JUDGMENT OF THE COURT OF FIRST INSTANCE (First Chamber)

14 July 1997 (1)

(Social policy — European Social Fund — Assistance for the financing ofvocational training measures — Action for annulment — Notification of decisionof approval — Decision on the final payment claim — Legal certainty —Legitimate expectations — Statement of reasons)

In Case T-81/95,

Interhotel, Sociedade Internacional de Hotéis, SARL, a company governed byPortuguese law, established in Lisbon, represented by José Miguel Alarcão Júdice,Nuno Morais Sarmento and Gabriela Rodrigues Martins, of the Lisbon Bar, withan address for service at the Chambers of Victor Gillen, 16 Boulevard de la Foire,

applicant,

v

Commission of the European Communities, represented by António Caeiro, LegalAdviser, and Günter Wilms, of its Legal Service, acting as Agents, with an addressfor service in Luxembourg at the office of Carlos Gómez de la Cruz, of its LegalService, Wagner Centre, Kirchberg,

defendant,

APPLICATION for the annulment of Commission Decision C(94)1410/11 of 12July 1994 (Case No 870840/P1), notified to the applicant on 27 December 1994,concerning financing from the European Social Fund for vocational trainingmeasures,

THE COURT OF FIRST INSTANCE

OF THE EUROPEAN COMMUNITIES (First Chamber),

composed of: A. Saggio, President, V. Tiili and R.M. Moura Ramos, Judges,

Registrar: J. Palacio González, Administrator,

having regard to the written procedure and further to the hearing on 15 January1997,

gives the following

Judgment

Facts and procedure

1.

    A project (to which was assigned Case No 870840/P1) containing an application forfinancial assistance for the applicant, which the Departamento para os Assuntos doFundo Social Europeu (Department for the Affairs of the European Social Fund,hereinafter 'the Department‘), Lisbon, proposed in respect of 1987, was approvedby the Commission by decision of approval of 30 April 1987, subject to certainchanges. The applicant had applied to the European Social Fund (hereinafter 'theESF‘) for ESC 152 466 071 for vocational training for 284 persons but was granted financial assistance by the ESF amounting to ESC 121 647 958 for the training of277 persons.

2.

    The Commission sent to the Department a memorandum entitled 'Annex <A1>to Commission Decision C(87)0860‘ (Annex 1 to the defence) containing thefollowing information:

Number of persons concerned

277

Amount applied for

ESC 152 466 071

Amount granted

ESC 121 647 958

Ineligible

ESC 27 766 349

Reduction

ESC 3 051 763

Total amount refused

ESC 30 818 112

3.

    The Department notified that decision to the applicant on 27 May 1987, indicatingthe amount granted and the number of persons approved (Annex 4 to theapplication). It was stated in that communication that assistance from theEuropean Social Fund (hereinafter 'the ESF‘) comprises credits which areconditional upon completion of the training measures in accordance with the

Community rules and that failure to comply with that condition would entail therepayment of sums advanced and non-payment of the balance. It was also madeclear that any change affecting the application as submitted would have to benotified to the Department.

4.

    The training measures were completed in 1987. By circular 10/87 dated 8 January1987 which, according to the applicant, was received by it on 29 June 1987, theDepartment asked the recipients of the ESF assistance to reduce the periods ofpractical training to the same length as that of the periods of theoretical instruction. To meet the requirements of the circular, the applicant reduced the plannednumber of hours of theoretical instruction by 36.13%. It claims that it also, on itsown initiative, made a proportional reduction of 36.13% of the costs under allheadings of the training budget.

5.

    The applicant received an advance of 50% of the ESF assistance, namely anadvance of ESC 60 823 979. When the training was completed, it submitted a finalpayment claim, in which it claimed from the ESF the sum of ESC 73 496 941,namely the amount of the advance plus ESC 12 672 962.

6.

    On 19 July 1989 the Department informed the applicant that, pursuant to aCommission decision which it enclosed with its letter, the ESF assistance could notultimately exceed ESC 42 569 539 on the ground that certain expenses relating topoints 14.1, 14.2, 14.3, 14.6 and 14.8 on the form were ineligible 'since there wasno proportional reduction in the training time and certain aspects of the initialproposal were not complied with (14.1)‘.

7.

    Following an action brought by the applicant, the first decision was annulled by theCourt of Justice on the ground that the Commission had not given the PortugueseRepublic an opportunity to comment before the adoption of the final decisionreducing the assistance (Case C-291/89 Interhotel v Commission [1991] ECR I-2257).

8.

    With a view to adopting a new decision on the applicant's final payment claim, on6 August 1991 the Commission forwarded to the Department a first draft decision. By letter of 26 August 1991 the Department informed it that it did not agree withcertain proposed reductions.

9.

    On 9 February 1993 the applicant asked the Commission to adopt a new decisionwithin the time-limit laid down by the Treaty, namely within two months followingthe request.

10.

    Following the observations from the Department and the request from theapplicant referred to in the foregoing paragraph, the Commission organized aninspection visit on 19 February 1993, with a subsequent visit on 18 March 1993, toexamine on the spot the evidence indicating that the training measures had been

completed. The applicant was granted a hearing during that inspection visit. According to the Commission, the evidence available was limited and difficult torely on, particularly because the applicant had entrusted certain measures to a sub-contractor, Partex, which in turn had employed two sub-contractors Europraxis andFortécnica. In those circumstances, an examination was made of financial andaccounting records of the sub-contractors used by the sub-contractor employed bythe applicant. The results of that examination were considered from 24 to 26 May1993 by a working party on which the Commission and the Department wererepresented.

11.

    Then, on 12 November 1993, by memorandum No 22917, the Commission notifiedto the Department a new draft decision, according to which the ESF assistance wasto be ESC 41 190 905 unless the Department's comments justified adjustment ofthat amount.

12.

    Memorandum No 22917 contains a number of explanations regarding the proposedreductions. First, it draws attention to divergences between the durations indicatedin the final payment claim, the attendance record of the trainees and the reportsdrawn up by the instructors. The note adds that it was not possible to confirm thebreakdown of the duration of training as between the theoretical and practicalparts. Finally, it had not been possible to identify the training periods in terms oftimetables and objectives.

More specifically, with respect to the various headings of the final payment claim,the reasons given for the proposed reductions were as follows:

14.1    Salaries of trainees

    Training aid

ESC 3 180 878

    —    It was found that 56 trainees had not received eligible practicaltraining, hence a corresponding reduction, supporting calculationattached.

14.2    Preparation of the courses

    Recruitment and selection of trainees

ESC 1 456 000

    —    It was found that the Partex invoice and the final payment claimreferred to 490 tests at a unit price of ESC 7 000, whereas that workhad been carried out by an outside organization which had invoicedPartex for carrying out 282 tests at a unit cost of ESC 12 000. Consequently, because Partex had provided no additional service, itwas considered reasonable to fix the costs for the 282 trainees atESC 7 000 each.

    Copying of documents

ESC 1 183 680

    —    That expense was not included in the decision of approval and wasnot justified, in view of the amounts indicated in respect of teachingmaterials and the type of measures carried out.

14.3    Functioning and management of the courses

    Teaching staff

ESC 21 705 954

    —    This heading concerns salaries, and teaching staff's travel expenses,board and lodging.

        The amount in respect of teaching staff was invoiced in its entirety byPartex which, in turn, used a sub-contractor. The check carried outat the sub-contractor's premises showed that Partex had concluded acontract under which the sub-contractor was to organize courses formeasures undertaken both by Interhotel and by another undertaking,Grão-Pará without any difference of value. The maximum amounteligible for training measures was determined on the basis of the costsborne by the sub-contractor in respect of the teaching staff who gavecourses to Interhotel trainees, plus a gross margin of 50%. Themaximum amount eligible for the training measures was thus ESC 10613 646.

        As regards the cost of board and lodging of teaching staff, the initialapplication referred to two specialists and a manager. The costsrelating to the first two were rejected in the decision of approval, sothat, as regards the balance, only the costs in respect of one staffmember were regarded as eligible. The eligible amount of ESC 462000 was calculated on the basis of the envisaged and approved costof ESC 700 per day.

    Administrative staff

ESC 2 912 955

    —    The expenses indicated in the final payment claim related to the workof one specialist and two secretaries, whereas in the decision ofapproval only the amount for one secretary had been approved.

    Board and lodging and travel expenses for non-teaching staff

ESC 2 409 940

    —    The expenses for non-eligible, non-teaching, administrative andtechnical staff (11 persons) were totally rejected in the decision ofapproval.

    Management and budgetary control

ESC 2 241 136

    —    Expenditure not justified and not allowed in the decision of approval.

    Specialized work

ESC 2 363 000

    —    Expense not justified and not allowed in the decision of approval.

    Hire and rent

ESC 4 841 969

    —    In accordance with what was envisaged and allowed in the decision ofapproval, only a daily cost of ESC 8 000 was included for the hire ofeach duly equipped room.

    Equipment and non-durable goods

ESC 4 550 324

    —    In accordance with what was envisaged and allowed in the approval    decision, a unit cost of ESC 2 500 per week and per trainee duringthe practical training period was regarded as eligible.

    Other supplies and services of third parties

ESC 1 777 183

    —    Expenses not justified and not allowed in the initial application.

14.6    Normal depreciation

                                             ESC 3 668 700

    —    In the decision of approval, accelerated depreciation was refused andreclassification as normal depreciation was not accepted at the stageof the final payment claim.

14.8    Board and lodging for trainees

ESC 5 673 000

    Those costs were not envisaged or allowed in the decision of approval.

13.

    At the request of the Department, the applicant submitted its observations on thedraft decision on 17 December 1993. The Department sent its own observationsto the Commission by letter of 7 February 1994, recognizing that the reductionsproposed by the Commission were justified.

14.

    The Portuguese Republic thus having been heard in accordance with Article 6(1)of Council Regulation (EEC) No 2950/83 of 17 October 1983 on theimplementation of Decision 85/516/EEC concerning missions of the EuropeanSocial Fund, as amended by Council Regulation (EEC) No 3823/85 of 20December 1985 by reason of the accession of Spain and Portugal (OJ 1983 L 289,p. 1, and OJ 1985 L 370, p. 23, respectively, hereinafter 'Regulation No 2950/83‘),on 12 July 1994 the Commission adopted a new decision (C(94)1410/11) by whichthe ESF assistance was amended to ESC 41 190 905 (hereinafter 'the contesteddecision‘). According to that decision, an analysis of the final payment claimshowed that part of the ESF assistance had not been used in the mannerprescribed by the decision of approval for the reasons set out in theabovementioned memorandum No 22917. That decision was notified to theapplicant on 27 December 1994 and was accompanied by a letter from theDepartment.

15.

    In those circumstances, by application lodged at the Registry of the Court of FirstInstance on 9 March 1995, the applicant brought the present action. Theprocedure followed the normal course.

16.

    The parties presented oral argument and answered questions put to them in writingand orally by the Court at the hearing on 15 January 1997.

Forms of order sought

17.

    The applicant claims that the Court of First Instance should:

—    annul the contested decision,

—    order the Commission to pay the costs.

18.

    The defendant contends that the Court of First Instance should:

—    dismiss the application as unfounded,

—    order the applicant to pay the costs.

Substance

19.

    The applicant puts forward two pleas in law. The first alleges breach of generalprinciples of law, namely the principles of the protection of acquired rights, of legalcertainty and of legitimate expectations and breach of the principle of soundadministration and the duty of care. The second alleges breach of the obligationto state the reasons on which a measure is based.

The plea alleging breach of general principles of law, and breach of the principle ofsound administration and the duty of care

Summary of the parties' arguments

20.

    The applicant considers that the contested decision must be annulled for breach ofgeneral principles of law, namely the principles of the protection of acquired rights,of legal certainty and of legitimate expectations, and contravention by theCommission of the principle of sound administration and the duty of care. Itemphasizes the importance of the general principles on which it relies in thecontext of ESF action, particularly where measures are involved which mightpreclude the payment of financial support claimed by a Member State or anindividual (Case 44/81 Germany v Commission [1982] ECR 1855).

21.

    It refers, first of all, to its lack of experience in the relevant area in 1987, and thatof the Department, in view of the recent accession of Portugal to the EuropeanCommunities. It also refers to the problems of adjustment inherent in the legal,economic and social situation in Portugal at the material time, of which theCommission should have taken account. In that connection, it refers toCommission Decision 86/221/EEC of 30 April 1986 on the Guidelines for theManagement of the European Social Fund in the financial years 1987 to 1989 (OJ1986 L 153, p. 59, hereinafter 'Decision 86/221‘). Even in such circumstances, itobserved the rules in force and the applicable instructions and its action was inconformity with the objectives of the ESF. It refers in that connection to CouncilDecision 83/516/EEC of 17 October 1983 on the tasks of the European Social Fund(OJ 1983 L 289, p. 38) and Regulation No 2950/83.

22.

    The applicant maintains that the Commission decision of approval, as brought toits notice, was subject only to determination of the amount of the ESF assistanceas ESC 121 647 958 and the number of trainees as 277. In its view, there was noreason to consider that it would be necessary to carry out any additional checkswhatsoever. It explains that, in those circumstances, it allocated the differencebetween the amount applied for in the application for assistance and the amountallowed in the decision of approval, as notified to it, on a linear or proportionalbasis amongst all the headings.

23.

    The applicant claims that it set out the method under which it made thosereductions in its application for the payment of an advance, to which it attached adocument entitled 'summary of the situation‘ indicating the hours of training to beundertaken. It adds that the method used is also clear from the quantitative and

qualitative evaluation report which accompanied the final payment claim. It statesthat neither the Commission nor the Department made any objections or commentson that point. In fact, the Department certified the factual and statisticalcorrectness of the information contained in the evaluation report.

24.

    The applicant thus acted in the legitimate belief that all the expenses contained inthe initial application for assistance, subject to the linear reduction made by itfollowing the decision of approval, on the one hand, and the Department circularon the other, were properly incurred and accepted and were therefore eligible. Inits view, any other interpretation would involve breach of the principles of legalcertainty and protection of legitimate expectations, and infringement of Decision86/221.

25.

    According to the applicant, the decision by which the Department notified to it theconditions for the approval of its project is an administrative measure which conferscertain rights on it and is valid even if it is regarded as part of a wider andincomplete decision-making process carried out by the Commission. Thewithdrawal of such a measure would frustrate the applicant's legitimateexpectations and acquired rights.

26.

    As regards the alleged failure to justify certain expenses, it states, first, that theamounts correspond to the normal market values at the material time, second, thatthe services invoiced were actually provided and, third, that the amounts set out inthe final payment claim correspond to the costs which it actually incurred. Itadded, at the hearing, that in 1987 it was sufficient, under the national provisionsin force, to produce the contract by way of justification, and that receipted invoiceshave only been required since 1988.

27.

    As regards, more specifically, justification of the costs under the heading'Functioning and management of the courses — teaching staff‘, the amount initiallyapproved was not exceeded. Similarly, in the case of the costs for preparation ofthe courses, the Commission merely challenged the invoice submitted by Partex tothe applicant. The applicant emphasizes that the tests for selection of trainees, asinvoiced, were in fact carried out. As regards the heading 'Equipment and non-durable goods‘, the amount indicated corresponds to the real cost and should havebeen accepted as such. Finally, with respect to normal depreciation, the applicantcriticizes the Commission for not allowing, at the stage of the final payment claim,rectification of the error contained in the application for assistance.

28.

    In any event, it is incumbent upon the Commission, in the applicant's view, toprove any irregularity in the amounts put forward and in the supporting documents,and it failed to do so.

29.

    At the hearing the applicant also explained that, if it incurred expenses notprovided for regarding board and accommodation for trainees, that was because,

having been obliged to reduce the hours, it had had to organize the training at theheight of the hotel season and could not therefore accommodate the trainees in thehotels as had been planned.

30.

    The applicant also claims that the time which elapsed between the opening of thefile and the adoption of the contested decision was about eight years. That lapseof time caused it significant damage since it has been obliged to bear until thepresent time high financial costs which it was entitled to assume would be borneby the Commission. It asks the Court to assess the extent to which the periodconcerned involves any failure to observe the limits and principles to which theexercise of the Commission's discretion is subject. It also maintains that it is clearlyimpossible to reconstruct all the events after such a long period, since the peopleresponsible for providing the training are no longer available to supply information. As regards its obligation to retain supporting documents, the applicant maintainsthat the period prescribed for that purpose was, until 1 January 1989, five years andwas extended to ten years only after the training had been completed, even thoughthat change in fact occurred before the inspection visit was carried out.

31.

    In its reply the applicant also submits that the contested decision was not adoptedwithin the time-limit laid down by the Treaty, namely two months after the requestwhich it submitted for that purpose.

32.

    For its part, the defendant contends that it did not fail to verify the propriety andgenuineness of the expenditure set out in the final payment claim. As regards theexpenditure which it rejected in the contested decision on the ground that it hadalready been considered ineligible in the decision of approval, the defendantcontends that it again arrived at the conclusion that it was ineligible. As regardsthe other reductions which it made, it explains that certain expenses allowed in thedecision of approval were not sufficiently documented in the final payment claimand therefore were not justified at the stage of the final examination.

33.

    The defendant, which observes that the proposed measures would not even havebeen approved if they had not conformed with ESF objectives, emphasizes that inthis case the issue is whether the organizer of the measures complied with all therules applicable thereto, in particular those concerning justification of expensesincluded in the final payment claim. The Commission considers that that was notthe case.

34.

    As regards the method of applying the reductions and the areas to which theyrelate, the defendant explains that it would have been sufficient for the applicantto have divided the cost of the proposed measures by the number of traineesindicated in the proposal and to have compared that result with the result obtainedby dividing the cost of the approved measures by the number of trainees approvedto see that the total reduction decided on by the Commission in the decision ofapproval did not represent a simple linear reduction. If the costs per traineedecreased, that means that certain expenses were not regarded by the Commission

as eligible. The Commission contends, referring to the Opinion of AdvocateGeneral Darmon in Case C-291/89, paragraph 28, that it is incumbent upon theorganizer, before incurring any expense, to satisfy himself that the correspondinghead of expenditure had been approved by the Commission, failing which he mustbear the consequences. According to the Commission, neither it nor theDepartment was informed of the linear reduction made by the applicant of theexpenses envisaged in the initial application. The evaluation report was not sentto the Commission in its entirety.

35.

        The defendant points out that the decision of approval notified to the Departmentclearly indicated the amount applied for, the amount granted, the amount of theexpenses declared ineligible, the reduction and the total amount refused. Thoseamounts represented the ESF portion of the financing, namely 49.5% of the totalcost envisaged in the application for assistance. The Commission is unawarewhether the Department notified that decision to the applicant in detail or whetherit simply forwarded the memorandum appended as annex 4 to the application (seeparagraph 3 above).

36.

    According to the defendant, if the applicant did not check that the correspondinghead of expenditure had been approved in the decision of approval, it cannot claimany legitimate expectation, still less acquired rights, as to the eligibility ofexpenditure referred to in the initial application for assistance.

37.

    The defendant also contends, relying on the Opinion of Advocate General Darmonin Case C-291/89, paragraph 38, that even if the Department confirmed the costsand financing as set out in the file, 'such an examination by the national authoritiescannot confirm rights which the applicants acquire definitively only at the end ofa thorough examination carried out by the Commission ...‘ and that 'the analysisby the national authorities prior to the forwarding of the application for paymentto the Commission in no way prejudges the Commission's decision‘.

38.

    Nor does the Commission accept that a commercial undertaking which, undernational law, is under a legal obligation to retain its documentation for ten yearscan rely, in order to accuse the Commission of failing in its duty of care, on its ownlack of care or that of third parties in keeping documents for that period.

39.

    The defendant states that the decision-making procedure followed the normalcourse, was not excessively long and scrupulously respected the interests of theorganizer of the training measures.

Findings of the Court

40.

    The Court observes first that the procedure relating to ESF contributions, governedby Regulation No 2950/83, comprises several stages. Initially, the Commission givesa decision under Article 4(1) on applications for assistance submitted by the

Member States on behalf of undertakings (decision of approval). Under Article5(1) and (2) the approval of an application is followed by the payment of anadvance. Subsequently, when the operation is completed, the recipient submits afinal payment claim containing a detailed report on the content, results andfinancial aspects of the relevant operation. Article 5(4) provides that the MemberState is to certify the accuracy of the facts and accounts in payment claims.

41.

    Moreover, the advance received by the beneficiary covers a maximum of 50% ofthe expenditure approved so that he himself is obliged to advance considerablesums against the expectation of payment of the balance which he may legitimatelyhope to receive, provided that he proves that he used the assistance in accordancewith the conditions laid down in that regard (Case C-189/90 Cipeke v Commission[1992] ECR I-3573, paragraph 17).

42.

    When examining the final payment claim, the Commission is required to verifywhether the conditions to which the training measures were subject have beenfulfilled. Article 6(1) provides that, when fund assistance is not used in conformitywith the conditions set out in the decision of approval, the Commission maysuspend, reduce or withdraw the aid after giving the relevant Member State anopportunity to comment. It is clear from that provision that the grant of ESF aidis subject to compliance by the beneficiary with the conditions for the training laiddown by the Commission in the decision of approval or by the beneficiary in theapplication for assistance in respect of which that decision was given.

43.

    Finally, the Court of Justice has described as indisputable the view that 'it is onlyafter receiving a detailed report on the relevant operations after they have beencarried out that it is possible to calculate the precise amount of eligibleexpenditure‘ (Case 84/85 United Kingdom v Commission [1987] ECR 3765,paragraph 23). It follows that the Commission must be empowered to reject evenexpenditure approved in advance on the ground that it has not been properlyjustified, without undermining the acquired rights of the beneficiary of theassistance. Consequently, it is essential to allow the Commission such a discretionin examining the final payment claim since it is only at that stage that it can verifyin concreto the supporting evidence submitted by the undertaking (see also theOpinion of Advocate General Darmon in Case C-291/89, paragraphs 35 and 36).

44.

    In the present case, after the applicant submitted its final payment claim, theCommission rejected certain expenditure for three different reasons (see paragraph12 above). First, expenditure not mentioned by the applicant in its application forassistance was rejected. Second, the Commission regarded certain expenditure asnot properly documented and therefore not justified. Third, it drew attention tothe existence of certain expenses not allowed in the decision of approval. Consequently, after hearing the Department, which, for its part, had heard theapplicant, the Commission, by the contested decision, reduced the ESF assistanceto an amount lower than that initially granted. Moreover, the Departmentapproved those reductions.

45.

    The Court considers that it is appropriate to examine first the alleged breach of theprinciple of the protection of legitimate expectations. Any economic operator towhom an institution has given justified hopes may rely on the protection of theprinciple of legitimate expectations (Joined Cases T-466/93, T-469/93, T-473/93, T-474/93 and T-477/93 O'Dwyer and Others v Council [1995] ECR II-2071, paragraph48). The question whether the contested decision meets the requirements of theprinciple of protection of legitimate expectations must be assessed by examiningseparately the three categories of reductions mentioned above.

46.

    It follows from the rules mentioned above (paragraphs 42 and 43) that, first, theCommission was entitled to reject the applicant's final payment claim, to the extentto which approval was requested for costs which had not been mentioned in theapplication for assistance, without any consequent breach of the principle ofprotection of legitimate expectations. Second, it was also legitimate, from the pointof view of compliance with that principle, to reject its final payment claim to theextent to which approval was sought for expenses not covered by supportingdocuments proving that they had actually been incurred and were linked with thetraining measures as approved.

47.

    It was incumbent on the beneficiary to prove that the expenses were actuallyincurred and were linked with the training measures approved. It is in the bestposition to do so and must establish that the receipt of resources from public fundsis justified. However, the applicant has merely asserted that the calculationmethods used by the Commission to determine the overall amount of the approvedexpenses were arbitrary and that the costs mentioned by it were in fact incurred,without providing either supporting documents or any other evidence to establishthat the information and findings relied on by the Commission were incorrect. Itfollows that the applicant's arguments concerning justification of the expensesmentioned in its final payment claim cannot be upheld.

48.

    The principle of the protection of legitimate expectations was thus not infringed asregards the first two categories of reduction.

49.

    As regards the third category of reduction, it must be borne in mind in limine thatthe Department's notification of the decision of approval indicates only the totalamount granted and the number of persons approved (see paragraph 3, above). Thus, the Commission's assessments concerning the eligibility of the proposedexpenses for the purposes of the decision of approval were not brought to theapplicant's notice before completion of the training measures in such a way that theapplicant could see how they were allocated to each heading. The applicant, incarrying out the measures, was thus unable to identify the items approved, thoserefused and those subjected to a reduction.

50.

    It is also common ground that the applicant, having received the succinctnotification mentioned above, decided, rather than finding out whether certain

expenses had been treated as ineligible, to spread the difference between theamount applied for and the amount approved, that is to say the total reduction,proportionally among all the headings of its application for assistance. Moreover,it made other reductions, in accordance with the Department's abovementionedcircular (see paragraph 4), under all the headings of its application for assistance. The amount claimed in the final payment claim, namely ESC 73 496 941, wasconsiderably lower than the amount allowed by the Commission in the decision ofapproval, namely ESC 121 647 958.

51.

    It is important to analyse the justification of the third category of reductions havingregard to the fact that the decision of approval was not communicated to theapplicant in full detail, with the result that it was not informed in due time of thereductions made in respect of each heading. The issue is whether non-fulfilmentof the conditions of a decision of approval which were not communicated to thebeneficiary before completion of the training measures, so as to enable the latterto take account of them, is of such a nature as to justify the Commission'sconclusion that the expenses envisaged in the application for assistance but rejectedin the decision for approval are ineligible, even if the beneficiary producessupporting documents proving that they were actually incurred.

52.

    In this case, whilst it is true that the rules did not require details of the decision ofapproval to be communicated to the person concerned, that information wasnevertheless, in fact, necessary for the beneficiary to be able to fulfil the conditionsfor grant of the assistance in relation to the expenses which, according to theCommission, were not approved in the decision of approval.

53.

    The Court considers that the beneficiary of assistance cannot be deemed tounderstand, on reading a decision in the form in which the decision in this case wascommunicated to the applicant, that the reductions made by the Commissionrelated to specific headings. On the contrary, a beneficiary might reasonably thinkand accept that an overall reduction had been made and that, consequently, it wasmerely an overall limit that had been imposed on expenditure. In suchcircumstances, for the Commission to be entitled, when examining the finalpayment claim, to regard as ineligible those expenses which were envisaged in theapplication for assistance but were allegedly rejected in the decision of approval,it is necessary for the decision of approval to be brought to the notice of abeneficiary in sufficient detail. That condition is fulfilled only if the notificationindicates the reductions by headings or, at least, contains the information which theCommission communicated in this case to the Department, namely the number ofpersons concerned, the amount allowed, the amount of ineligible expenses, theamount of other reductions and the total amount refused. By virtue of, inter alia,the principle of legal certainty, if he is to observe the conditions of the decision ofapproval regarding the reductions by headings, the beneficiary must be in aposition, when carrying out the training measures, to identify the approved items,the refused items and the items subject to a reduction.

54.

    In those circumstances, given that the applicant was informed of the adoption ofa decision which was partially favourable to it, but whose content was not disclosedto it in its entirety, it cannot be criticized for failing to react, at that time, to thedecision of approval by asking the Department for clarifications as to theapportionment of the amount granted.

55.

    The Court finds that the decision of approval, as notified to the applicant,contained no indication of the apportionment of the reductions made. Accordingly,the decision must be regarded as capable of causing the applicant to entertainjustified hopes, so that it might have thought that there were no other reductionsand that it was authorized to allocate pro rata, as it did in this case, the amount ofthe total amount of the reductions among all the headings.

56.

    Moreover, the Commission cannot rely on the terms of a decision which were notnotified to the beneficiary. It is irrelevant that it was the Department whichinformed the applicant that its project has been approved. When the Commissiondoes not take the necessary precautions to satisfy itself that the beneficiary of ESFaid is informed of the conditions imposed by the decision of approval, it cannotreasonably expect it to observe those conditions.

57.

    The Court concludes that, in so far as the fact that the expenses were actuallyincurred and were connected with the training measures is demonstrated bysupporting documents, it was contrary to the principle of legitimate expectationsfor the Commission, when examining the final payment claim, to have rejected theclaim to the extent to which it included expenditure provided for in the applicationfor assistance but allegedly not approved in the decision of approval, without thebeneficiary having been notified to that effect.

58.

    The present plea in law, in so far as it alleges a breach of the principle of theprotection of legitimate expectations, must therefore be upheld to the extent towhich it relates to the reductions made by the Commission merely because thecosts had not been allowed in the decision of approval.

59.

    For all the foregoing reasons the contested decision should be annulled to theextent to which the Commission reduced the amounts claimed in the applicant'sfinal payment claim merely because the costs in question had not been allowed inthe decision of approval.

60.

    As regards, on the other hand, the other reductions made on the ground that thecorresponding costs were not provided for or not documented, it must beconcluded, contrary to the applicant's assertions, that they do not contravene theprinciples of legal certainty and protection of acquired rights or the principle ofsound administration and the duty of care.

61.

    As far as the principle of the protection of legal certainty is concerned, it requiresin particular that Community rules enable the person affected by them to ascertainunequivocally what his rights and obligations are and to take steps accordingly (see,to that effect, Case C-143/93 Van Es Douane Agenten and Others v Inspecteur derInvoerrechten en Accijnzen [1996] ECR I-431, paragraph 27). Although thatprinciple plays a role, inter alia, in the examination of the legality of the decisionsconcerning the recovery of benefits unduly paid, there can be no question of anyinfringement of that principle where, as in this case, the rules in force clearlyprovide for the possibility of financial assistance being recovered in cases where theconditions to which its payment was subject have not been fulfilled. Thoseconditions include, as already observed, the requirement that the cost should havebeen provided for and duly documented.

62.

    Similarly, the beneficiary of assistance for which the application was approved bythe Commission does not thereby acquire any definitive right to full payment of theassistance if he does not satisfy the abovementioned conditions.

63.

    As regards the principle of sound administration and the duty of care, the Courtconsiders that the Commission fulfilled the requirements of sound administrationand care by carefully examining all the aspects of the case, and, in so doing,contacting the sub-contractors in order to obtain information and supportingdocuments which the applicant was not in a position to provide. In any event, sincethe applicant has not developed its complaint further and has thus not explainedthe nature of the alleged infringements, the complaint cannot be upheld.

64.

    As regards the argument concerning the considerable period of time which elapsedafter the file was opened, the Court considers that the relevant period in this case,for the purpose of examining that argument, runs from the delivery of the judgmentof annulment in Case C-291/89 on 7 May 1991 to the adoption of the contesteddecision on 12 July 1994, that is to say a period of 38 months or more than threeyears. Since the Commission was required, following annulment of the firstdecision by the Court of Justice, to re-examine all the information available whenthe measure was adopted and to adopt a new decision on the final payment claim,the period prior to the annulment of the first Commission decision on the finalpayment claim is not in any way relevant to assessment of the propriety of thecontested decision.

65.

    The question whether the delay was reasonable must be assessed in each individualcase. However, the Commission is required, following annulment of the firstdecision by the Court of Justice, to re-examine all the information available at thetime of adoption of the measure and to adopt a new decision on the final paymentclaim. Account must therefore be taken of the various stages involved in theprocedure leading to the decision in this case. It was necessary to reconstitute thefile. That task, in which the approach taken was heavily influenced by suspicionsof irregularities, involved the organization of an inspection visit to Portugal, visitsto sub-contractors, analysis of the information gathered and several consultations

with the Portuguese authorities. The national authorities heard the views of theapplicant on the Commission's draft decisions. The Court considers, in view of thespecial circumstances mentioned above, that the procedure was long but was notunreasonably protracted.

66.

    In any event, in proceedings for annulment, even an unreasonable delay cannot initself render the contested decision unlawful and thereby justify its annulment forbreach of the principle of legal certainty. A delay in the conduct of the procedurefor implementation of a judgment is not, in itself, of a nature such as to affect thevalidity of the measure which is the outcome of that procedure: if that measurewere annulled merely because of its belatedness, it would be impossible to adopta valid measure since the measure intended to replace the annulled measure couldbe no less belated than the latter, (see, by analogy, Case T-150/94 Vela Palacios vESC [1996] ECR-SC II-877, paragraph 44).

67.

    Finally, the Court rejects, for the same reasons, the applicant's argument that thecontested decision is vitiated because it was not adopted within a period of twomonths after a request in that regard was submitted by the applicant. It need onlybe observed that the sole effect of the applicant's calling on the Commission to actunder the third paragraph of Article 175 of the Treaty was to enable it to bring anaction for failure to act if the institution in question failed to define its positionwithin two months of being so called upon, as prescribed by the second paragraphof Article 175 of the Treaty. In this case the applicant did not bring an action forfailure to act within the period of two months following the expiry of the periodwithin which the institution should have defined its position. In any event, asubsequent decision cannot be vitiated merely because it was adopted after theexpiry of that period because such a result, if upheld, would make it entirelyimpossible, at that stage, to adopt any valid decision.

The plea alleging breach of the obligation to state reasons

68.

    In view of the foregoing, the plea alleging breach of the obligation to state reasonsneed be examined only to the extent to which the application to the Court has notyet been upheld, namely in so far as it relates to the reductions made on theground that the expenditure had not been provided for in the application forassistance or was not evidenced by supporting documents.

Summary of the parties' arguments

69.

    According to the applicant, the contested decision does not contain an adequatestatement of the reasons for the reductions imposed on the ground that theexpenses under the heading 'Functioning and management of the courses —teaching staff‘, preparation of the courses, equipment and non-durable goods andnormal depreciation were not supported by evidence and were therefore ineligible. As regards, first, the heading 'Functioning and management of the courses —

teaching staff‘, the Commission did not, it is alleged, explain the arbitrary criterionin accordance with which it determined the acceptable overall amount. Similarly,with regard to preparation of the courses, the Commission merely objected to theinvoice submitted by Partex to the applicant, without giving sufficient reasons. Asregards the heading 'equipment and non-durable goods‘, the amount indicatedcorresponds to the actual cost and should have been taken into account as such. However, the Commission failed to explain its position on that point.

70.

    The defendant refutes the criticisms levelled against it by the applicant regardingthe statement of the reasons on which its decision was based. It explains that itnotified to the Department the overall amount approved and the amount of thereduction made for each application for assistance. In this case, it communicatedto it the memorandum referred to in paragraph 2 above. That procedure isaccounted for by the fact that the Commission was required to deal with severalthousand applications for assistance within a short period and, as the Court ofJustice has already recognized, it could not therefore specify and justify in such ashort period the reasons for which it considered certain expenses ineligible (Case185/83 University of Groningen v Inspecteur der Invoerrechten en Accijnzen [1984]ECR 3623 and Case C-213/87 Gemeente Amsterdam and VIA v Commission [1990]ECR I-221). The Commission adds that, when, in 1988, the Department asked theCommission to provide it with a breakdown of reductions by headings, it dulyresponded.

71.

    In its pleadings the defendant explains at length the reductions made by it in thecontested decision. That explanation repeats, essentially, the reasoning containedin memorandum No 22917.

Findings of the Court

72.

    It is settled case-law that the purpose of the obligation to state the reasons onwhich an individual decision is based is to enable the Community judicature toreview the legality of the decision and to provide the person concerned withsufficient information to make it possible to ascertain whether the decision is wellfounded or whether it is vitiated by a defect which may enable its legality to becontested. The extent of that obligation depends on the nature of the measure inquestion and on the context in which it was adopted (Cipeke v Commission, citedabove, paragraph 14).

73.

    The question whether the statement of the reasons on which the contested decisionwas based was sufficient, and thus in conformity with the Treaty and the case-law,must be assessed by examining separately the reductions made on the ground thatthe expenditure had not been provided for in the application for assistance andthose made on the ground that it was not evidenced by supporting documents.

74.

    As regards reduction of the expenses not provided for in the initial application forassistance, the first category mentioned above, the Court considers that since the

applicant originated that application, after receiving memorandum No 22197 andthe contested decision, it was sufficiently apprised of the grounds for the partial ortotal reductions made by the Commission. The information contained in those twodocuments was sufficient to enable the applicant to realize that, in the contesteddecision, the Commission had imposed reductions in respect of the headings 'hireand rent‘, 'equipment and non-durable goods‘ and 'board and lodging [oftrainees]‘ and that it had reduced to zero the heading 'normal depreciation‘because the corresponding expenditure had not been provided for in its applicationfor assistance. In those circumstances, the Court is in a position to carry out itsreview of that part of the contested decision.

75.

    The applicant's complaint, in so far as it relates to the statement of the reasons forthat first category of reductions, is therefore without foundation.

76.

    As regards the second category mentioned above, the reductions made on theground that certain expenses were not duly evidenced by supporting documents, theCourt considers that the contested decision likewise gives an adequate statementof reasons. It is clear from memorandum No 22197 that the reductions under theheadings 'salaries of trainees‘, 'preparation of courses, recruitment and selectionof trainees‘, 'copying of documents‘, 'management and budgetary control‘,'specialized work‘ and 'other supplies‘ and also part of the heading 'functioningand management of the courses — teaching staff‘ were made because of theinadequacy of the documentation submitted. The methods used and thecalculations made were set out in sufficient detail to enable the applicant to assesstheir correctness and, if necessary, contest them by producing appropriatedocumentation.

77.

    The applicant's complaint, in so far as it relates to the statement of reasons for thatsecond category of reductions, is also without foundation.

78.

    It follows that the plea alleging inadequacy of the statement of reasons, to theextent to which it has been necessary to examine it, must be rejected in its entirety.

79.

    Save to the extent to which the application for annulment has already been upheld,it must therefore be dismissed.

Costs

80.

    Under Article 87(2) of the Rules of Procedure, the unsuccessful party is to pay thecosts if they have been applied for in the successful party's pleadings.

81.

    In the present case the annulment sought by the applicant, which applied for anorder that the Commission pay the costs of these proceedings, has been partially

granted. The Court considers that, although the applicant has been partiallyunsuccessful, it is nevertheless also necessary to take account, in awarding costs, ofthe course taken by the decision-making procedure, as described above, which wassuch that the applicant was left for a long period in a state of uncertainty asregards its right to obtain in its entirety the financial assistance which had beengranted to it. In those circumstances the applicant cannot be criticized for bringingthe matter before the Court for the Commission's conduct to be reviewed and, inthe light of that review, for appropriate determinations to be made. It musttherefore be held that the defendant's conduct contributed towards creating theconditions for the dispute to arise.

82.

    It is therefore necessary to apply, in addition to Article 87(2) of the Rules ofProcedure, the second indent of Article 87(3), according to which the Court mayorder even a successful party to pay the costs in proceedings which have arisen asa result of the conduct of that party (see, mutatis mutandis, Case 263/81 List vCommission [1983] ECR 103, paragraphs 30 and 31, and Case T-336/94 Efisol vCommission [1996] ECR II-0000, paragraphs 38 and 39), and to order theCommission to pay the costs in their entirety.

83.

    The Commission should therefore be ordered to pay in addition to its own costs allthe costs incurred by the applicant.

On those grounds,

THE COURT OF FIRST INSTANCE (First Chamber)

hereby:

1.    Annuls Commission Decision C(94)1410/11 of 12 July 1994, notified to theapplicant on 27 December 1994, in Case No 870840/P1, concerning financialassistance from the European Social Fund in respect of training measures,to the extent to which it reduces the amounts claimed by the applicant inits final payment claim solely because the costs in question had not beenallowed in the decision of approval;

2.    For the rest, dismisses the application;

3.    Orders the Commission to bear its own costs and pay all the costs incurred    by the applicant.

Saggio                    Tiili                    Moura Ramos

Delivered in open court in Luxembourg on 14 July 1997.

H. Jung

A. Saggio

Registrar

President

1: Language of the case: Portuguese.