JUDGMENT OF THE COURT OF FIRST INSTANCE (Third Chamber)

15 September 1998 (1)

(Action for annulment - European Social Fund - Reduction in financialassistance - Certification by the Member State - Misappraisal of the facts -Legitimate expectations - Legal certainty - Proportionality)

In Case T-142/97,

Eugénio Branco Ld², a company incorporated under Portuguese law, having itsregistered office in Lisbon, represented by Bolota Belchior, of the Bar of Vila Novade Gaia, with an address for service in Luxembourg at the Chambers of JacquesSchroeder, 6 Rue Heine,

applicant,

v

Commission of the European Communities, represented by Maria Teresa Figueiraand Knut Simonsson, of its Legal Service, acting as Agents, with an address forservice in Luxembourg at the office of Carlos Gómez de la Cruz, also of its LegalService, Wagner Centre, Kirchberg,

defendant,

APPLICATION for the annulment of Commission Decision C(96)3170 of16 December 1996 reducing financial assistance granted to the applicant by theEuropean Social Fund,

THE COURT OF FIRST INSTANCE

OF THE EUROPEAN COMMUNITIES (Third Chamber),

composed of: V. Tiili, President, C.P. Briët and A. Potocki, Judges,

Registrar: B. Pastor, Principal Administrator,

having regard to the written procedure and further to the hearing on 11 June 1998,

gives the following

Judgment

Legislative framework

1.

    Article 1(2)(a) of Council Decision 83/516/EEC of 17 October 1983 on the tasksof the European Social Fund (OJ 1983 L 289, p. 38) provides for the EuropeanSocial Fund ('ESF‘) to participate in the financing of operations concerningvocational training and guidance.

2.

    Under Article 2(2) of that decision, the Member States concerned are required toguarantee the successful completion of the operations.

3.

    Article 5(1) of Council Regulation (EEC) No 2950/83 of 17 October 1983 on theimplementation of Decision 83/516/EEC (OJ 1983 L 289, p. 1) provides thatapproval by the ESF of an application for financial assistance is to be followed bypayment of an advance of 50% of the assistance on the date on which the trainingoperation is scheduled to begin.

4.

    Article 5(4) of Regulation No 2950/83 provides that final payment claims mustcontain a detailed report on the content, results and financial aspects of therelevant operation and requires the Member State concerned to certify theaccuracy of the facts and accounts in payment claims.

5.

    Article 6(1) of Regulation No 2950/83 provides that when ESF assistance is notused in conformity with the conditions set out in the decision granting approval theCommission may suspend, reduce or withdraw the aid after giving the relevantMember State an opportunity to comment.

6.

    Under Article 6(2), sums paid which are not used in accordance with the conditionslaid down in the decision granting approval must be refunded.

7.

    Article 7(1) provides that the Commission may, without prejudice to any controlscarried out by the Member States, make on-the-spot checks.

8.

    Article 6 of Commission Decision 83/673/EEC of 22 December 1983 on themanagement of the ESF (OJ 1983 L 377, p. 1) requires Member States' finalpayment claims to reach the Commission within 10 months of the date ofcompletion of the operations concerned. It is stated that no payment may be madein respect of aid for which the application is submitted after the expiry of thatperiod.

Facts of the case

9.

    The Departamento para os Assuntos do Fundo Social Europeu (Department ofEuropean Social Fund Affairs) ('DAFSE‘) represents the Portuguese State inmatters relating to the ESF. It is the sole and mandatory point of contact betweenthe Commission departments responsible for implementing the ESF and the publicand private bodies in Portugal seeking ESF assistance.

10.

    On 31 July 1987 the applicant submitted to the DAFSE an application for financialassistance for a vocational training programme to be run over the period from4 July 1988 to 30 December 1988 ('the application for assistance‘).

11.

    The DAFSE, acting for the Portuguese State and on behalf of the applicant,subsequently forwarded that application to the Commission.

12.

    The project in respect of which assistance was requested (file-number 880280 P1)was approved by a Commission decision notified to the applicant by a letter fromthe DAFSE of 25 May 1988 ('the approval decision‘).

13.

    That approval decision fixed the amount of ESF assistance at ESC 62 191 499. Forits part, the Portuguese State undertook to finance the applicant's project up to anamount of ESC 50 883 954 through the Orçamento da Segurança Social/Institutode Gestão Financeira da Segurança Social (Social Security Budget/Institute for theFinancial Management of Social Security) ('OSS/IGFSS‘). The financing of thetraining programme was supplemented by private contributions.

14.

    By letter of 21 July 1988, the applicant returned to the DAFSE an 'acceptance ofthe approval decision‘ which it had duly signed at the Commission's request. Inthat document it stated that it would, when using ESF assistance, comply with therelevant rules of national and Community law and with the conditions set out in theapproval decision.

15.

    On 12 August 1988 the applicant received, pursuant to Article 5(1) of RegulationNo 2950/83, an advance of 50% of the assistance granted by the ESF together with50% of that granted by the OSS/IGFSS, amounting to ESC 31 095 749 andESC 25 441 977 respectively.

16.

    On completion of the training programme, the applicant established that the totalfinal cost of the programme came to ESC 104 289 500, an amount lower than thatinitially forecast. It accordingly submitted to the DAFSE a final payment claim ofESC 20 527 598 due from the ESF and ESC 16 795 307 due from the OSS/IGFSS.

17.

    On its initial examination of that claim, the DAFSE had doubts as to the accuracyof the information which it contained. It accordingly requested the Inspecçao Geralde Finanças (General Tax Inspectorate) ('the IGF‘) to examine the final paymentclaim, pursuant to Article 7(1) of Regulation No 2950/83.

18.

    While that examination was in progress, the DAFSE, on 2 August 1989, certifiedthe accuracy of the facts and accounts in the final payment claim pursuant toArticle 5(4) of Regulation No 2950/83. It paid out to the applicant the sum ofESC 16 795 307, representing the balance of the assistance to be paid by theOSS/IGFSS, but pointed out that this payment did not prejudge the Commission'sfinal decision.

19.

    The IGF presented its report on 9 January 1990. Since it found that the applicanthad incurred unnecessary expenditure and that other expenditure had beenincurred in breach of provisions of national law, it concluded that the financialassistance granted ought to be reduced.

20.

    Adopting the IGF's position, the DAFSE wrote to the applicant on 23 May 1990informing it that ESF assistance was to be reduced to ESC 30 672 242 and that ofthe OSS/IGFSS to ESC 25 095 471. It accordingly instructed the applicant to repaya portion of the sums which it had already received from the ESF and theOSS/IGFSS, in the amounts of ESC 423 507 and ESC 17 141 813 respectively.

21.

    On 23 May 1990 the DAFSE, on behalf of the applicant, also forwarded to theCommission a corrected claim for final payment. It proposed a reduction of theassistance in the amounts indicated in the letter of even date sent to the applicant.

22.

    By decision of 29 March 1993 the Commission, in accordance with that proposal,reduced the ESF's financial assistance to ESC 30 672 242.

23.

    By letter of 15 December 1993, received on 17 December 1993, the DAFSEnotified the applicant of that decision.

24.

    On 23 February 1994 the applicant brought an action before the Court of FirstInstance seeking annulment of that decision.

25.

    Since the Commission failed to lodge a statement of defence within the prescribedperiod, the Court of First Instance, on 12 January 1995, delivered a judgment bydefault (Case T-85/94 Branco v Commission [1995] ECR II-45). Taking the viewthat the plea in law alleging a breach of the obligation to state reasons was wellfounded, the Court annulled the Commission decision without examining the otherpleas in law put forward by the applicant.

26.

    On 22 February 1995 the Commission applied to have that judgment set aside,pursuant to Article 122(4) of the Rules of Procedure.

27.

    By judgment of 13 December 1995 in Case T-85/94 (122) (Commission v Branco[1995] ECR II-2993), the Court dismissed the application to have the defaultjudgment set aside.

28.

    Following that judgment, the Commission re-examined the file. By letter of 30 May1996 it sent to the DAFSE a new draft decision reducing the assistance andrequested it to submit any comments in accordance with Article 6(1) of RegulationNo 2950/83. It also requested the DAFSE to forward that draft decision to theapplicant and inform the Commission of any reaction on the applicant's part.

29.

    By letter of 19 June 1996 the DAFSE sent to the applicant a copy of theCommission's draft decision and requested it to submit its comments within 10 days. The applicant responded to that request within the allotted time.

30.

    By letter received on 4 September 1996, the DAFSE forwarded to the Commissiona copy of the applicant's comments on the Commission's draft decision, togetherwith its own comments.

31.

    On 16 December 1996 the Commission adopted Decision C(96)3170 ('thecontested decision‘). After outlining the procedure which it and the DAFSE hadfollowed and referring to the IGF report and to its own letter of 30 May 1996, theCommission concluded that the ESF's financial assistance ought to be reduced tothe same amount as that accepted in its decision of 29 March 1993, that is to say,ESC 30 672 242.

32.

    By letter of 24 February 1997 the DAFSE notified the contested decision to theapplicant, requesting it to repay within 30 days the sums of ESC 423 507 andESC 17 141 813 due to the ESF and the OSS/IGFSS respectively.

33.

    By letters received on 25 October 1996 and 6 May 1997, the Tribunal Criminal doPorto (Porto Criminal Court) and the DAFSE informed the Commission that,following the audit report drawn up by the IGF, the DAFSE had institutedproceedings against the applicant before that court for misappropriation of fundsand fraud committed with a view to securing funds.

Procedure and forms of order sought by the parties

34.

    By application lodged at the Registry of the Court of First Instance on 29 April1997, the applicant brought the present action seeking annulment of the contesteddecision.

35.

    Upon hearing the report of the Judge-Rapporteur, the Court of First Instance(Third Chamber) decided to open the oral procedure without any preparatoryinquiry. However, it decided to put a number of written questions to theCommission, to which the latter replied at the hearing held in open court on11 June 1998.

36.

    During that hearing, the parties presented oral argument and replied to thequestions put by the Court.

37.

    The applicant claims that the Court should:

-    annul the contested decision;

-    order the Commission to pay the costs.

38.

    The Commission contends that the Court should:

-    dismiss the action;

-    order the applicant to pay the costs.

Substance

39.

    The applicant submits five pleas in law in support of annulment: breach ofRegulation No 2950/83; misappraisal of the facts; infringement of the principles ofprotection of legitimate expectations and legal certainty; breach of acquired rights;and, finally, infringement of the principle of proportionality.

1. The first plea in law: breach of Regulation No 2950/83

Arguments of the parties

40.

    The applicant notes that, during August 1989, the DAFSE certified the accuracyof the facts and accounts in the final payment claim which it had submitted, inaccordance with Article 5(4) of Regulation No 2950/83. Once that certification hadbeen sent to the Commission, the power of the DAFSE and the Member Stateconcerned came to an end. The rules applicable, and in particular RegulationNo 2950/83, do not, the applicant argues, allow the DAFSE, after certification hasbeen completed and sent to the Commission, to carry out, as in this case, a 're-examination‘ of the file, thereby altering its prior certification.

41.

    The Member State should, the applicant argues, examine whether there are anyirregularities before it accords certification. If the position were otherwise, it wouldbe carrying out a false certification. On receipt of the final payment claim, theDAFSE could have concluded either that the information submitted was accurateand proceeded to certify it, or, in the alternative, that the information wasinaccurate and, in that case, refused certification. In certifying the final paymentclaim, the DAFSE thus definitively approved the information contained in thatclaim.

42.

    Finally, the applicant notes that the above re-examination was carried out by theIGF, which is neither empowered to monitor ESF operations nor technically in aposition to rule on the application of Community legislation.

43.

    The Commission disputes the argument advanced by the applicant.

Findings of the Court

44.

    In so far as it confirms the accuracy of the facts and accounts in final paymentclaims, the Member State is responsible to the Commission for certifications whichit submits.

45.

    Furthermore, under Article 2(2) of Decision 83/516, the relevant Member Statesmust guarantee the successful completion of ESF vocational training and guidanceoperations. In addition, the Commission may, under Article 7(1) of RegulationNo 2950/83, check final payment claims, 'without prejudice to any controls carriedout by the Member States‘.

46.

    Those obligations and powers devolving on Member States are not limited by anyrestriction in time.

47.

    Accordingly, in a case such as this, in which the Member State has already certifiedthe accuracy of the facts and accounts in the final payment claim, that State maystill alter its assessment of the final payment claim if it considers that it containsirregularities which had not been previously detected.

48.

    Article 6 of Decision 83/673 provides in this regard that applications for finalpayment must reach the Commission within 10 months of the date of completionof the training operations and that no payment may be made in respect of aid forwhich the application is submitted after the expiry of that period. In thosecircumstances, if checks to establish conformity could be made only beforecertification that the facts and accounts in a final payment claim were accurate, theMember State might not be in a position to submit that claim to the Commissionwithin the above 10-month period, with the result that final payment of the aidcould not be made. It follows that, in some cases, certification of the accuracy ofthe facts and accounts in a final payment claim prior to a check to establishconformity or before its completion may be in the interest of the aid recipient.

49.

    Finally, there is nothing to preclude an authority such as the DAFSE from havingrecourse to a professional auditing body in order to assist it in checking theaccuracy of the facts and accounts in a final payment claim. It appears from thecase-file that the IGF is a professional auditing body and that, under Portugueselaw, it is empowered to conduct investigations in cases where irregularities such asthose in this case are suspected. Moreover, it is not disputed that the IGF auditedthe applicant's file at the request of the DAFSE and in accordance with the powersconferred on it by Portuguese law. In those circumstances, its involvement in theprocedure which led to the adoption of the contested decision cannot be criticised.

50.

    It follows that the plea alleging breach of Regulation No 2950/83 must be rejected.

2. The second plea in law: misappraisal of the facts

Arguments of the parties

51.

    The applicant notes that the Commission decided to reduce the ESF's financialassistance on the basis of the IGF report. The applicant accordingly takes the viewthat if, as it believes, that report is vitiated by misappraisal of the facts, thecontested decision is vitiated as well.

52.

    The applicant first takes issue with the circumstance that the IGF did not examinethe facts of the training programme but carried out solely an examination of theaccounts. In its report, the IGF made no reference to the approval decision. Inparticular, it did not indicate to what extent the conditions laid down in thatdecision had been breached. Ultimately, the report points only to a minordivergence between the IGF and the applicant, relating to the criteria governingeligibility of expenditure.

53.

    The IGF report, the applicant submits, also contains errors of appraisal in regardto the subcontract awarded to the company E.B. Ld², the hourly rate for trainees,and, finally, the regular attendance bonuses, the leased computer hardware anddepreciation costs.

54.

    With regard, first, to the subcontracting of certain activities to E.B. Ld², the IGFwas, the applicant argues, wrong to take the view that this was not justified.

55.

    The rules applicable and the approval decision allow a recipient of ESF assistance,at least implicitly, to have recourse to third parties in order to carry out specialisedwork as part of a training programme. The subcontract awarded to E.B. Ld² was,moreover, indicated in the application for assistance, the costs relating to the workin question being set out under the entry 'specialised work‘.

56.

    The IGF's criticism that the amounts invoiced by E.B. Ld² were increased byexcessive reliance on independent assistants is unjustified, since the applicant itselfhad recourse to such assistants at even higher cost and this practice was at no timechallenged by either the DAFSE or the Commission.

57.

    So far as concerns the IGF's criticism that the expenditure associated with thesubcontract awarded to E.B. Ld² was unnecessary inasmuch as the applicant'sshareholders were also shareholders of the subcontracting company, the applicantargues that it also subcontracted a number of activities when it used the servicesof another company (Açorlis Ld²), and that this subcontract did not elicit anycomment by the IGF. The applicant also points out that the company E.B. Ld² haslegal personality distinct from its own.

58.

    With regard, second, to the hourly rate of pay for trainees, the applicant considersthat the IGF erred in taking the view in its report that this was at variance withPortuguese domestic legislation. The applicant trained 'highly qualified‘professionals, that is to say, senior executives, to whom it accorded an hourly rateof ESC 300, entirely in keeping with the Decree of 14 June 1986 adopted by thePortuguese Ministry of Labour and Social Security. This hourly rate was evenlower than that of ESC 330 which the Commission accepted in its approvaldecision.

59.

    With regard, third, to the regular attendance bonuses, the leased computerhardware and depreciation costs, the IGF report contains a contradictio in terminisin so far as it disallowed, for 1988, certain expenditure which had been acceptedin other ESF training programmes conducted by the applicant in 1987. Thatcontradiction points to a dearth of technical and scientific rigour in the IGF reportand indicates that the conclusions reached in that report were purely subjective andarbitrary.

60.

    More particularly, the regular attendance bonuses awarded to trainees in 1988 werenot treated by the IGF as eligible expenditure, whereas, in 1987, the IGF had takenthe view that similar bonuses did in fact constitute eligible expenditure. The samereasoning, the applicant claims, applies in regard to the depreciation costs, whichhad been accepted by the IGF in 1987 but turned down in 1988.

61.

    Furthermore, it was in accordance with the approval decision that the value of theleased computer hardware should have been spread over the 12 months of the yearduring which the training programme was held (1988) and not over the six-monthperiod during which it was actually conducted.

62.

    During 1987 and 1988, the depreciation of assets was still being calculated on anannual basis, a rule which the tax authorities did not amend until 1993. In applyinglegislation which entered into force in 1993 to facts occurring in 1987 and 1988, theIGF disregarded an elementary rule of legislative interpretation.

63.

    The Commission takes issue with the argument put forward by the applicant.

Findings of the Court

64.

    Article 6(1) of Regulation No 2950/83 provides that, where ESF assistance is notused 'in conformity with the conditions set out in the decision of approval‘, theCommission may suspend, reduce or withdraw that assistance.

65.

    In a case such as this, in which the recipient of ESF assistance, at the Commission'srequest, expressly declared in the document accepting the approval decision thatthe assistance would be used 'in accordance with the applicable provisions ofnational and Community law‘, the 'conditions‘ referred to in the abovementionedArticle 6(1) clearly extend to compliance by the recipient with the rules of nationallaw as well as those of Community law.

66.

    In that regard, since Portuguese law and Community law make the use of publicfunds subject to a requirement of sound financial management (Case T-72/97Proderec v Commission [1998] ECR II-0000, paragraph 87), the Commission may,inter alia, suspend, reduce or withdraw ESF assistance where it has not been usedin accordance with that requirement.

67.

    With regard to the scope of the power exercised by the Commission pursuant toArticle 6(1) of Regulation No 2950/83, the application of that provision may makeit necessary to assess complex facts and accounts. In making such an assessment,the institution therefore enjoys a wide discretion. Consequently, the Court must,in examining whether the present plea is well founded, limit its review to verifyingthat there has been no manifest error in assessing the facts at issue (see mostrecently, to this effect, Case T-118/96 Thai Bicycle Industry v Council [1998]ECR II-0000, paragraphs 32 and 33).

68.

    In the contested decision, the Commission, as it was legally entitled to do (Brancov Commission, paragraph 36, and Commission v Branco, paragraph 30, cited above),referred to the IGF report and to its letter of 30 May 1996, both of which it is notdisputed were brought to the applicant's attention in good time.

69.

    The Commission's letter of 30 May 1996 is based entirely on the IGF report.

70.

    In those circumstances, the contested decision is itself based solely on that report.

71.

    It is therefore necessary to determine whether, in adopting the content andconclusions of that report, the Commission committed a manifest error of appraisal.

72.

    Such a review presupposes an examination of the soundness of the applicant'sarguments relating to the method used by the IGF in performing its tasks and tothe errors which its report allegedly contains.

The control method used by the IGF

73.

    The applicant cannot criticise the IGF for not having referred to the approvaldecision when specifying which of the conditions laid down therein had beenbreached. In the circumstances of the case, a reduction in the assistance initiallygranted could also be justified by reference to other provisions, in particular thoseof national law (see paragraph 65 above).

74.

    Nor can the applicant argue that the IGF merely checked the accounts and that itsreport points to 'a minor divergence between the IGF and the applicant relatingto the criteria to be used with regard to the eligibility of expenditure‘. The IGFindicated clearly (p. 2 of the report) that the purpose of its check was to assess theavailable information concerning verification of the training programme which theapplicant had implemented in 1988, 'having particular regard to its legality andpropriety‘. In that connection, the IGF referred on several occasions to a provisionof Portuguese legislation to demonstrate that there had been an irregularity in themanner in which the applicant had run the training programme.

75.

    It follows that the applicant's criticism of the control method used by the IGF mustbe rejected.

The errors allegedly contained in the IGF report

76.

    It is necessary to ascertain whether the IGF report does indeed contain manifesterrors concerning appraisal of the training programme's cost in regard to thesubcontract awarded to E.B. Ld², the hourly rate of pay for trainees and, finally,the regular attendance bonuses, the leased computer hardware and thedepreciation costs.

-    The subcontract awarded to E.B. Ld²

77.

    While it is true that there is nothing in the rules relating to the ESF or in theapproval decision to preclude recourse to subcontracting, such recourse must bejustified, as the Commission has stressed in its pleadings, by the fact that thesubcontractor is in a position to perform certain specialised work which is clearlyidentified and forms part of his normal activities. The applicant has itself implicityaccepted this analysis inasmuch as it entered the subcontract awarded to E.B. Ld²under the heading 'specialised work‘.

78.

    In contrast, recourse to a subcontractor cannot be used to inflate artificially thecosts of a training programme, contrary to the requirement of sound financialmanagement.

79.

    It appears from the IGF report (p. 8) that E.B. Ld², a company with the sameshareholders as the applicant company, did not have any employees in 1988, theyear in which the ESF operation was carried out, and that it confined itself toengaging independent operators to provide certain services. It follows that thissubcontractor could not be regarded as being truly 'specialised‘ in the workentrusted to it by the applicant and that it served solely as an intermediary, therebymaking a profit, as the IGF report correctly points out.

80.

    Moreover, certain costs incurred by E.B. Ld² were not 'connected with the trainingprogramme, having regard both to the description on those invoices (consultancyservices) and the dates on which they were issued (one before the programmebegan, the other after it had ended)‘ (p. 8 of the IGF report).

81.

    The IGF proposed in that connection not to accept a total amount ofESC 5 250 000 paid by E.B. Ld² to three independent operators in respect of feesfor the 'detailed planning of the vocational training courses held in 1988‘, butproposed to allow an amount of ESC 612 735 representing payment by theapplicant to five independent operators in connection with 'course planning‘ (p. 12of the report).

82.

    The IGF concluded (p. 8 of the report):

'It is entirely unclear what purpose was served by the involvement of E.B. Ld² inthe training programme; this means that it will be possible to accept as eligible onlysuch expenditure as, being based on invoices of E.B. Ld², comes within the limit ofthat which it incurred as being connected with the training programme.‘

83.

    So far as concerns the comparison which the applicant draws with thesubcontractor Açorlis Ld², it is clear from the IGF report (p. 15) that the amountreceived by Açorlis Ld² was accepted in full because it was not large and did nottherefore merit an in-depth examination of the kind carried out in respect of E.B.Ld².

84.

    With regard to the findings thus made, the Commission did not commit a manifesterror of appraisal in reducing, on the basis of the IGF report, the assistancegranted to the applicant under the entry concerning the subcontract awarded toE.B. Ld².

-    The hourly rate of pay for trainees

85.

    It appears from the application for assistance that the applicant proposed to train'qualified‘ professionals ('young unemployed persons whose qualifications areinsufficient to allow them to enter the labour market‘) and not 'highly qualified‘professionals. The applicant does not deny that, under the relevant nationallegislation, the hourly pay for trainees undergoing training to become 'qualified‘professionals is ESC 267, as the IGF report points out (p. 10).

86.

    The applicant cannot, on this point, criticise the Commission for not raising anyobjections against an hourly rate of pay of ESC 330 when it adopted the approvaldecision, since such a decision cannot involve approval of an act which is illegalunder national law.

87.

    In those circumstances, the Commission did not commit a manifest error ofappraisal in reducing, on the basis of the IGF report, the assistance granted to theapplicant in respect of the hourly rate of pay for trainees.

-    Regular attendance bonuses, leased computer hardware and depreciationcosts

88.

    The first point to note is that the fact that an entry for expenditure had beenapproved in 1987 did not necessarily mean that the same entry would also beapproved in 1988 where it was at variance with the conditions laid down by theapproval decision or with the relevant provisions of national or Community law.

89.

    With regard to the entry concerning regular attendance bonuses, the IGF reportstates (p. 21) that these are, under Portuguese domestic law, treated as trainee pay,a fact which the applicant does not dispute. In this case, it was the use of rateshigher than those authorised by law (see paragraph 85 above) which led to thereduction in the entry concerned. The applicant cannot therefore argue that theregular attendance bonuses 'were disallowed in 1988‘.

90.

    So far as the leased computer hardware is concerned, the training programme wasconducted from 4 July 1988 to 30 December 1988, that is to say, for approximatelysix months. Consequently, as is clear from the IGF report (pp. 20 and 22), theamounts relating to this entry had to be calculated on the basis of a 6-monthperiod, not a 12-month period as suggested by the applicant.

91.

    With regard to the depreciation of assets generally, the applicant has failed entirelyto produce documents, in particular legislation, to support its contention that theIGF wrongly applied legislation which came into force in 1993 to events occurringin 1987 and 1988 (see paragraph 62 above). It has thus failed to establish that,contrary to what the IGF report suggests (at p. 22) and to the explanations givenby the Commission during the hearing, the Portuguese law applicable at thematerial time precluded depreciation of assets from being calculated on the basisof a period of less than one year (12 months).

92.

    In those circumstances, the Commission did not commit a manifest error ofappraisal in reducing, on the basis of the IGF report, the assistance granted to theapplicant under the entries relating to regular attendance bonuses, leased computerhardware and depreciation costs.

93.

    It follows that the plea in law alleging misappraisal of the facts must be rejected.

3. The third plea in law: infringement of the principles of protection of legitimateexpectations and legal certainty

Arguments of the parties

94.

    The applicant argues that the DAFSE forwarded its final payment claim to theCommission in September 1989, whereas the Commission adopted the contesteddecision only towards the end of 1996. This period of more than seven years, theapplicant maintains, gave rise on its part to a legitimate expectation that theCommission would accept its payment claim as certified by the DAFSE. Thislegitimate expectation, it adds, was reinforced further still by the judgment inBranco v Commission, cited above.

95.

    The applicant stresses that the Commission must take a decision within areasonable period. It cannot allow proceedings to continue interminably andpostpone indefinitely the adoption of a decision without infringing the principles ofprotection of legitimate expectations and legal certainty (Case 223/85 RSV vCommission [1987] ECR 4617, paragraph 12 et seq.).

96.

    The Commission takes issue with the argument put forward by the applicant.

Findings of the Court

97.

    In a case such as this, in which the recipient of ESF assistance has not implementedthe training programme in accordance with the conditions to which the grant ofassistance was made subject, the recipient cannot rely on the principle of protectionof legitimate expectations with a view to securing final payment of the full amountof assistance initially granted (Case C-181/90 Consorgan v Commission [1992]ECR I-3557, paragraph 17, and Case C-189/90 Cipeke v Commission [1992]ECR I-3573, paragraph 17; Case T-73/95 Oliveira v Commission [1997] ECR II-381,paragraph 27).

98.

    Nor could the judgment in Branco v Commission, cited above, give rise to anylegitimate expectation on the applicant's part, in so far as the Court did not set outits views, in that judgment, on the legality of the reduction in the assistance butruled only that the decision at issue did not contain a statement of reasons.

99.

    As to the question whether the Commission infringed the principle of legalcertainty by not adopting the contested decision within a reasonable period, itshould be noted that the decision was adopted in pursuance of the abovementionedjudgment in Branco v Commission, which annulled the Commission decision of29 March 1993. Moreover, given that the applicant, in its first action, did notchallenge the period within which the Commission had adopted the latter decision,only the period subsequent to the judgment in Branco v Commission may be takeninto account in determining whether the length of time required for adopting thecontested decision was reasonable, a determination which also depends on thecircumstances of the case (Oliveira v Commission, cited above, paragraphs 41 to43).

100.

    It is apparent from the case-file that, during the two-year period which elapsedbetween 12 January 1995, the date on which the judgment in Branco v Commissionwas delivered, and 16 December 1996, the date on which the contested decisionwas adopted, the Commission applied to have the judgment in Branco vCommission set aside, and subsequently, after the judgment in Commission vBranco was delivered on 13 December 1995, took the measures necessary for theadoption of a new decision. To that end, it re-examined the file, prepared a newdraft decision and gave the Member State and the applicant an opportunity tosubmit their comments on that draft.

101.

    In those circumstances, the period in question must be regarded as beingreasonable.

102.

    It follows that the plea in law alleging infringement of the principles of protectionof legitimate expectations and legal certainty must be rejected.

4. The fourth plea in law: breach of acquired rights

Arguments of the parties

103.

    The applicant claims that the contested decision is in breach of rights which it hasacquired. It refers to the Opinion of Advocate General Darmon in Case C-291/89Interhotel v Commission [1991] ECR I-2257, arguing that the approval decisionvested subjective rights in it and entitled it to demand full payment of the aid.

104.

    The Commission disputes the argument put forward by the applicant.

Findings of the Court

105.

    While it is true that an approval decision confers on the recipient of ESF assistancea right to insist on payment thereof, this can be so only if that recipient carries outthe training programme concerned in accordance with the attendant conditions.

106.

    In the present case, the applicant did not comply with the conditions governing thetraining programme run by it.

107.

    It follows that the plea in law alleging breach of acquired rights must be rejected.

5. The fifth plea in law: infringement of the principle of proportionality

Arguments of the parties

108.

    The applicant points out that the Commission had initially fixed the amount of ESFassistance for the training programme in question at ESC 125 639 392, while, afterthe programme had been completed, it reduced that sum to ESC 61 964 126. Inthus reducing the assistance by more than half, the applicant claims that theCommission infringed the principle of proportionality.

109.

    The Commission contests the argument put forward by the applicant.

Findings of the Court

110.

    The reductions made by the Commission in this case were directly linked to theirregularities detected and were designed solely to exclude reimbursement ofunlawful or unnecessary expenditure.

111.

    Those reductions are thus in keeping with the principle of proportionality.

112.

    It follows that the plea in law alleging infringement of the principle ofproportionality must be rejected.

113.

    The action must accordingly be dismissed in its entirety.

The applicant's request to the Court to remove a document annexed to theCommission's rejoinder

114.

    By a separate document lodged at the Registry of the Court on 28 January 1998,the applicant requested the Court to remove the document entitled 'charge‘annexed to the Commission's rejoinder and referring to the proceedings institutedby the IGF before the Tribunal Criminal do Porto.

115.

    The Commission objects to that request.

116.

    The Court did not, in this case, rely on the document in question for the purposeof resolving this dispute.

117.

    It is therefore unnecessary to rule on the applicant's request.

    

Costs

118.

    Under Article 87(2) of the Rules of Procedure, the unsuccessful party must beordered to pay the costs if they have been applied for in the successful party'spleadings. Since the applicant has failed in its submissions, it must be ordered topay the costs, in accordance with the form of order sought by the Commission.

On those grounds,

THE COURT OF FIRST INSTANCE (Third Chamber)

hereby:

1.    Dismisses the action;

2.    Orders the applicant to pay the costs.

TiiliBriët Potocki

Delivered in open court in Luxembourg on 15 September 1998.

H. Jung

V. Tiili

Registrar

President

1: Language of the case: Portuguese.

ECR