Judgment of the Court of First Instance (Third Chamber) of 30 September 2003. # Aristoteleio Panepistimio Thessalonikis v Commission of the European Communities. # EAGGF - Statement of reasons. # Case T-196/01.

«(EAGGF – Withdrawal of financial assistance – Article 24 of Regulation (EEC) No 4253/88 – Error of assessment – Principle of proportionality – Reasonable duration – Statement of reasons)»

Judgment of the Court of First Instance (Third Chamber), 30 September 2003

Summary of the Judgment

4.. Economic and social cohesion – Structural assistance – Community financing – Withdrawal of financial assistance from the EAGGF on account of irregularities – Commission obliged to give the beneficiary precise indications as to what supporting documents and additional explanations it must provide (Council Regulation No 4253/88, Art. 24)

5.. Economic and social cohesion – Structural assistance – Community financing – Withdrawal of financial assistance from the EAGGF on account or irregularities – Obligation on the Commission to verify whether an operation has actually been carried out – None (Council Regulation No 4253/88, Art. 24)

7.. Economic and social cohesion – Structural assistance – Community financing – Procedure for withdrawing financial aid – Obligations of the Commission – Duty to act within a reasonable time – Criteria for assessment – Breach – Consequences (Council Regulation No 4253/88, Art. 24)

1.Whilst the Commission is required, as part of the procedure laid down in Article 24 of Regulation No 4253/88 laying down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the different structural funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments, to demonstrate, following a suitable examination of the project, that there are irregularities in the way the project has been carried out which justify withdrawal of the assistance, it is none the less up to the beneficiary to carry out the project as approved and to ensure full compliance with the conditions under which the assistance has been awarded, as set out in the award decision and in the annexes thereto. Consequently, if during its examination the Commission discovers evidence of such irregularities the beneficiary of the assistance must be capable of showing that the project has been carried out in full compliance with the relevant provisions and, in particular, with the award decision. In particular, it is up to the beneficiary to show that expenditure has actually been incurred, that it relates directly to the various operations provided for under the project and that that expenditure is appropriate in the light of the objectives of the project. In that context, the letter initiating the procedure plays a vital role. At that stage of the administrative procedure the Commission must, following its investigation, set down the various complaints regarding the way in which the project has been carried out in a manner that is sufficiently precise to enable the beneficiary to adduce the evidence described above. For that purpose, in accordance with its duty to act in good faith, which stems from the obligation to carry out the project in a spirit of partnership and mutual trust, the beneficiary must provide the Commission with all the supporting documents and explanations which, in view of the special features of the project and the financial conditions laid down in the annexes to the award decision, may appear to it to be required in order to dispel the doubts the Commission has expressed. It is essential for the effective functioning of the system of inspection and evidence introduced in order to verify whether the conditions for granting assistance are met that applicants for, and beneficiaries of, such assistance submit to the Commission reliable information which is not liable to mislead it. Therefore, when examining the legality of a decision withdrawing Community financial aid, it also has to be determined whether the beneficiary has fulfilled its obligation to provide the Commission with all the supporting documents and explanations which, in view of the special features of the project and the financial conditions laid down in the annexes to the award decision, may appear to it to be required in order to ensure that the project has been carried out properly. see paras 47-50

2.Although the project entitled Pilot project to accelerate the regeneration of forests devastated by fire in Greece was co-financed by national resources and is therefore subject to national rules, the legal context of the contested decision is that determined by Community law, that is to say, in particular, Article 24(2) of Regulation No 4253/88 of Regulation No 4253/88 laying down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the different structural funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments, and the award decision. The beneficiary of Community aid cannot therefore claim before the Commission merely that it carried out the approved project in accordance with the national rules. see para. 51

3.The Commission is entitled to ask beneficiaries of Community assistance for extra information in addition to that already supplied if it considers that it is needed in order to establish that the project has been properly implemented. In that respect, the beneficiary of the assistance, being responsible for the management of the project, is in principle in the best position to know what information it should supply to the Commission in order to justify the expenses charged to the project. If, in a particular situation, the Commission considers that in order to carry out a suitable examination of the project it needs more detailed information than that already provided, it must give the beneficiary sufficiently precise indications to enable the latter to give it that information before the procedure is closed and the assistance withdrawn. see paras 112-113, 116

4.The fact that the tasks indicated in the employment contract of a person working for a project financed by Community resources do not correspond with those actually carried out by that person, and for which expenses are charged, does not constitute irrebuttable evidence of an irregularity within the meaning of Article 24 of Regulation No 4253/88 of Regulation No 4253/88 laying down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the different structural funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments. The Commission cannot validly complain of a beneficiary's failure to provide it with documents justifying the travel expenses of a person working for a project financed by Community resources in relation to the project's objectives, if it has not given the beneficiary more precise indications as to what supporting documents and what additional explanations it should have provided. see paras 132, 138

5.Article 24 of Regulation No 4253/88 of Regulation No 4253/88 laying down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the different structural funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments, which provides that the Commission may decide to adopt measures for repayment of the financial assistance if, according to Article 24(2), ‘the examination reveals an irregularity and in particular a significant change affecting the nature or conditions of the operation or measure for which the Commission's approval has not been sought’, refers expressly to irregularities concerning the conditions under which the operation being financed has been implemented, which includes irregularities in the way it has been managed. It cannot therefore be argued that the penalties under Article 24 of Regulation No 4253/88 apply only where the operation financed by the Community has not been carried out in full or in part. Article 24 cannot therefore be interpreted as meaning that, when the Commission finds significant irregularities in the management of a project, it is required, before it withdraws assistance, to consider in every case whether an operation has actually been carried out or not. see paras 205-208

6.In view of the very nature of the financial assistance granted by the Community, the obligation to comply with the financial obligations laid down in the award decision constitutes, as does the obligation actually to carry out the project concerned, one of the beneficiary's essential undertakings, and so the granting of Community assistance is dependent upon compliance with it. In principle, where the Commission finds that a beneficiary of Community assistance has charged certain expenses to a project but failed to show that they were directly connected with the project or that they were appropriate, it may withdraw the assistance granted. In such circumstances, the Commission may reasonably take the view that any penalty other than total withdrawal of the assistance and repayment of sums paid by the EAGGF might constitute an invitation to commit fraud, since potential beneficiaries would be tempted either to inflate artificially the amount of the expenses charged to the project in order to evade their obligation to provide co-financing and obtain the maximum contribution from the EAGGF provided for in the award decision, or to supply incorrect information or conceal certain information in order to obtain assistance or to increase the amount of assistance sought, the only deterrent being that the assistance might be reduced to the level it should have been in the light of the actual expenses incurred by the beneficiary and/or the accuracy of the information supplied by it to the Commission. However, in a situation where the decision to withdraw Community assistance is annulled in its entirety, even though vitiated by errors of assessment in relation to only some of the irregularities found, it is for the Commission, in accordance with Article 233 EC, in the light of the ruling in respect of those irregularities, to decide, according to the principle of proportionality, whether the assistance should still be withdrawn or another measure be adopted with regard to the project. see paras 220, 222-226

7.Article 24 of Regulation No 4253/88 of Regulation No 4253/88 laying down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the different structural funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments does not lay down any specific time-limits with which the Commission should comply in the context of a procedure for the withdrawal of financial assistance. According to a general principle of Community law, the Commission is required to carry out its administrative procedures within a reasonable time, the duration of which is to be determined in relation to the particular circumstances of each case, particularly its background, the various procedural stages followed, its complexity, and its importance for the various parties involved. However, failure to comply with the principle that the Commission must act within a reasonable time, assuming it is established, does not justify automatic annulment of the contested decision. see paras 228-230, 233

In Case T-196/01,

Aristoteleio Panepistimio Thessalonikis,

established in Thessaloniki (Greece), represented by D. Nikopoulos, lawyer, with an address for service in Luxembourg,

applicant,

Commission of the European Communities,

represented by M. Condou-Durande, acting as Agent, with an address for service in Luxembourg,

defendant,

APPLICATION for annulment of Commission Decision C (2001) 1284 of 8 June 2001 withdrawing the assistance granted to the Laboratory for Forest Genetics and Improvement of Ligneous Plant Species at Aristoteleio Panepistimio Thessalonikis (the Aristotle University of Thessaloniki) by Commission Decision C (96) 2542 of 25 September 1996 on the granting of assistance from the Guidance Section of the European Agricultural Guidance and Guarantee Fund under Council Regulation (EEC) No 4256/88 in connection with programme No 93.EL.06.023, entitled Pilot project to accelerate the regeneration of forests devastated by fire in Greece,

THE COURT OF FIRST INSTANCE OF THE EUROPEAN COMMUNITIES (Third Chamber),

composed of: K. Lenaerts, President, J. Azizi and M. Jaeger, Judges,

Registrar: I. Natsinas, Administrator,

having regard to the written procedure and further to the hearing on 1 July 2003,

gives the following

Legal background

In order to strengthen economic and social cohesion within the meaning of Article 158 EC, 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) entrusted to the structural funds inter alia the tasks of promoting the development and structural adjustment of the regions whose development was lagging behind, and speeding up the adjustment of agricultural structures and promoting the development of rural areas, with a view to reform of the common agricultural policy (Article 1(1) and Article 1(5)(a) and (b)). That regulation was amended by Council Regulation (EEC) No 2081/93 of 20 July 1993 (OJ 1993 L 193, p. 5).

The original version of Article 5(2)(e) of Regulation No 2052/88 provided that financial assistance by the structural funds could take the form of support for technical assistance and studies in preparation for operations. In the version amended by Regulation No 2081/93 it states that financial assistance from the structural funds may be provided in the form of support for technical assistance, including the measures to prepare, appraise, monitor and evaluate operations, and pilot and demonstration projects.

On 19 December 1988 the Council adopted Regulation (EEC) No 4256/88 laying down provisions for implementing Regulation No 2052/88 as regards the EAGGF Guidance Section (OJ 1988 L 374, p. 25). That regulation was amended by Council Regulation (EEC) No 2085/93 of 20 July 1993 (OJ 1993 L 193, p. 44).

4

The original version of Article 8 of Regulation No 4256/88 stated that assistance from the European Agricultural Guidance and Guarantee Fund (the Fund) for the measures provided for in Article 5(2)(e) of Regulation No 2052/88 could cover inter alia carrying out pilot projects for promoting the development of rural areas, including the development and exploitation of woodland (first indent) and carrying out demonstration projects to show farmers the real possibilities of systems, methods and techniques of production which were in accordance with the objectives of the reform of the common agricultural policy (fourth indent). In the version amended by Regulation No 2085/93 that article provides that in carrying out its tasks the Fund may devote up to 1% of its annual budget to financing inter alia pilot projects for adjusting agricultural and forestry structures and promoting rural development, and demonstration projects, including projects for developing and exploiting forests and projects for processing and marketing agricultural products, to show the real possibilities of systems, methods and techniques of production and management which are in accordance with the objectives of the common agricultural policy.

5

On 19 December 1988 the Council also adopted Regulation (EEC) No 4253/88 laying down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the different structural funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments (OJ 1988 L 374, p. 1). That regulation was amended by Council Regulation (EEC) No 2082/93 of 20 July 1993 (OJ 1993 L 193, p. 20).

Article 23(2) of Regulation No 4253/88, as amended, provides with regard to financial checks: 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 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 of systems. Before carrying out an on-the-spot check, the Commission shall give notice to the Member State concerned with a view to obtaining all the assistance necessary. If the Commission carries out on-the-spot checks without giving notice, it shall be subject to agreements reached in accordance with the provisions of the Financial Regulation within the framework of the partnership. Officials of the Member State concerned may take part in such checks. The Commission may require the Member State concerned to carry out an on-the-spot check to verify the regularity of payment requests. Commission officials or servants may take part in such checks and must do so if the Member State concerned so requests. The Commission shall ensure that any checks that it carries out are performed in a coordinated manner so as to avoid repeating checks in respect of the same subject-matter during the same period. The Member State concerned and the Commission shall immediately exchange any relevant information concerning the results of the checks carried out.

7

Article 24 of Regulation No 4253/88, as amended, provides with regard to reduction, suspension and cancellation of assistance:

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.

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.

Any sum received unduly and to be recovered shall be repaid to the Commission. Interest on account of late payment may be charged on sums not repaid in compliance with the provisions of the Financial Regulation and in accordance with the arrangements to be drawn up by the Commission pursuant to the procedures referred to in Title VIII.

Facts

8

On 8 November 1995 Aristoteleio Panepistimio Thessalonikis (the Aristotle University of Thessaloniki, the applicant) applied to the Commission for Community assistance for a pilot project entitled Pilot project to accelerate the regeneration of forests devastated by fire in Greece (Project No 93.EL.06.023, the project).

The project stated that its overall objective was principally, as its title indicates, to accelerate the regeneration of forests devastated by fire in Greece.

10

By Decision C (96) 2542 of 25 September 1996, addressed to the applicant, the Commission granted the project assistance from the Guidance Section of the Fund (the award decision).

11

Article 1 of the award decision stated that responsibility for implementing the project, details of which were set out in Annex 1 to that decision, lay with the Laboratory for Forest Genetics and the Improvement of Ligneous Plant Species, a research laboratory attached to the applicant (the Laboratory or the beneficiary). Article 2 of the award decision stated that the project was to be carried out between 1 September 1996 and 28 February 2001.

12

The first paragraph of Article 3 of the award decision gave the total eligible cost of the project as ECU 717 532 and the maximum Community contribution was set at ECU 538 149. The third paragraph of that article stated: If the final cost shows that the eligible expenditure is lower than that originally estimated, the amount of assistance will be reduced accordingly at the time the final payment is made.

13

Article 4 of the award decision stated that the conditions for applying this decision are laid down in Annex 2.

14

Annex 1 to the award decision contained a description of all the various aspects of the project in question: title, overall and specific objectives, implementation schedule, details of each operation designed to achieve the set objectives, information regarding the beneficiary (in this case the bank account is in the name of the Research Committee of the Aristotle University of Thessaloniki, the Committee), the significance of the expected results for the Commission, the cost of the project and its total budget, as divided up between the bodies financing it. The Community contribution was to be 75% of the total cost.

15

Annex 2 to the award decision laid down the financial conditions relating to the award of the assistance. In particular, it stated that staffing and travel costs should relate directly to the implementation of the operation and that the amount of such costs should be sufficient to cover the expenses for the operation (point 2); that the Commission was authorised, for the purpose of checking the financial information concerning the various expenses, to ask to examine any original supporting document or a certified copy thereof and to carry out that examination on the spot, or to request that the documents in question be sent to it (point 5); that the beneficiary should keep available for the Commission, for five years from the last payment by the Commission, all originals of documents substantiating expenditure (point 6). Last, in point 10 of Annex 2, it was stated in essence that if any of the conditions laid down in that annex was not met, or if operations not provided for in Annex 1 were undertaken, the Commission could suspend, reduce or withdraw the assistance and require repayment of assistance already paid, in which case the beneficiary would be entitled to submit observations beforehand within a time-limit set by the Commission.

16

The beneficiary received from the Community from 1 September 1996 onwards a total of ECU 215 260, which was 40% of the Community funding provided for.

17

Following a proposal from Mr Panetsos, the Director of the Laboratory, sent to the Committee by letter of 19 November 1996, the Committee decided to entrust the management of the project to him.

18

On 5 June 1998 Mr Panetsos sent the Commission, under point 3 of Annex 2 to the award decision, an interim technical report on the state of progress on the project and on the expenditure already incurred in respect of each of the operations provided for (the interim technical report). He applied at the same time for payment of the second advance.

On 9 July 1998 the Commission acknowledged receipt of the interim technical report and informed the applicant that it had initiated a general audit of all the projects financed under Article 8 of Regulation No 4256/88, including the applicant's project. It also requested the applicant to send it, under point 5 of Annex 2 to the award decision, a formal application for payment of the second advance, a list of all the supporting documents relating to the eligible expenditure incurred in connection with implementation of the project, grouped according to the type of cost, and a certified copy of each of those supporting documents.

On 29 July 1998 the applicant sent the Commission documents confirming that the expenditure had been incurred in accordance with the award decision. It also highlighted the particular features of the programme in question, namely that the lifecycle of the trees in the regions selected for reforestation required the programme to be conducted without a break and hence the Commission to pay the second advance without delay. According to the applicant it was not possible to obtain alternative financing for the project even temporarily.

21

By letters of 12 and 14 October 1998 the Commission informed the applicant of its intention to conduct an on-the-spot inspection to see how the project was being carried out before payment of the second advance.

22

The on-the-spot inspection took place at the applicant's premises from 9 to 12 November 1998.

23

On 27 January 1999 the Commission inspectors submitted an inspection report on the project to the Commission.

24

By letter of 2 March 1999 the applicant reminded the Commission of the special features of the project and repeated its request for payment of the second advance, stating that any delay would prevent it from carrying out the work in compliance with the terms of the contract and would jeopardise the impact of the project.

By letter of 21 April 1999 the Commission asked the applicant to produce a list of all the documents relating to the project, and a detailed report on the activities of all the people involved in the project in order to justify the staffing costs charged to the project, a copy of the contracts of employment of all those people and documentary evidence of the sums paid to certain people.

26On 4 May 1999 the applicant again applied to the Commission for payment of the second advance.

In a letter of 12 May 1999 the applicant stressed the difficulties being encountered due to the delay in the payment of the second advance. It also drew the Commission's attention to the fact that a system had been introduced by the Committee to check on expenses incurred in connection with the project, and to the fact that it was not possible to charge particular expenses to specific operations in connection with the project. In addition, the applicant sent the Commission tables showing wages, consumables, equipment, travel costs and the total expenditure on the project and also detailed activity reports and contracts of employment for the people involved in the project.

28By letter of 2 June 1999 the Commission replied to the applicant's letter of 4 May 1999 informing it that Commission officials were examining the documents sent with the letter of 12 May 1999.

29On 13 October 1999 the applicant again drew the Commission's attention to the delay in paying the second advance and stated that in the circumstances it was not in a position to implement the project in the way the Commission had decided.

By letter of 25 October 1999 the Commission informed the applicant that, under Article 24 of Regulation No 4253/88, as amended, it had conducted an examination of the financial assistance for the project and that, as that examination had revealed evidence of possible irregularities, it had decided to initiate the procedure provided for in that article and in point 10 of Annex 2 to the award decision (the letter initiating the procedure). It asked the applicant to produce within six weeks certified copies of all the administrative documents and accounts relating to the project and, in respect of each item of evidence of a possible irregularity, proof that it had complied with its obligations under the award decision.

31On 3 December 1999 the applicant submitted its observations in response to the Commission's claims and sent the Commission certain supporting documents (the observations on the letter initiating the procedure).

32On 7 July 2000 a firm of auditors submitted to the Commission, at its request, an audit report on the project.

By decision of 8 June 2001, addressed to the Hellenic Republic and to the applicant and notified to the latter on 19 June 2001, the Commission, acting under Article 24(2) of Regulation No 4253/88, as amended, withdrew the financial assistance granted for the project and requested the applicant to repay in full the assistance already paid (the contested decision).

In recital 9 in the preamble to the contested decision the Commission listed ten irregularities within the meaning of Article 24(2) of Regulation No 4253/88, as amended.

Procedure and forms of order sought

35By application lodged at the Court Registry on 20 August 2001 the applicant brought the present proceedings.

36By separate document lodged at the Court Registry on 3 September 2001 the applicant also lodged, under Articles 242 EC and 243 EC, an application for the suspension of the contested decision. By order of 18 October 2001 in Case T-196/01 R Aristoteleio Panepistimio Thessalonikis v Commission [2001] ECR II-3107, the President of the Court of First Instance dismissed the application for interim relief.

37Upon hearing the report of the Judge-Rapporteur, the Court of First Instance (Third Chamber) decided to open the oral procedure and, as a measure of organisation of procedure under Article 64 of the Rules of Procedure of the Court of First Instance, requested the parties to reply to written questions and to produce certain documents. The parties complied with those requests.

38The parties presented oral argument and their replies to the questions from the Court at the hearing on 1 July 2003.

39The applicant claims that the Court should:

─annul the contested decision;

─order the Commission to pay the costs.

40The defendant contends that the Court should:

─dismiss the application;

─order the applicant to pay the costs.

Law

The applicant relies on three pleas. The first plea alleges infringement of Article 24(2) of Regulation No 4253/88, as amended, in that the Commission only complained that there were various irregularities in the way the project had been managed and failed to take into account the way the project had actually been carried out. The second plea, comprising two limbs, alleges both a further infringement of Article 24(2) of Regulation No 4253/88, as amended, and breach of the principle of proportionality. The third plea alleges errors of assessment by the Commission in respect of the ten irregularities it established in the contested decision. The applicant submits its complaints regarding those ten irregularities in eight limbs. The applicant also claims that there was a breach of the obligation to provide a statement of reasons in respect of the first and eighth irregularities. The Court considers it appropriate to deal first with the third plea.

I ─The third plea, alleging errors of assessment by the Commission in respect of the various irregularities it established and, in the case of certain parts of that plea, breach of the obligation to provide a statement of reasons

A ─Preliminary considerations

42The applicant contends in essence that the Commission did not conduct an appropriate examination of the way the project was being carried out before adopting the contested decision and that it made errors of assessment in considering that that examination had confirmed the existence of irregularities within the meaning of Article 24(2) of Regulation No 4253/88, as amended, in the management of that project. Moreover, with regard to some of the irregularities raised by the Commission in the contested decision, the applicant considers that the Commission failed to provide an adequate statement of reasons.

43Before considering the merits of the applicant's arguments with regard to each of the irregularities raised by the Commission in the contested decision, the Court considers it necessary to set out some preliminary considerations regarding the legal background to the contested decision.

44First, it should be pointed out that under Article 24(2) of Regulation No 4253/88, as amended, the Commission may, following a suitable examination of the case, within the meaning of Article 24(1), decide to adopt measures for repayment of the financial assistance if that examination reveals an irregularity and in particular a significant change affecting the nature or conditions of the operation or measure for which the Commission's approval has not been sought.

45Article 24(2) of Regulation No 4253/88, as amended, thus makes express reference to irregularities concerning the conditions under which the project being financed has been implemented. Such conditions include the way it has been managed, so that generally the Commission may, as in the present case, rely on irregularities in the way the project has been managed in order to take steps to withdraw the assistance granted.

46Second, the validity of the contested decision should be assessed on the basis of the provisions contained in the award decision and, in particular, the annexes to that decision, which included both a detailed description of the approved project (Annex 1) and the financial conditions under which the assistance was awarded (Annex 2) (see paragraphs 14 and 15 above).

47Third, regarding the burden of proof, it is important to note that whilst the Commission is required, as part of the procedure laid down in Article 24 of Regulation No 4253/88, as amended, to demonstrate, following a suitable examination of the project, that there are irregularities in the way the project has been carried out which justify withdrawal of the assistance, it is none the less up to the beneficiary to carry out the project as approved and to ensure full compliance with the conditions under which the assistance has been awarded, as set out in the award decision and in the annexes thereto. Consequently, if during its examination the Commission discovers evidence of such irregularities the beneficiary of the assistance must be capable of showing that the project has been carried out in full compliance with the relevant provisions and, in particular, with the award decision. In particular, it is up to the beneficiary to show that expenditure has actually been incurred, that it relates directly to the various operations provided for under the project and that that expenditure is appropriate in the light of the objectives of the project.

48In that context, the letter initiating the procedure plays a vital role. At that stage of the administrative procedure the Commission must, following its investigation, set down the various complaints regarding the way in which the project has been carried out in a manner that is sufficiently precise to enable the beneficiary to adduce the evidence described above.

49For that purpose, in accordance with its duty to act in good faith, which stems from the obligation to carry out the project in a spirit of partnership and mutual trust, the beneficiary must provide the Commission with all the supporting documents and explanations which, in view of the special features of the project and the financial conditions laid down in the annexes to the award decision, may appear to it to be required in order to dispel the doubts the Commission has expressed. As has already been held in this context (Case T-216/96 Conserve Italia v Commission [1999] ECR II-3139, paragraph 71, and Case T-180/00 Astipesca v Commission [2002] ECR II-3985, paragraph 93), it is essential for the effective functioning of the system of inspection and evidence introduced in order to verify whether the conditions for granting assistance are met that applicants for, and beneficiaries of, such assistance submit to the Commission reliable information which is not liable to mislead it.

50It is also appropriate, therefore, in the context of an examination of the validity of the contested decision, to assess whether the beneficiary of the assistance has fulfilled its obligation to provide the Commission with all the supporting documents and explanations which, in view of the special features of the project and the financial conditions laid down in the annexes to the award decision, may appear to it to be required in order to ensure that the project has been carried out properly.

51Fourth, although the project in question was co-financed by national resources and is therefore subject to national rules, the legal context of the contested decision is that determined by Community law, that is to say, in particular, Article 24(2) of Regulation No 4253/88, as amended, and the award decision. The beneficiary cannot therefore claim before the Commission merely that it carried out the approved project in accordance with the national rules.

52Fifth, as regards the applicant's complaint that the Commission failed to provide adequate reasons in the contested decision concerning certain irregularities, it should be pointed out that under Article 253 EC the reasons stated for a measure must disclose clearly and unequivocally the reasoning of the Community authority which adopted it, so as to make the persons concerned aware of the reasons for the measure and thus enable them to defend their rights, and so as to enable the Court to exercise its power of review. The extent of the obligation to state reasons depends on the nature of the measure in question and the context in which it was adopted, and on all the legal rules governing the matter in question (Case C-350/88 Delacre and Others v Commission [1990] ECR I-395, paragraphs 15 and 16, and Case T-126/97 Sonasa v Commission [1999] ECR II-2793, paragraph 64).

53In particular, since a decision to reduce Community financial assistance entails serious consequences for the beneficiary of that assistance, the statement of the reasons for that decision must clearly show the grounds justifying a reduction in the amount of aid initially authorised (Case T-182/96 Partex v Commission [1999] ECR II-2673, paragraph 74, and Sonasa v Commission, cited above, paragraph 65).

B ─The first and second irregularities, concerning Mr Panetsos's additional remuneration and the expenses charged in respect of some of his activities

1.The contested decision

54The applicant contends in essence that the Commission did not conduct an appropriate examination of the way the project was being carried out before adopting the contested decision and that it made errors of assessment in considering that that examination had confirmed the existence of irregularities within the meaning of Article 24(2) of Regulation No 4253/88, as amended, in the management of that project. Moreover, with regard to some of the irregularities raised by the Commission in the contested decision, the applicant considers that the Commission failed to provide an adequate statement of reasons.

In the first indent of recital 9 in the preamble to the contested decision the defendant noted the following: A monthly sum of GRD 450 000 was charged to the project for the services of Mr Panetsos, who was in charge of the project, for the period from September 1996 to August 1997, which represents a total of GRD 5 400 000. Since, Mr Panetsos continued to receive his salary of GRD 689 000/month throughout that period, the sum of GRD 450 000/month is a bonus and not an actual cost of the project. No supporting document or clarification has been submitted by the beneficiary to justify charging that additional salary paid to Mr Panetsos to the project, such as, in particular, a copy of Mr Panetsos's contract, documents substantiating the payment or documents showing why that expense was charged to the project. (First irregularity.)

The second indent of recital 9 in the preamble to the contested decision reads as follows: During the first four months of the project, from September to December 1996, the only expenses submitted were the monthly payments of GRD 450 000 to Mr Panetsos. The operations scheduled for those four months in the award decision involved travel to the various project sites and the use of cars. However, no other expenses by way of duty travel, consumables, or salaries of other persons involved in the project were declared. Consequently, the sums charged during that period do not relate to any activity connected with the project. The beneficiary has not submitted any documents to prove that that expenditure was related to the objectives of the project. (Second irregularity.)

Arguments of the parties

The applicant considers, on the one hand, that the defendant's claims in respect of those two irregularities are wrong in law and in fact.

It considers that Mr Panetsos's additional remuneration was paid in accordance with the award decision. It points out that Mr Panetsos was the principal expert and the scientist in charge of the project and that he performed his tasks accordingly. It draws attention to the fact that the Committee approved, by decision of 11 December 1996, the Commission's choice to grant financing for the project under Mr Panetsos's responsibility. The latter's role in the implementation of the project was also clear from the interim technical report and the detailed activity report sent to the Commission on 12 May 1999.

There was therefore no valid reason to request production of a special report on Mr Panetsos's activities before the first phase of the project. The only way in which doubt could have been cast on the propriety of the remuneration received by Mr Panetsos would have been to prove either that the project had not been carried out or that Mr Panetsos had not taken part in it, no evidence of which was revealed during the on-the-spot inspection.

The applicant states that it had no reason to dispute the amount of remuneration paid to Mr Panetsos. First, that remuneration had been approved in the award decision, second, it was in accordance with the national legislation governing the remuneration of university researchers in charge of research programmes and, third, it was appropriate, since it was for services provided by an expert of the quality of the person concerned who, moreover, was well known to Commission officials because he had already taken part in several projects in the area of agricultural policy. Moreover, the applicant seeks to draw attention to the fact that, under national legislation, there are significant institutional safeguards with regard to the management of expenditure incurred by universities.

The applicant also asserts that, since the on-the-spot inspection did not show that the project had not been carried out or that Mr Panetsos had not taken part in it, the defendant was required to state in detail in the contested decision the reasons why Mr Panetsos's remuneration was not paid in conformity with the award decision. It should also have indicated the sum which it considered Mr Panetsos should have received.

The defendant rejects the applicant's arguments.

Findings of the Court

(a) First irregularity: Mr Panetsos's additional remuneration

The error of assessment

The project made provision in respect of each operation, on the one hand, for expenses relating to services to be provided by experts and, on the other hand, for expenses relating to administrative staff. The defendant does not deny that it is clear both from the project approved by the Commission and from the various reports and additional information that the applicant submitted to it during the administrative procedure that Mr Panetsos, in his capacity as the Director of the Laboratory, was both the person in charge of managing the project and the principal scientific expert responsible for carrying it out.

Contrary to what the applicant appears to assert, the complaint made by the Commission in the contested decision does not therefore, in principle, concern the charging to the project Mr Panetsos's remuneration as such ─ which, it is agreed, was provided for in the project ─ or the amount of that remuneration. Moreover, the defendant has not denied before the Court that Mr Panetsos's remuneration was provided for in the budget for the project.

However, in the context of that first irregularity, the defendant is complaining that during the administrative procedure the applicant did not provide it with documents enabling it to establish that that remuneration corresponded to activities which Mr Panetsos engaged in specifically in connection with the implementation of the project and for which he was not already being paid through his salary as the Director of the Laboratory.

In that connection, it should be pointed out that the Commission stated in Annex 2, points 2 and 5, to the award decision, on the one hand, that staffing costs should be directly related to the implementation of the operation and, on the other hand, that it was entitled to ask to see any original, or a certified true copy, of any supporting documents in order to check the financial reports relating to the various payments.

On the basis of those provisions of the award decision and in view of the relevant provisions of the applicable legislation and the duty to act in good faith (see paragraph 49 above), the applicant should have known that it was required to be in a position to submit to the Commission documents that would show that the expenses incurred were genuine, that they were directly connected with implementation of the various operations provided for under the project, and that the amount of those expenses was appropriate.

It follows therefore that, contrary to what the applicant contends, the Commission was entitled to ask it to establish, on the basis of documents such as those mentioned in the first indent of recital 9 in the preamble to the contested decision, that Mr Panetsos's remuneration was paid in respect of activities specifically connected with implementation of the project and for which he was not already being paid through his salary as the Director of the Laboratory.

The applicant does not deny that, as the Commission stated in the first indent of recital 9 in the preamble to the contested decision, it did not provide the Commission with either the contract of employment relating to the services which Mr Panetsos was to provide in connection with the project, or any other documents that could substantiate Mr Panetsos's remuneration, or documents proving that the additional remuneration had actually been paid.

Also, although it is true that in its letter of 12 May 1999 and in its observations on the letter initiating the procedure the applicant provided the Commission with details of Mr Panetsos's activities in connection with the project, it failed to provide any explanation, despite being asked to do so by the Commission in the letter initiating the procedure, of how it was possible to check that the remuneration charged to the project corresponded to activities Mr Panetsos had undertaken specifically in connection with implementation of the project and for which he was not already receiving remuneration through his salary as the Director of the Laboratory.

The Commission did not therefore make an error of assessment in concluding in the contested decision that the applicant had not submitted to it any valid supporting document or clarification in that regard.

That conclusion cannot be undermined by the applicant's argument that, in essence, in order to cast doubt on the propriety of Mr Panetsos's remuneration the Commission should have shown either that the project had not been carried out or that Mr Panetsos had not taken part in it. First of all, the applicant's argument fails to take into account the fact that it is for the beneficiary of the assistance to show that the project in question has been carried out in full compliance with the relevant provisions and, in particular, with the award decision (see paragraph 47 above). Second, since the term irregularity within the meaning of Article 24 of Regulation No 4253/88, as amended, includes irregularities affecting the management of the project (see paragraph 45 above), the applicant cannot validly contend that the sanctions provided for in that provision should only apply where the operation being financed has not been carried out in full or in part. It is not sufficient for the applicant to show that the project approved by the Commission in the award decision has actually been properly carried out. The applicant must also be in a position to prove that every item of the Community contribution corresponds to an actual service that was essential for the implementation of the project.

Nor can the applicant merely rely on the fact that it acted in accordance with national law and that the expenses incurred were subjected to a very strict system of verification at national level. First, save where there is a specific provision of Community law in that regard, it is only in relation to Community law, in particular in relation to Article 24 of Regulation No 4253/88, as amended, and the award decision together with its annexes, that the propriety of the applicant's conduct with regard to the award of Community assistance should be measured (see paragraph 51 above). Second, it should be remembered (see paragraph 65 above) that the financial provisions in the award decision make clear that in order for the financial reports relating to the various payments to be checked the applicant was required to be in a position to submit to the Commission documents that would show that the expenses incurred were genuine, that they were directly connected with implementation of the various operations provided for under the project, and that the amount of those expenses was appropriate. Although the Commission may consider it appropriate to take into account verification procedures at national level, the fact remains that, at the current stage of Community legislation and on the basis of the financial provisions in the award decision, the Commission was entitled to ask the applicant to produce supporting documents enabling it to conduct its own checks on the expenditure charged to the project.

In the light of the above, it must be concluded that the Commission did not make an error of assessment in respect of the first irregularity raised in the contested decision.

Breach of the obligation to state reasons

As regards the applicant's complaint that the defendant did not set out in detail the reasons for which it considered that Mr Panetsos's remuneration had not been paid in compliance with the award decision, it should be noted that in the first indent of recital 9 in the preamble to the contested decision the Commission stated that Mr Panetsos had received, in addition to his normal salary, remuneration for his duties as the person in charge of the project, which could not be regarded as a genuine cost of the project, since the applicant had not supplied any supporting document or clarification to justify charging that additional salary to the project. Therefore, in the light of the context of the administrative procedure that preceded the adoption of the contested decision, the Commission set out sufficiently clearly in that decision why it considered that Mr Panetsos's additional remuneration did not constitute a genuine cost of the project and could therefore not be charged to the project.

As regards the applicant's complaint that the defendant did not state the sum that Mr Panetsos should have received, it should be noted first of all (see paragraph 47 above) that it was for the applicant to prove that there was a direct link between Mr Panetsos's specific activities in connection with the project and the expenses charged in that regard. Contrary to what the applicant contends, it was not incumbent upon the Commission to provide such proof since, clearly, it did not have the information needed in order to make the calculations suggested by the applicant. It should also be observed that the Commission did not cast doubt on Mr Panetsos's participation in the project or the amount of his remuneration as such, but it complained that there was no evidence that that remuneration was for activities which Mr Panetsos engaged in that were directly connected to specific aspects of the project for which he was not already receiving remuneration through his salary as the Director of the Laboratory, a point which, in the light of the context of the administrative procedure, is adequately explained in the contested decision (see preceding paragraph). There cannot therefore be any complaint, as the applicant suggests, that the Commission did not mention the sum Mr Panetsos should have received.

Consequently, the Commission provided adequate reasons in the contested decision on that point.

(b) Second irregularity: expenses relating to some of Mr Panetsos's activities

As stated in points 4 and 7 of Annex 1 to the award decision, the project consisted of nine different operations. Implementation of five of those operations was to start during the first three months of the project. As part of the first operation areas of burnt forest were to be selected for the purposes of regeneration of forests devastated by fire. In order to carry out that operation, which was scheduled to take place during the first four months of the project, the award decision provided for the expenses of experts, administrative and technical staff, and travel expenses. As part of the second operation, which was scheduled to take place between the second and thirteenth months of the project and during which, in particular, work in preparation for carrying out the project of forest regeneration as such was due to take place, the project made provision for expenditure on the construction of fences and the creation of fire breaks and access routes, in addition to the costs of experts, administrative and technical staff and travel expenses. Lastly, as part of the third to the fifth operations, which were scheduled to take place during the third and fourteenth months of the project and during which the first part of the project as such was due to be carried out, in addition to the costs of experts, administrative and technical staff and travel expenses, the project provided for various expenses in connection with forestry work.

It is agreed between the parties that, contrary to what was thus provided in the award decision, during the first four months of implementation of the project, namely between September and December 1999, only Mr Panetsos's monthly remuneration of GRD 450 000 was charged to the project.

Faced with those facts in the letter initiating the procedure, the applicant explained in essence in its observations on that letter that it had not been possible to start the project until later than scheduled and that therefore Mr Panetsos had had to undertake additional work in preparation for implementation of the project. In that connection, it should be observed that, even if that argument were well founded, under paragraph 1 of Annex 2 to the award decision the Commission was to be informed in advance of any amendment to the project, including extension of the project's various operations, and that such amendments could be made only after the Commission had given its agreement. The applicant does not even argue that it informed the Commission of such an amendment to the implementation of the project.

80The Commission was therefore entitled to conclude in the contested decision that the project had not been carried out during the first four months according to the conditions laid down in the award decision, and that the applicant had not shown that Mr Panetsos's remuneration in respect of those four months was for activities directly connected with the implementation of the project.

81Consequently, the Commission did not make an error of assessment in respect of the second irregularity raised in the contested decision.

The third and sixth irregularities: Mrs Babaliti's remuneration and travel expenses

82In the third indent of recital 9 in the preamble to the contested decision, the Commission noted the following: A sum of GRD 250 000 a month was charged to the project for the period from March 1997 to February 1998, plus extras for April and December 1997, totalling GRD 3 356 780, in respect of the services of Mrs Babaliti. No activity report substantiating Mrs Babaliti's services was submitted to the Commission's inspectors during the on-the-spot inspection. The additional information sent by the beneficiary does not substantiate the sum declared in relation to the objectives of the project. (Third irregularity.)

83In the sixth indent of recital 9 in the recital to the contested decision the Commission noted the following: The beneficiary declared a sum of GRD 437 578 in respect of Mrs Babaliti's duty travel expenses. Since her tasks as set out in her contract were to analyse data and produce graphics, the need for her to visit the project sites has not been substantiated. The beneficiary has not submitted any documents to justify such duty travel in relation to the objectives of the project. (Sixth irregularity.)

84As regards the third irregularity, the applicant refers to Mrs Babaliti's contracts of employment dated 26 February, 22 May and 17 December 1997 and the detailed report on Mrs Babaliti's activities, attached to the letter of 12 May 1999, and to the explanations contained in its observations on the letter initiating the procedure, and contends that Mrs Babaliti's duty travel was described in detail in those documents. It states, in particular, that it is clear from the detailed report on Mrs Babaliti's activities that her work had been to help process data using statistical methods, to set up a database and to analyse data. During the on-the-spot inspection the Commission's inspectors found that all the data, analyses, plans and the text of the technical report had been computerised. That shows that Mrs Babaliti did actually carry out those tasks and that the remuneration paid to her was justified. In addition, it is clear from the detailed report on Mrs Babaliti's activities that she had subsequently been entrusted with the tasks of drawing up and sending to the Committee all the documents to support the project expenditure.

85As for the sixth irregularity, the applicant refers to the travel expenses forms and the detailed report on Mrs Babaliti's activities that were annexed to the letter of 12 May 1999, and to the explanations contained in its observations on the letter initiating the procedure. In its opinion, it is clear from these that Mrs Babaliti was required to travel to the project sites in connection with her activities as a forestry expert, in particular in order to view the pilot areas, to check data and to collect more data to be recorded and analysed.

86The defendant contends, as regards the third irregularity concerning Mrs Babaliti's remuneration, that her contracts of employment did not stipulate sufficiently precisely the duties that she was to perform in connection with the project. The applicant's arguments cannot be accepted, in the Commission's opinion, since they would preclude checks on whether services were needed in order to carry out the project, on whether each member of the staff recruited actually provided any services and, hence, on whether the expenditure declared was directly related to the specific requirements of the project. In those circumstances the defendant considers that no report and no evidence of Mrs Babaliti's services were submitted.

87As regards the sixth irregularity, concerning Mrs Babaliti's travel expenses, the defendant denies in its defence that it received any documentary evidence of these whatsoever. Following a written question from the Court, the defendant admitted, however, that it had been mistaken and that it did receive the travel expenses forms referred to by the applicant during the administrative procedure. It considers, however, that due to their brief nature and since they were not accompanied by reports describing the precise nature of the tasks performed, the documents did not prove that Mrs Babaliti did actually travel for the purposes of the project. Lastly, the defendant points out that there are no supporting documents relating to hotel expenses and subsistence.

88As already stated in paragraphs 65 and 66 above, on the basis of the provisions of the award decision the applicant should have known that it was required to be in a position to submit to the Commission supporting documents and explanations that would show that Mrs Babaliti's remuneration, as charged to the project, was directly connected with implementation of various operations provided for under the project, and that the amount of those expenses was appropriate in relation to the objectives of the project.

89It is in that context that consideration should be given to whether the Commission made an error of assessment in stating in the third indent of recital 9 in the preamble to the contested decision that Mrs Babaliti's remuneration could not be charged to the project since no activity report substantiating Mrs Babaliti's services [had been] submitted to the Commission's inspectors during the on-the-spot inspection and that the additional information sent by the beneficiary [did] not substantiate the sum declared in relation to the objectives of the project.

90In that connection, it is appropriate to summarise in detail the relevant facts as they appear from the file.

91First of all, it is appropriate to note that in point 7 of Annex 1 to the award decision the project made provision, in respect of each operation, for staffing expenses for the recruitment of assistants and administrative staff.

92On 9 July 1998, when the Commission informed the applicant that it had initiated a general audit, including an audit of the applicant's project, it requested the applicant to send it inter alia a list of all the supporting documents relating to the eligible expenditure [that had been] incurred in connection with [implementation of] the project, grouped according to the type of cost, together with a certified true copy of each supporting document relating to the project. In reply to that letter, the applicant submitted to the Commission on 29 July 1998 various tables relating to the expenses charged to the project. The on-the-spot inspection took place from 9 to 12 November 1998.

93Subsequently, by letter of 21 April 1999 the Commission requested the applicant to produce inter alia a list of all the supporting documents relating to [the] application for payment [of the second advance], classified according to each of the operations and sub-operations provided for in point 7 of Annex 1 to the contested decision, that list to be presented in such a way that direct links could be established with the statement of expenditure and the invoices ... sent previously, a detailed report on the activities of all the people who had taken part in the project (duties, tasks completed, time taken ...), in order to justify the staffing costs charged to the project (salaries and social security contributions, contracts of employment, travel and accommodation expenses) and a copy of the contracts of employment of all the people who had taken part in the work at the different project sites.

94In reply, by letter of 12 May 1999 the applicant submitted to the Commission first of all, with regard to Mrs Babaliti's remuneration, a table giving for the period from 1 September 1996 to 31 October 1998, operation by operation, the number of months for which Mrs Babaliti had received remuneration, together with the monthly amount and total remuneration. The table also showed, under duties, that Mrs Babaliti was working as an assistant.

95Second, the applicant submitted to the Commission a detailed activity report in which the duties and tasks performed by Mrs Babaliti were described as follows: Babaliti Konstantina. Forestry worker. She took part in planning the sampling and recording of data, and in setting up a database on the computer of the central office. She also carries out statistical analyses of all the data collected on site and helped to prepare the interim technical report. She visits pilot areas, providing assistance in determining the impact of the various tasks and in collecting data. She is engaged in the major task of preparing the supporting documents for each payment and expense, in accordance with the procedures and regulations [of the] Committee.

96Third, the applicant sent to the Commission copies of Mrs Babaliti's contracts of employment, which mentioned in particular the project and, except for one of the contracts, gave the following description of her duties: data processing and graphics.

2.1The Commission noted the following in the letter initiating the procedure: No activity report substantiating Mrs Babaliti's services was submitted to the Commission's inspectors during the on-the-spot inspection. It is clear from her contract that she was recruited to carry out tasks relating to analysis of data and graphics work. No other activity is provided for in the contract.

2.2The additional information sent by the beneficiary dated 12 [May] 1999 giving a brief description of the tasks carried out by Mrs Babaliti in connection with the project does not fully correspond to the description of the tasks set out in her contract and, moreover, does not substantiate the sum declared.

98In its observations on the letter initiating the procedure the applicant replied in essence that Mrs Babaliti had been recruited in accordance with the proper national legal procedure and that the relevant contracts had been made available to the inspectors at the time of the on-the-spot inspection. The applicant explained that duties were always described succinctly in such contracts but that the person in charge of the project had the right and the duty, as stated in the contract, to use the staff allocated to the project in the most rational way, depending on their qualifications and according to need.

99The applicant also described in greater detail and more fully than in the letter of 12 May 1999 Mrs Babaliti's duties, her specialist training as a forestry engineer and her relevant professional experience, and the duties she had performed in connection with the project. The applicant stated in particular in that context that from March 1997 to February 1998 Mrs Babaliti had participated in delimiting the pilot areas, devising sampling procedures, drawing up instructions in preparation for receiving material, and in setting up a database for all the information obtained from the six pilot areas, covering a total of 36 hectares. The applicant also explained that Mrs Babaliti processed all the data using statistical methods (measurements of thousands of plants for the six pilot areas), from which she prepared the graphics shown in the interim report and that, in addition, the data collected from the pilot areas had been analysed using various statistical methods in order to present them in the form of publications in reputable periodicals or at conferences. The applicant explained that, as she was the only assistant with training in forestry, Mrs Babaliti had taken part in checking various operations on the basis of samples, and in particular checking the results of the measurements recorded.

100Furthermore, also in its observations on the letter initiating the procedure, the applicant stated that Mrs Babaliti was responsible for preparing all the supporting documents required in respect of staff travel, the delivery of consumables, the employment of workers in the pilot areas and the employment of specialists, that she had taken part in the drawing up of contracts for work and other formal documents submitted to the Committee ... for approval and that she had taken responsibility for providing documents supporting the way in which expenses approved by the Committee were incurred. Lastly, the applicant stated that it would have been impossible to carry out the project without a full-time assistant.

101Finally, in the contested decision the Commission adopted the view already cited in paragraph 82 above.

102First of all, it is clear from the above account of the facts that even though, on the basis of the information in the file, it is correct that, as the Commission stated in the third indent of recital 9 in the preamble to the contested decision, no report on Mrs Babaliti's activities was submitted to the Commission's inspectors during the on-the-spot inspection, the applicant subsequently provided in its letter of 12 May 1999 a description of the duties which Mrs Babaliti had performed in connection with the project. The fact that that report was not available during the on-the-spot inspection is not sufficient to prove that there was an irregularity, since later in the administrative procedure the applicant provided supporting documents and adequate explanations to substantiate those expenses.