate, the Member State shall be given the opportunity to demonstrate, through an examination of the files concerned, that the actual extent of irregularity was less than the Commission’s assessment. In agreement with the Commission, the Member State may limit the scope of this examination to an appropriate proportion or sample of the files concerned. Except in duly justified cases, the time allowed for this examination shall not exceed a further period of two months after the two-month period referred to in paragraph 1. The results of such examination shall be examined in the manner specified in the second subparagraph of Article 39(2) of Regulation (EC) No 1260/1999. The Commission shall take account of any evidence supplied by the Member State within the time-limits.

3. Whenever the Member State objects to the observations made by the Commission and a hearing takes place under the second subparagraph of Article 39(2) of Regulation (EC) No 1260/1999, the three-month period within which the Commission may take a decision under Article 39(3) of that Regulation shall begin to run from the date of the hearing.’

19 Regulation No 1260/1999, which the Council was required to re-examine by 31 December 2006 at the latest, was repealed by Council Regulation (EC) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund (OJ 2006 L 210, p. 25), which applies, in accordance with Article 1(1) thereof, to those Funds, without prejudice to the specific provisions provided for in the regulations governing each of those Funds.

20 Regulation (EC) No 1080/2006 of the European Parliament and of the Council of 5 July 2006 on the European Regional Development Fund and repealing Regulation No 1783/1999 (OJ 2006 L 210, p. 1) does not contain any provisions governing procedure in relation to financial corrections which may be decided on by the Commission. The same is true of Commission Regulation (EC) No 1828/2006 of 8 December 2006 setting out rules for the implementation of Regulation No 1083/2006 and Regulation No 1080/2006 (OJ 2006 L 371, p. 1).

21 Those financial corrections are governed by rules common to those three Funds, set out in Articles 99 to 102 of Regulation No 1083/2006.

‘1. Before taking a decision on a financial correction, the Commission shall open the procedure by informing the Member State of its provisional conclusions and requesting the Member State to submit its comments within two months.

Where the Commission proposes a financial correction on the basis of extrapolation or at a flat rate, the Member State shall be given the opportunity to demonstrate, through an examination of the documentation concerned, that the actual extent of irregularity was less than the Commission’s assessment. In agreement with the Commission, the Member State may limit the scope of this examination to an appropriate proportion or sample of the documentation concerned. Except in duly justified cases, the time allowed for this examination shall not exceed a period of two months after the two-month period referred to in the first subparagraph.

2. The Commission shall take account of any evidence supplied by the Member State within the time-limits mentioned in paragraph 1.

3. Where the Member State does not accept the provisional conclusions of the Commission, the Member State shall be invited to a hearing by the Commission, in which both sides in cooperation based on the partnership shall make efforts to reach an agreement concerning the observations and the conclusions to be drawn from them.

4. In case of an agreement, the Member State may reuse the Community funds concerned in conformity with the second subparagraph of Article 98(2).

5. In the absence of agreement, the Commission shall take a decision on the financial correction within six months of the date of the hearing taking account of all information and observations submitted during the course of the procedure. If no hearing takes place, the six-month period shall begin to run two months after the date of the letter of invitation sent by the Commission.’

23 Article 108 of Regulation No 1083/2006, entitled ‘Entry into force’, provides in its first two paragraphs:

This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union.

The provisions laid down in Articles 1 to 16, 25 to 28, 32 to 40, 47 to 49, 52 to 54, 56, 58 to 62, 69 to 74, 103 to 105 and 108 shall apply from the date of entry into force of this Regulation only for programmes for the period 2007 to 2013. The other provisions shall apply from 1 January 2007.’

24 Regulation No 1083/2006 was repealed by Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund (OJ 2013 L 347, p. 320), Article 145(6) of which states: ‘[i]n order to apply financial corrections the Commission shall take a decision, by means of implementing acts, within six months of the date of the hearing, or of the date of receipt of additional information where the Member State agrees to submit such additional information following the hearing[, that t]he Commission shall take account of all information and observations submitted during the course of the procedure[, and that i]f no hearing takes place, the six month period shall begin to run two months after the date of the letter of invitation to the hearing sent by the Commission’.

25 In accordance with Article 154 of Regulation No 1303/2013, Article 145 of that regulation is applicable with effect from 1 January 2014.

26 Article 145 of that regulation falls within part four of Regulation No 1303/2013, which contains general rules applicable to the ERDF, the ESF, the Cohesion Fund and the European Maritime and Fisheries Fund concerning management and control, financial management, accounts and financial corrections.

27 Neither Regulation (EU) No 1301/2013 of the European Parliament and of the Council of 17 December 2013 on the European Regional Development Fund and on specific provisions concerning the Investment for growth and jobs goal and repealing Regulation (EC) No 1080/2006 (OJ 2013 L 347, p. 289), nor Commission Delegated Regulation (EU) No 480/2014 of 3 March 2014 supplementing Regulation (EU) No 1303/2013 (OJ 2014 L 138, p. 5) contains provisions relating to procedure in the case of financial corrections which the Commission may decide upon.

Background to the disputes and the decisions relating to the Land Thüringen and to Berlin (East)

28 On 29 July 1994, the Commission adopted Decision 94/628/EC on the establishment of the Community support framework for Community structural assistance in the German regions concerned by Objective 1, which are Mecklenburg-Vorpommern, Brandenburg, Sachsen-Anhalt, Sachsen, Thüringen and Berlin (East) (OJ 1994 L 250, p. 18). That decision permitted the establishment of operational programmes in the new Länder and Berlin (East).

29 The facts which gave rise to the present disputes, as they appear from the judgments under appeal and the decisions relating to the Land Thüringen and to Berlin (East) (referred to collectively as ‘the decisions at issue’), may be summarised as follows.

30 By Decision C(94) 1939/5 of 5 August 1994, the Commission approved the operational programme for the Land Thüringen falling under Objective 1 in Germany (Arinco No 94.DE.16.005) (‘the assistance in favour of the Land Thüringen’) providing for a Structural Funds contribution of ECU 1 021 771 000, increased to EUR 1 086 827 000 by Decision C(99) 5087 of 29 December 1999, with co-financing by the ERDF of a maximum amount of EUR 1 020 719 000. The Ministry of Economy and Transport of the Land Thüringen was designated as the managing authority.

31 In relation to measure 2.1 concerning support for productive activities of SMEs, Decision C(99) 5087 fixed the total amount of expenditure at EUR 674 104 000 and the ERDF contribution at EUR 337 052 000.

32 In the course of 2001, the Commission systematically examined the Land Thüringen’s management and control systems, on the basis of Article 23(2) of Regulation No 4253/88 and Article 14 of Regulation No 2064/97.

33 On 30 January 2002, the Commission submitted its final report on the operational programmes of the Länder of Thüringen and Sachsen-Anhalt, with recommendations.

34 On 24 June 2002, the statement provided for under Article 8 of Regulation No 2064/97 was drawn up by a firm of auditors and sent to the Commission.

35 By letter of 18 July 2002, the German authorities submitted their request for final payment concerning the assistance in favour of the Land Thüringen. On 27 June 2003, the Commission wound up the assistance in question and made the final payment at the level of the amount requested.

36 After the assistance was wound up, throughout October, November and December 2003, the Court of Auditors of the European Communities carried out a number of audit visits. In the course of 2004, it undertook the analysis of the weaknesses of that assistance, in the context of the examination of the 2003 statement of assurance. Some 28 measure 2.1 projects were examined.

37 On 22 June 2004, the Court of Auditors sent its provisional audit report to the German authorities. By letters of 31 August and 13 October 2004, the German authorities sent the Court of Auditors additional information.

38 By letter of 17 January 2005, the Court of Auditors sent its audit report to the national authorities. The report referred to specific cases of irregularities and systemic irregularities in relation to certain transactions, errors in the calculation of the maximum assistance, and the lack of supporting evidence for certain types of expenditure such as general expenses or own funds. The report concluded that there were shortcomings in the management and control systems in relation to the assistance in favour of the Land Thüringen. The error rate of the 28 measure 2.1 projects was 31.36%.

39 By letter of 19 October 2006, the Commission sent the German authorities the first results of its examination of that audit report, requesting comments from those authorities.

40 On the basis of the Court of Auditors’ analysis of the weaknesses, the Commission informed the Land Thüringen of financial corrections amounting to EUR 135 million. Following bilateral discussions, certain objections were however withdrawn.

41 By letter of 5 January 2007, the German authorities replied to the Commission’s letter of 19 October 2006, objecting to the application of extrapolated financial corrections while providing additional supporting documents to show the eligibility of certain expenditure.

42 By letter of 23 April 2007, the Commission invited the German authorities to a bilateral meeting which took place on 8 May 2007 in Brussels. Following the negotiations which took place during that meeting, the German authorities undertook to provide, within two weeks of the meeting, additional proof that certain expenditure and actions were eligible. That information was passed to the Commission by letter of 22 June 2007.

43 By the decision relating to the Land Thüringen, the Commission reduced by EUR 81 425 825.67 the ERDF financial assistance to that Land because of the specific and systemic irregularities determined in the context of the 2.1 measure, applying Article 24 of Regulation No 4253/88. The Commission carried out an extrapolation of the error rate with regard to measure 2.1 as a whole, taking an error rate of 23.88% as the basis. It calculated a sum of EUR 1 232 012.70 in relation to specific irregularities and EUR 80 193 812.97 with regard to systemic irregularities.

44 By Decision C(94) 1973 of 5 August 1994, the Commission approved the operational programme for Berlin (East) falling under Objective 1 in Germany (Arinco No 94.DE.16.006) (‘the assistance in favour of Berlin (East)’). That decision provided for a Structural Funds contribution of ECU 743 112 000, increased to EUR 779 154 000, with financing by the ERDF of an amount of EUR 540 886 000.

45 The Ministry of Economy, Technology and Women of the Land Berlin was designated as the managing authority.

46 By letter of 24 March 2003, the German authorities submitted their request for final payment concerning the assistance in favour of Berlin (East).

47 From 16 to 20 February 2004, from 29 March to 2 April 2004 and from 7 to 11 March 2005, the Commission and an external audit firm engaged by it carried out a number of audit visits as part of the closing audits for the programmes co-financed by the ERDF during the 1994-1999 funding period.

48 By letters of 31 May and 15 December 2005, the Commission sent its audit report to the German authorities, in which a number of systemic irregularities were identified in relation to specific measures, including, in particular, the declaration of ineligible expenditure, breaches of the rules on public procurement procedures and the lack of supporting evidence. For the 29 projects selected for the assistance in favour of Berlin (East), the error rate was 7.56%. Of the 36 projects selected, seven could not be audited because of insolvency.

49 By letters of 21 October 2005 and 31 March 2006, the German authorities submitted their comments on those findings and sent additional information to the Commission.

50 By letter of 26 January 2007, the Commission sent its provisional findings to those authorities.

51 By letter of 9 July 2007, the German authorities objected to those findings, claiming that there was no legal basis, objecting to the application of flat-rate and extrapolated financial corrections and submitting additional evidence of the lawfulness of the expenditure.

52 In the light of the additional information and evidence provided, the findings relating to the results of that audit were amended and sent to the German authorities by letter of 30 August 2007.

53 A bilateral meeting was held in Brussels on 14 September 2007. Following the negotiations which took place during that meeting, the German authorities undertook to provide, within four weeks of the meeting, additional proof that certain expenditure and actions were eligible. That information was passed on to the Commission by letter of 12 October 2007. The issues addressed at that meeting were set out in a report dated 12 November 2007.

54 By the decision relating to Berlin (East), the Commission reduced by EUR 12 900 719.52, namely by 2.68%, the ERDF financial assistance in favour of Berlin (East). In its decision, the Commission relied on an error rate of 3.63% for the 29 projects audited. Using the ERDF financing in the amount of 951 243 399 German marks (DEM) granted to the operation programme and on the basis of the calculations made by the software Audit Command Language (ACL), the Commission applied an extrapolated financial correction of DEM 25 516 719, which represented a reduction of 2.68% of the ERDF financial assistance to the overall programme.

55 By applications lodged at the General Court Registry, on 4 and 8 July 2008, respectively, the Federal Republic of Germany brought actions seeking the annulment of the decisions at issue.

56 The Kingdom of Spain, the French Republic and the Kingdom of the Netherlands intervened, in support of the form of order sought by the Federal Republic of Germany, in the proceedings in both of those actions before the General Court.

57 In support of its action brought against the decision relating to the Land Thüringen, the Federal Republic of Germany relied on five pleas in law alleging, respectively, with regard to the first and the second pleas, an infringement of Article 24(2) of Regulation No 4253/88, with regard to the third plea, the absence of an on-the-spot audit by the Commission, with regard to the fourth plea, an infringement of the principles of the protection of legitimate expectations, legal certainty and cooperation and, with regard to the fifth plea, an infringement of the principle of proportionality.

58 In support of its action brought against the decision relating to Berlin (East), the Federal Republic of Germany relied on five pleas in law alleging, respectively, with regard to the first and the second pleas, an infringement of Article 24(2) of Regulation No 4253/88, with regard to the third plea, an infringement of the principle of proportionality, with regard to the fourth plea, insufficient grounds for that decision and, with regard to the fifth plea, an infringement of the principle of partnership.

59 By the judgments under appeal the General Court rejected the pleas relied on as unfounded and dismissed the two actions in their entirety.

60 On 29 November 2012, the Federal Republic of Germany lodged an appeal against the judgment in Germany v Commission (T‑265/08, EU:T:2012:434).

61 Responses were lodged by the French Republic and the Commission on 15 February 2013 and by the Kingdom of Spain on 20 February 2013.

62 On 31 January 2013, the Federal Republic of Germany lodged an appeal against the judgment in Germany v Commission (T‑270/08, EU:T:2012:612).

63 Responses were lodged by the French Republic on 29 March 2013, by the Kingdom of the Netherlands on 5 April 2013, by the Commission on 9 April 2013 and by the Kingdom of Spain on 12 April 2013.

64 By decision of the President of the Court of 10 July 2013, Cases C‑549/12 P and C‑54/13 P were joined for the purposes of the oral procedure and the judgment.

66 The French Republic claims that the Court should (i) set aside, in their entirety, the judgments under appeal, (ii) give final judgment in the matter, in accordance with Article 61 of the Statue of the Court of Justice of the European Union, and (iii) annul the decisions at issue.

68 The Commission contends that the Court should dismiss the appeals and order the Federal Republic of Germany to pay the costs.

69 In Case C‑549/12 P, the Federal Republic of Germany relies on two grounds of appeal. By both grounds it alleges an infringement of Article 24(2) of Regulation No 4253/88, in conjunction with Article 1 of Regulation No 2988/95, and of the principle of conferral of powers, set out in Article 5(2) TEU and Article 7 TFEU.

70 In Case C‑54/13 P, the Federal Republic of Germany relies on four grounds of appeal. By the first three of its grounds it alleges an infringement of Article 24(2) of Regulation No 4253/88 in conjunction with Article 1 of Regulation No 2988/95, and of the principle of conferred powers, set out in Article 5(2) TEU and Article 7 TFEU. By its fourth ground of appeal it alleges an infringement of the duty to provide grounds for decisions, laid down in Article 81 of the Rules of Procedure of the General Court in conjunction with Articles 36 and 53(1) of the Statute of the Court of Justice.

71 By the first part of its first ground of appeal in Case C‑549/12 P and by its first ground of appeal in Case C‑54/13 P, the Federal Republic of Germany submits that the General Court committed an error of law in finding, in the judgments under appeal, that a purely administrative error on the part of the national authorities constitutes an ‘irregularity’, which entitles the Commission to reduce financial assistance under Article 24(2) of Regulation No 4253/88.

72 By the second and third parts of the first ground of appeal relied on in Case C‑549/12 P, the Federal Republic of Germany maintains that, even if a financial correction for an administrative error might in principle be conceivable, the General Court committed an error of law, in the judgment in Germany v Commission (T‑265/08, EU:T:2012:434), in finding that infringements of national law and errors which do not affect the EU budget may constitute ‘irregularities’ justifying such corrections.

73 By the first part of its second ground of appeal in Case C‑549/12 P and the first part of its second ground of appeal in Case C‑54/13 P, the Federal Republic of Germany, supported by the Kingdom of Spain and the French Republic, submits that the General Court erred in law in conceding that the Commission had the power to make financial corrections by way of extrapolation.

74 By the second part of its second ground of appeal in Case C‑549/12 P, the Federal Republic of Germany, supported by the Kingdom of Spain, submits that, even if such corrections were possible, the General Court erred in approving the detailed rules concerning their application in the decision relating to the Land Thüringen, since, according to that Member State, no loss to the EU budget has been established as regards a part of the projects at issue, and the Commission should not have classified a portion of the errors complained of as systemic errors.

75 By the second part of its second ground of appeal in Case C‑54/13 P, the Federal Republic of Germany, supported by the Kingdom of Spain, submits that, even if it could be inferred from Article 24(2) of Regulation No 4253/88 that the Commission is authorised to make reductions by way of extrapolation, the General Court committed an error of law in approving the way in which that extrapolation was carried out in the decision relating to Berlin (East), since, according to that Member State, the Commission, first, wrongly qualified the errors found as systemic, affecting the entire operational programme and should not have extrapolated the resulting erroneous rate to the entire programme and, second, should not have applied the samples which it used to reduce the financial contribution for the entire programme by means of extrapolation. By the third part of its second ground of appeal, the Federal Republic of Germany maintains that, through the extrapolation of unrepresentative errors and flat-rate corrections, the Commission made disproportionate reductions in the financial contribution to the operational programme concerned.

76 By the fourth part of its third ground of appeal in Case C‑54/13 P, the Federal Republic of Germany submits that the General Court wrongly considered that the Commission was authorised to make flat-rate corrections. By the second part of that ground of appeal, that Member State argues that, even if the Commission had such authority to make flat-rate corrections, the General Court committed an error of law in accepting the Commission’s disproportionate flat-rate correction.

77 By its fourth ground of appeal in Case C‑54/13 P, the Federal Republic of Germany submits that the grounds for the judgment in Germany v Commission (T‑270/08, EU:T:2012:612) did not make it possible to determine whether the General Court addressed the appellant’s claims relating to the unlawful nature of the flat-rate financial corrections which it made in the context of the first part of the second plea in law of its action before the General Court or the reasons justifying the General Court’s rejection of those claims.

78 The Commission considers that those grounds of appeal are unfounded and that the appeals must be dismissed.

79 The Court points out that, in the judgments under appeal, the General Court dismissed the actions for annulment brought by the Federal Republic of Germany after having declared unfounded the five pleas in law raised in support of each of those actions.

80 In so doing, the General Court implicitly, but necessarily, acknowledged the procedural validity of the decisions at issue.

81 However, it is apparent from the grounds set out in paragraphs 56 to 89 and 93 of the judgments in Spain v Commission (C‑192/13 P, EU:C:2014:2156) and Spain v Commission (C‑197/13 P, EU:C:2014:2157) that the adoption by the Commission of a decision on financial corrections is subject, as from 2000, to the observance of a certain time-limit.

82 The Court considers that, EU law, as it currently stands, does not call that case-law into question and that, on the contrary, that case-law is thus transposable to the cases at hand.

83 As the Court held in paragraph 94 of its judgments in Spain v Commission (C‑192/13 P, EU:C:2014:2156) and Spain v Commission (C‑197/13 P, EU:C:2014:2157), the length of the time-limit granted to the Commission to adopt its decisions varies depending on the applicable rules.

84 It is apparent from the second paragraph of Article 108 of Regulation No 1083/2006 that Article 100 is to apply as from 1 January 2007, including to programmes prior to the period 2007 to 2013.

85 In accordance with Article 100(1) of Regulation No 1083/2006, before taking a decision on a financial correction, the Commission shall open the procedure by informing the Member State of its provisional conclusions and requesting the Member State to submit its comments within two months. Where the Member State does not accept the provisional conclusions of the Commission, the Member State shall be invited, in accordance with Article 100(3) of that regulation, to a hearing by the Commission, in which both sides in cooperation based on the partnership shall make efforts to reach an agreement concerning the observations and the conclusions to be drawn from them.

86 In accordance with Article 100(5) of Regulation No 1083/2006, the Commission is to take a decision on the financial correction within six months of the date of the hearing and, if no hearing takes place, the six-month period is to begin to run two months after the date of the letter of invitation sent by the Commission.

87 It is apparent from those provisions that, where the Member State does not accept the provisional conclusions of the Commission, the latter is required to send a letter of invitation to a hearing and to hold a hearing in order to satisfy the procedural requirements in matters relating to financial corrections; those two steps constitute the starting point for the calculation of the time-limit within which the Commission must adopt a decision by which it makes such a correction.

88 It does not result from the files before the Court that, following the communication of its provisional conclusions, the Commission sent the Federal Republic of Germany an invitation to a hearing or that such a hearing was held, for the purposes of Article 100(3) and (5) of Regulation No 1083/2006. By contrast, it is apparent from those files that bilateral meetings were held in Brussels on 8 May and 14 September 2007, respectively, between the Commission and the representatives of the Federal Republic of Germany.

89 The Court points out that concerning, in this instance, decisions with important budgetary implications, it is in the interests both of the Member State concerned and of the Commission that the length of the procedure for financial corrections be predictable, which implies the setting of a predetermined time-limit for adopting the final decision. It should also be stated that failing to comply with the time-limit laid down for adopting a decision on financial corrections is not compatible with the general principle of sound administration (judgments in Spain v Commission, C‑192/13 P, EU:C:2014:2156, paragraph 88, and Spain v Commission, C‑197/13 P, EU:C:2014:2157, paragraph 88).

90 In those circumstances, the Commission cannot free itself of its obligation to adopt decisions on the basis of which it makes financial corrections within a predetermined time-limit by omitting to undertake the steps which constitute the starting point for the calculation of that time-limit.

91 In any event and even supposing that the bilateral meetings which took place on 8 May and 14 September 2007, respectively, may be assimilated to hearings, within the meaning of Article 100(3) and (5) of Regulation No 1083/2006, for the purpose of calculating the time-limits for the adoption of decisions on the basis of which the Commission is to make financial corrections, the Court finds that the decisions at issue were adopted on 30 and 29 April 2008, respectively, and that the Commission failed to comply with the time-limit laid down in Article 100(5) of Regulation No 1083/2006.

92 It is apparent from the Court’s case-law that failure to comply with the procedural rules relating to the adoption of an act adversely affecting an individual, such as a failure on the part of the Commission to have adopted a decision within the time-limit prescribed by the EU legislature, constitutes an infringement of essential procedural requirements, which it is a matter for the EU judicature to raise of its own motion (see judgments in Spain v Commission, C‑192/13 P, EU:C:2014:2156, paragraph 103; Spain v Commission, C‑197/13 P, EU:C:2014:2157, paragraph 103 and the case-law cited; and Spain v Commission, C‑429/13 P, EU:C:2014:2310, paragraph 34).

93 The Court points out in that regard that it is settled case-law that, except in particular cases such as, inter alia, those provided for by the rules of procedure of the Courts of the European Union, those Courts cannot base their decisions on a plea raised of their own motion, even one involving a matter of public policy, without first having invited the parties to submit their observations on that plea (see judgments in Commission v Ireland and Others, C‑89/08 P, EU:C:2009:742, paragraph 57, and OHIM v National Lottery Commission, C‑530/12 P, EU:C:2014:186, paragraph 54).

94 In so far as concerns the issue relating to the time-limit within which a decision on a financial correction must be adopted, the Court points out that in the cases which gave rise to the judgments in Spain v Commission, (C‑192/13 P, EU:C:2014:2156) and Spain v Commission (C‑197/13 P, EU:C:2014:2157), which concerned essentially identical factual and legal issues, the Commission already had the opportunity to address that issue. In those cases, the Court also requested the parties to focus on that issue in their pleadings.

95 Moreover, that case-law has since been confirmed on numerous occasions by the Court (see judgments in Spain v Commission, C‑429/13 P, EU:C:2014:2310, and Spain v Commission, C‑513/13 P, EU:C:2014:2412).

96 It follows, first, that the Commission had sufficient opportunity to submit, in the context of an exchange of views, its pleas in law and arguments in relation to the scope of the time-limit laid down in Article 100(5) of Regulation No 1083/2006 and, second, that the Court’s case-law on the interpretation to be given to that provision must be regarded as established.

97 Therefore, it must be found that the present cases constitute particular cases, within the meaning of the case-law cited in paragraph 93 above, and that it is not necessary to invite the parties to submit their observations on that plea.

98 In those circumstances, the Court finds that the Commission adopted the decisions at issue in violation of the legal time-limit laid down in a Council regulation.

99 Consequently, by dismissing the actions brought by the Kingdom of Germany instead of condemning the infringement of procedural requirements vitiating the decisions at issue, the General Court committed an error of law.

101 Under the first paragraph of Article 61 of the Statute of the Court of Justice, if the appeal is well founded, the Court of Justice is to quash the decision of the General Court. It may then itself give final judgment in the matter, where the state of the proceedings so permits.

102 In the present case, the Court has the necessary information to give final judgment on the actions for annulment of the decisions at issue brought by the Federal Republic of Germany before the General Court.

103 In that regard, suffice it to note that, for the reasons set out in paragraphs 81 to 99 of this judgment, the decisions at issue must be annulled for infringement of essential procedural requirements.

104 Under Article 184(2) of the Rules of Procedure of the Court of Justice, where the appeal is well founded and the Court itself gives final judgment in the case, the Court is to make a decision as to costs.

105 Under Article 138(1) of those Rules, applicable to appeal proceedings by virtue of Article 184(1) thereof, 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 Federal Republic of Germany has been successful in its appeals and its actions before the General Court have been upheld, the Commission must be ordered, in accordance with the form of order sought by the Federal Republic of Germany, to bear, in addition to its own costs, those incurred by that Member State both at first instance and in relation to its appeals.

106 Pursuant to Article 140(1) of those Rules, which applies, mutatis mutandis, to the procedure on appeal by virtue of Article 184(1) of those Rules, the Member States which intervene in the proceedings are to bear their own costs. In accordance with those provisions, the Kingdom of Spain, the French Republic and the Kingdom of the Netherlands are ordered to bear their own costs.

1. Sets aside the judgments of the General Court of the European Union in Germany v Commission (T‑265/08, EU:T:2012:434) and Germany v Commission (T‑270/08, EU:T:2012:612);

2. Annuls Commission Decision C(2008) 1690 final of 30 April 2008 reducing the financial assistance granted from the European Regional Development Fund (ERDF) to the Operational Programme in the Objective 1 area of the Land Thüringen (Germany) (1994-1999), in accordance with Commission Decision C(94) 1939/5 of 5 August 1994, and of Commission Decision C(2008) 1615 final of 29 April 2008 reducing the financial assistance granted from the European Regional Development Fund (ERDF) by Commission Decision C(94) 1973 of 5 August 1994 to the Operational Programme for Berlin (East) (Germany) relating to Objective No 1 (1994-1999);

3. Orders the European Commission to bear, in addition to its own costs, the costs incurred by the Federal Republic of Germany both in the context of the procedure at first instance and in relation to these appeals;

4. Orders the Kingdom of Spain, the French Republic and the Kingdom of the Netherlands to bear their own costs.

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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Germany v Commission (Judgment) [2015] EUECJ C-549/12 (24 June 2015) URL: http://www.bailii.org/eu/cases/EUECJ/2015/C54912.html Cite as: [2015] EUECJ C-549/12, EU:C:2015:412, ECLI:EU:C:2015:412

Court of Justice of the European Communities (including Court of First Instance Decisions)