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OPINION OF ADVOCATE GENERAL

Sharpston

delivered on 15 September 2011 (1)

Case C-465/10

Ministre de l’Intérieur, de l’Outre-mer et des Collectivités territoriales

Chambre de commerce et d’industrie de l’Indre

(Reference for a preliminary ruling from the Conseil d’État (France))

(Protection of the financial interests of the European Union – Subsidies awarded under the European Regional Development Fund – Failure of the recipient to comply with public procurement procedures – Obligation to recover subsidies in the case of an irregularity – Limitation periods)

1. This reference for a preliminary ruling from the French Conseil d’État (Council of State) concerns the interpretation of Regulation No 2052/88, (2) Regulation No 4253/88 (3) and Regulation No 2988/95. (4) At the material time those instruments (‘the applicable regulations’) were among those governing the European Union’s Structural Funds. (5) The Structural Funds (6) are the European Union’s main instruments for supporting social and economic development in the Member States. They account for over one third of the EU budget.

2. The referring court asks, first, whether EU law requires the recovery of sums awarded from the ERDF where the recipient (which is a contracting authority (7)) uses the subsidy to carry out an assisted operation in breach of the EU public procurement procedures. Second, it requests guidance on the application of the limitation period in Article 3 of Regulation No 2988/95 in respect of such recovery.

Legal Framework

Regulation No 2052/88

3. Amongst the stated objectives of Regulation No 2052/88 is that of increasing the efficiency of the Structural Funds and coordinating their activities. (8)

4. Article 3(5) requires the Council to adopt the provisions necessary for ensuring coordination between the different Funds on the one hand, and between them and the European Investment Bank (‘the EIB’) and the other existing financial instruments, on the other.

5. Article 7 is entitled ‘Compatibility and checks’. It states, in so far as is relevant:

‘1. Measures financed by the Structural Funds … shall be in conformity with the provisions of the Treaties, with the instruments adopted pursuant thereto and with Community policies, including those concerning … the award of public contracts ...

2. Without prejudice to the Financial Regulation, the provisions referred to in Article 3(4) and (5) shall lay down harmonised rules for strengthening checks on structural operations ...’

Regulation No 4253/88

6. Council Regulation No 4253/88 lays down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the Funds.

7. The sixth recital in the preamble to Regulation No 2082/93, (9) which amended Regulation No 4253/88, states that:

‘… in application of the principle of subsidiarity, and without prejudice to the Commission’s powers, particularly its responsibility for the management of the Community’s financial resources, implementation of the forms of assistance contained in the Community support frameworks should be primarily the responsibility of the Member States at the appropriate territorial level according to the specific needs of each Member State’.

8. Article 23(1) of Regulation No 4253/88 provides as follows:

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

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

– to prevent and to take action against irregularities,

– to recover any amounts lost as a result of an irregularity or negligence. Except where the Member State and/or the intermediary and/or the promoter provide proof that they were not responsible for the irregularity or negligence, the Member States shall be liable in the alternative for reimbursement of any sums unduly paid. For global loans, the intermediary may, with the agreement of the Member State and the Commission, take up a bank guarantee or other insurance covering this risk.

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

…’

9. Article 24 states:

‘Reduction, suspension and cancellation of assistance

1. If an operation or measure appears to justify neither part nor the whole of the assistance allocated, the Commission shall conduct a suitable examination of the case in the framework of the partnership, in particular requesting that the Member State or authorities designated by it to implement the operation submit their comments within a specified period of time.

2. Following this examination, the Commission may reduce or suspend assistance in respect of the operation or a measure concerned if the examination reveals an irregularity or a significant change affecting the nature or conditions for the implementation of the operation or measure for which the Commission’s approval has not been sought.

3. Any sum received unduly and to be recovered shall be repaid to the Commission. Interest on account of late payment shall be charged on sums not repaid ...’

Regulation No 2988/95

10. Regulation No 2988/95 sets out a number of general rules regarding checks, administrative measures and penalties for irregularities where payments are made to recipients under Community policies. Previously there were no common rules defining such irregularities.

11. The third, fourth and fifth recitals in the preamble to Regulation No 2988/95 are particularly relevant. The third recital indicates that detailed rules governing the administration and monitoring of Community expenditure are the subject of differing detailed provisions according to the Community policies concerned, but that acts detrimental to the Communities’ financial interests must be countered in all areas. (10) The fourth recital states that a common set of legal rules for all areas covered by Community policies is needed in order effectively to combat fraud committed against the Communities’ financial interests. The fifth recital recalls that irregularities, and the administrative measures and penalties relating thereto, are provided for in sectoral rules in accordance with Regulation No 2988/95. Finally, as is clear from the 14^th recital, Regulation No 2988/95 is sufficiently broad in its horizontal scope for it to require to be based on Article 235 EC and Article 203 EAEC.

12. Article 1 of Regulation No 2988/95 states:

‘1. For the purposes of protecting the European Communities’ financial interests, general rules are hereby adopted relating to homogenous checks and to administrative measures and penalties concerning irregularities with regard to Community law.

2. “Irregularity” shall mean any infringement of a provision of Community law resulting from an act or omission by an economic operator, which has, or would have, the effect of prejudicing the general budget of the Communities or budgets managed by them, either by reducing or losing revenue accruing from own resources collected directly on behalf of the Communities, or by an unjustified item of expenditure.’

13. The relevant provisions of Article 2 are the following:

‘1. Administrative checks, measures and penalties shall be introduced in so far as they are necessary to ensure the proper application of Community law. They shall be effective, proportionate and dissuasive so that they provide adequate protection for the Communities’ financial interests.

…

3. Community law shall determine the nature and scope of the administrative measures and penalties necessary for the correct application of the rules in question, having regard to the nature and seriousness of the irregularity, the advantage granted or received and the degree of responsibility.

4. Subject to the Community law applicable, the procedures for the application of Community checks, measures and penalties shall be governed by the laws of the Member States.’

14. Article 3 provides, inter alia:

‘1. The limitation period for proceedings shall be four years as from the time when the irregularity referred to in Article 1(1) was committed. However, the sectoral rules may make provision for a shorter period which may not be less than three years.

In the case of continuous or repeated irregularities, the limitation period shall run from the day on which the irregularity ceases. In the case of multiannual programmes, the limitation period shall in any case run until the programme is definitively terminated.

The limitation period shall be interrupted by any act of the competent authority, notified to the person in question, relating to investigation or legal proceedings concerning the irregularity. The limitation period shall start again following each interrupting act.

However, limitation shall become effective at the latest on the day on which a period equal to twice the limitation period expires without the competent authority having imposed a penalty, except where the administrative procedure has been suspended in accordance with Article 6(1). [(11)]

…

3. Member States shall retain the possibility of applying a period which is longer than that provided for in paragraphs 1 and 2 respectively.’

15. Article 4 provides that, as a general rule, where an economic operator has wrongly obtained an advantage through an irregularity, that advantage is to be withdrawn (either by way of payment or repayment of the amounts due or wrongly received or through total or partial forfeiture of a security).

16. Article 5 provides for the possibility of applying administrative penalties in cases of intentional irregularities or those caused by negligence.

Regulation No 1083/2006

17. Article 2(7) of Regulation No 1083/2006, (12) which has also been referred to in the written observations to the Court, (13) defines an ‘irregularity’ as ‘… any infringement of a provision of Community law resulting from an act or omission by an economic operator which has, or would have, the effect of prejudicing the general budget of the European Union by charging an unjustified item of expenditure to the general budget’.

National legislation

18. At the material time, Article 2262 of the French Civil Code provided: ‘All actions, whether in rem or in personam, shall be time-barred after 30 years …’.

Facts, procedure and questions referred

19. It appears from the national file that on 5 December 1995 the Chambre de commerce et d’industrie du département de l’Indre (Chamber of Commerce and Industry for the Indre département, ‘the CCI’) submitted a request for financial assistance to the prefect of that département (‘the prefect’) to fund an operation known as ‘Objectif Entreprises’ (‘the operation’). The purpose of the operation was to conduct research to ascertain whether French and foreign undertakings might wish to invest and establish themselves in the Indre département. The CCI decided to engage a firm to carry out the operation on its behalf.

20. In answer to written questions put by the Court pursuant to Article 54a of its Rules of Procedure, the French Government made further information and certain documents available. It thus appears that the CCI informed the prefect by letter of 27 September 1995 that it wished to employ the firm DDB-Needham to carry out the operation. That letter was sent before a call for tenders was published in the national official journal (the Bulletin officiel des annonces des marchés publics) on 4 November 1995.

21. Following examination of the tenders submitted, DDB-Needham was selected on 8 December 1995, on the ground that the quality of the services offered was higher, and the cost lower, than those of competing firms.

22. On 29 May 1996 the CCI entered into a contract with DDB-Needham for services to be provided over a three-year period. The fees were FF 3 895 380 (EUR 600 000) for 1996 and approximately FF 2 725 560 (EUR 420 000) for 1997 and for 1998.

23. Under an agreement signed on 20 December 1996 (which refers to Regulation No 2081/93 and Regulation No 2082/93 (14)) the CCI received FF 400 000 (EUR 60 979.60) from the ERDF in support of the operation. Two amounts from national funds were also awarded to the CCI for the same purpose. However, it is only the subsidy from the ERDF that is in issue in the current proceedings.

24. The CCI was informed by letter of 9 May 2000 that the operation was to be the subject of an audit conducted by the prefect of the Centre region (‘the prefect of the region’). The report, entitled Audit sur l’utilisation des fonds structurels européens (‘the audit report’), was signed by the prefect of the region and the regional trésorerie générale (finance department) on 14 March 2001. It was communicated to the CCI on 18 July 2001.

25. The following irregularities were identified in the audit report. First, the contract had been awarded to DDB-Needham in breach of the EU public procurement procedures. In particular, the CCI had communicated its choice of DDB-Needham to the prefect before the call for tenders was published. Furthermore, there was nothing indicating that notice of the qualifying contracts relating to the operation had been published in the Official Journal of the European Communities (as it was at that time). Second, the contract was signed but not dated.

26. On 23 January 2002 the prefect of the region notified the CCI that an order had been issued requiring, inter alia, repayment of the ERDF subsidy as a result of its failure to comply with the EU public procurement procedures in respect of the implementation of the operation.

27. The CCI’s challenge to that order was dismissed by implied decision of the regional Trésorier-payeur général (paymaster).

28. On 3 June 2004 the CCI’s application to the tribunal administratif de Limoges (Administrative Court, Limoges) for annulment of the order of the prefect of the region and the decision of the Trésorier-payeur général was rejected.

29. The cour administrative d’appel de Bordeaux (Adminstrative Court of Appeal, Bordeaux) annulled the judgment of the tribunal administratif de Limoges on 12 June 2007. It considered that there was no express provision in the agreement confirming that the CCI was subject to the EU public procurement procedures, nor was there any provision of EU law providing a legal basis for recovery of the funds in question.

30. The ministre de l’Intérieur, de l’Outre-mer et des Collectivités territoriales (Ministry for the interior overseas territories and local authorities) appealed against that ruling to the Conseil d’État, which has stayed the proceedings and referred the following questions to the Court for a preliminary ruling:

‘1. Concerning the existence of a legal basis creating an obligation to recover the aid paid to the CCI:

Where a recipient of subsidies paid from the ERDF has failed to comply with one or more public procurement procedures in the implementation of the subsidised operation, when it is not otherwise disputed that the project is eligible for that fund and that it has been implemented, is there a provision of European Union law, in particular in [Regulation No 2052/88] and [Regulation No 4253/88], that creates an obligation to recover those subsidies? If such an obligation exists does it apply to any failure to comply with the public procurement procedures, or only to some of them? In the latter case, which?

2. If the answer to the first question is at least partly affirmative:

(a) Does the failure, by a recipient entitled to aid from the ERDF, to observe one or more rules relating to public procurement for the choice of a service provider responsible for implementing the subsidised operation constitute an irregularity within the meaning of Regulation No 2988/95? Does the fact that the competent national authority could not have been unaware, at the time when it decided to grant the aid applied for from the ERDF, that the recipient had failed to comply with the public procurement procedures in recruiting, before the aid had even been allocated, the provider responsible for implementing the operation financed by the recipient affect the characterisation as an irregularity within the meaning of Regulation No 2988/95?

(b) In case of an affirmative answer to question 2(a), and, given that, as the Court of Justice held in Josef Vosding Schlacht-, Kühl- und Zerlegebetrieb and Others [(15)], the limitation period referred to in Article 3 of Regulation No 2988/95 is applicable to administrative measures such as the recovery of unduly paid subsidies to a recipient as a result of irregularities it committed:

– Should the starting point for the limitation period be set at the date of payment of the aid to the recipient or at the date on which he used the subsidy received to pay the provider recruited in disregard of one or more of the public procurement procedures?

– Should that period be regarded as interrupted by the transmission, by the competent national authority to the recipient of the subsidy, of an auditor’s report finding that there was a failure to comply with the public procurement procedures and recommending, as a result, that the national authority obtain repayment of the sums paid?

– When a Member State makes use of the possibility afforded by Article 3(3) of Regulation No 2988/95 to apply a longer limitation period for proceedings, in particular where, in France, [the ordinary limitation period at the material time is 30 years], must the compatibility of such a limitation period with European Union law, in particular with the principle of proportionality, be determined in the light of the maximum limitation period for proceedings according to the national legislation providing the legal basis for the national administration’s demand for recovery or in the light of the period in fact applied in the particular case?

(c) In case of a negative answer to question 2(a), with regard to payment of aid such as that at issue in the main proceedings, do the financial interests of the European Union prevent the court from applying the national rules relating to the withdrawal of decisions creating rights, according to which, except in cases of non-existence, acquisition by fraud or the recipient’s request, the administration may withdraw an individual decision creating rights, if it is illegal, only within a period of four months following the date that decision was taken, an administrative decision being none the less capable, in particular when it concerns payment of aid, of being coupled with conditions subsequent, the fulfilment of which allows the withdrawal of the aid in question without any limitation condition – the Conseil d’État having held that that national rule must be interpreted to the effect that it could not be relied on by the recipient of an aid wrongly attributed in application of EU legislation unless it was in good faith?’

31. Written observations have been submitted by the French and Polish Governments and the Commission. No hearing was requested and none has been held.

Assessment

Preliminary observations

32. Before commencing the analysis certain preliminary remarks are in order.

33. First, it is common ground in the main proceedings that the operation was eligible for financial support from the ERDF.

34. Second, there is no dispute before the national court that the contract between the CCI and DDB-Needham falls within the scope of Directive 92/50/EEC. (16) Its value is above the threshold of EUR 200 000 laid down in Article 7 of that directive and it covers services listed in Annex IA. Consequently the CCI, as a contracting authority for the purposes of Directive 92/50/EEC, should have published the requisite notice in the Official Journal of the European Communities. (17)

35. Third, as regards the applicable regulations, Regulation No 2988/95 introduced a general framework for administrative measures and penalties concerning irregularities with regard to EU law, in order to counter ‘acts detrimental to the [Union’s] financial interests … in all areas.’ (18) That Regulation is to be read in conjunction with the specific EU legislation which applies in the present matter, namely Regulation No 2052/88 (19) and Regulation No 4253/88. (20)

36. Article 4(1) of Regulation No 2988/95 provides, as a general rule, that any irregularity shall ‘involve’ (that is, as I understand it, ‘lead to’ (21)) withdrawal of the wrongly obtained advantage. More specifically, Article 23(1) of Regulation No 4253/88 requires the Member States to take the necessary measures to verify that operations financed by the Structural Funds have been properly carried out, to prevent and to take action against irregularities and to recover any amounts lost as the result of an irregularity or negligence. (22)

37. Fourth, shared management – that is, cooperation between the Member States and the Commission – is the method that the EU legislator has chosen to implement the budget in respect of the Structural Funds. However, implementation of assistance under the Funds is primarily the responsibility of the Member States.

38. Furthermore, as is clear from Article 280 EC (now Article 325 TFEU), both the European Union and the Member States are obliged to take measures to counter fraud and any other illegal activities that affect the EU’s financial interests.

39. Moreover, the Court has held that, in carrying out their obligations, the Member States do not have any discretion to decide whether it would be expedient to demand repayment of European Union funds unduly or irregularly paid. (23)

40. Fifth, the Court has ruled that Article 23(1) of Regulation No 4253/88 requires the Member States to recover any amounts ‘lost’ as the result of an irregularity, without there being any need for authority to do so under national law. (24)

41. Sixth, for the purposes of Article 24 of Regulation No 4253/88, no distinction of a quantitative or qualitative nature is to be drawn concerning the irregularities which may give rise to reductions in assistance. (25) Whether an irregularity causes major loss, or whether an irregularity is of a ‘technical nature’ are alike immaterial. An irregularity is an irregularity. (26)

42. Finally, in the present case, it is not disputed that the operation (Objectif Entreprises) was actually carried out. On that basis, the parties submitting observations to the Court agree that the subsidy in question cannot, strictly speaking, be regarded as ‘lost’ within the meaning of the third indent of Article 23(1) of Regulation No 4253/88.

Questions 1 and 2a

43. It is appropriate to consider questions 1 and 2a together. Both concern the meaning of an ‘irregularity’ and whether the applicable regulations require Member States to recover sums paid from the Funds.

44. In question 1, the referring court asks in essence whether Member States are obliged to recover sums awarded from the ERDF where the recipient failed to respect the EU public procurement procedures when it engaged a firm to carry out the subsidised operation. The national court asks also whether such an obligation, if it exists, applies to every failure to comply with those rules. If so, it then asks whether such a failure constitutes an irregularity for the purposes of Regulation No 2988/95.

45. The French Government submits that Article 23(1) of Regulation No 4253/88 should be interpreted consistently with both Regulation No 2052/88 and Regulation No 2988/95.

46. France contends further that the basis for recovery of the subsidy is not the third indent of Article 23(1) of Regulation No 4253/88, because the funds at issue cannot be considered as ‘lost’ for the purposes of that provision. Rather, the legal basis for recovery should be deemed to be the second indent of Article 23(1) (‘to prevent and to take action against irregularities’). France submits further that the Court’s case-law concerning Article 24 of Regulation No 4253/88 should apply by analogy: therefore, the funds at issue should be considered as unduly paid.

47. Poland submits that, in cases such as the present, it is necessary to take account of the objective of Article 23(1) of Regulation No 4253/88, namely to guarantee completion of operations which receive financial assistance from the Funds. Each case should be assessed on its merits. Poland contends that Article 2(7) of Regulation No 1083/2006 (27) should apply by analogy to the interpretation of Article 23(1) of Regulation No 4253/88. Thus, in order for an irregularity to arise as the result of an infringement of EU law, that infringement must have the effect of prejudicing the European Union’s budget by charging an unjustified item of expenditure to it.

48. Poland argues that a public procurement procedure in which there is no call for tenders has such an effect; and the Member State should therefore take action to recover the sums paid. However, Poland considers that an infringement of the EU public procurement procedures which has no effect on the European Union’s budget does not result in an irregularity for the purposes of Article 2(7) of Regulation No 1083/2006. Consequently, such an infringement cannot be an irregularity for the purposes of Article 23(1) of Regulation No 4253/88.

49. The Commission takes the view that the applicable regulations should be interpreted in conjunction with each other. The fact that the sums at issue were not ‘lost’ is irrelevant to the question whether Article 23(1) of Regulation No 4253/88 provides a legal basis for recovery of the ERDF subsidy.

50. Like the French Government and the Commission, I consider that the applicable regulations should be construed together.

51. Since Article 2(7) of Regulation No 1083/2006 did not apply at the material time, it may be disregarded for present purposes.

52. The term ‘irregularity’ is not defined in Regulation No 2052/88 or Regulation No 4253/88.

53. However, if the applicable regulations are to be interpreted in conjunction with each other, ‘irregularity’ must be construed consistently – that is, in the same way in each regulation.

54. Article 7(1) of Regulation No 2052/88 provides that measures financed by the Structural Funds must be in conformity with the Treaties and with Community policies, in particular those concerning the award of public contracts.

55. Article 1(2) of Regulation No 2988/95 states that an irregularity is ‘any infringement of a provision of Community law resulting from an act or omission by an economic operator’ which has ‘… the effect of prejudicing the general budget of the Communities or budgets managed by them’ … ‘by reducing or losing revenue accruing from own resources collected directly on behalf of the Communities, or by an unjustified item of expenditure’.

56. In the present matter the infringement of Community law (now EU law) is not in dispute. It is acknowledged that the CCI (an ‘economic operator’ for the purposes of Article 1(2) of Regulation No 2988/95 and a ‘contracting authority’ within the meaning of Directive 92/50/EEC) failed to respect the EU public procurement procedures in awarding the contract to carry out the operation ‘Objectif Entreprises’.

57. It follows that the operation financed by the ERDF subsidy failed to comply with Article 7(1) of Regulation No 2052/88.

58. Does that infringement of EU law have the effect of prejudicing the general budget of the European Union or the budgets (such as the Structural Funds) managed by the EU for the purposes of Article 1(2) of Regulation No 2988/95?

59. The legislature’s intention in enacting Article 7(1) of Regulation No 2052/88 seems to have been to ensure that expenditure incurred by the European Union in the context of the Structural Funds is strictly limited to operators who comply with the rules of EU law and is not used to finance conduct that is contrary thereto. (28)

60. It follows that expenditure incurred in contravention of EU law would naturally be regarded as prejudicial to the EU budget.

61. In Commission v Ireland (29) the Court considered the Commission’s powers under Article 24 of Regulation No 4253/88 to recover sums awarded to Ireland under the European Social Fund (‘the ESF’). The Irish authorities conceded that an irregularity (albeit unintentional) had occurred in so far as the audit trail regarding the funds in issue was not in accordance with the ESF best practice. (30) The irregularity had not led to any undue financing or over-financing by the Community in that case. None the less the Commission sought, pursuant to Article 24 of Regulation No 4253/88, to reduce the amount of financial assistance originally granted.

62. The Court rejected Ireland’s contention that irregularities of a ‘technical’ nature were not prejudicial to the EU budget. The Court held that even irregularities having no specific financial impact could be seriously prejudicial to the financial interests of the European Union and to compliance with EU law and for that reason justify the application of financial corrections on the part of the Commission. (31)

63. In Vereniging Nationaal Overlegorgaan Sociale Werkvoorziening, (32) the Court emphasised that Articles 23 and 24 of Regulation No 4253/88 should be construed together.

64. I therefore consider that the Court’s approach in Commission v Ireland should apply by analogy to the interpretation of Article 23 of Regulation No 4253/88.

65. Thus, even irregularities that have no specific financial impact and are not quantifiable as such are none the less to be considered to be seriously prejudicial to the financial interests of the EU.

66. Does the prejudice to the EU budget (or budgets managed by the EU) here result in a loss of revenue or in charging an unjustified item of expenditure?

67. In the present matter there are no details of the specific financial cost of the irregularity. It may in fact be impossible to assess. (33)

68. None the less it may reasonably be supposed that, had the CCI as the contracting authority complied with the EU public procurement procedures, the overall cost of financing the operation might perhaps have been less. To that extent, payment of the ERDF subsidy could be regarded as having resulted in an unjustified item of expenditure under Article 1(2) of Regulation No 2988/95.

69. Thus, in my view, it follows both from the language and the purpose of the applicable regulations and from the Court’s judgment in Commission v Ireland, applied by analogy, that a failure to comply with Article 7(1) of Regulation No 2052/88 has the effect of prejudicing the budget of the European Union or the budgets of the Structural Funds by permitting an unjustified item of expenditure and is therefore an irregularity for the purposes of Article 1(2) of Regulation No 2988/95 and Article 23 of Regulation No 4253/88.

70. In such circumstances Member States are obliged to take action for recovery of the sums unduly paid.

71. Does that mean that they must pursue the recipient for the full amount of the subsidy?

72. Article 2(1) of Regulation No 2988/95 requires Member States to introduce administrative measures ‘… in so far as they are necessary to ensure the proper application of Community law …’. Such measures must be ‘effective, proportionate and dissuasive’ in order to provide adequate protection for the European Union’s financial interests. Article 2(3) states that EU law ‘shall determine the nature and scope of administrative measures necessary for the correct application of the rules in question, having regard to the nature and seriousness of the irregularity, the advantage granted or received and the degree of responsibility’. (34)

73. In order to safeguard the EU budget (and the individual budgets managed by the European Union, such as the Structural Funds) the Member States are under an obligation to recover sums paid in the event of an irregularity. Under Article 4(1) of Regulation No 2988/95, the general rule is that any irregularity shall lead to the withdrawal of the wrongly obtained advantage. (35) In discharging that obligation, Member States should therefore proceed to seek recovery of the sum that represents ‘the wrongly obtained advantage’. That may require repayment of the full subsidy originally granted; or it may only require partial repayment, involving a lesser amount. (36)

74. The facts found by the national court show that all the relevant steps in selecting the service provider to carry out Objectif Entreprises took place before the subsidy was awarded. (37) The particular nature of the irregularity that arose (failure to run a tendering process in accordance with the relevant EU rules) means, however, that it is impossible to identify and calculate a specific loss ‘caused’ by the irregularity. The service provider initially identified and subsequently selected appears to have been the one offering the best value for money within the national tendering procedure that was carried out. However, had the contract been duly advertised under the EU public procurement procedures, service providers from other Member States might have been interested and might perhaps have put in tenders that represented better value for money. How much (if at all) better, no one can say. Moreover, since the operation was financed partly from the ERDF and partly from national funds, it is not possible to say how much of any (hypothetical) resulting saving would have been credited to the EU budget and how much to the national budget.

75. All that can be said with certainty is that the operation for which the advantage was afforded did indeed take place; but that it might perhaps have cost less if the EU public procurement procedures had been respected; that the service provider selected might not have been the same; and that there might have been a corresponding reduction in the amounts chargeable to the national budget and to the EU budget.

76. In such circumstances, what is the national court to do?

77. In theory, there are three possibilities: to recover nothing, to recover the subsidy in full, or to recover some intermediate amount that is commensurate with the loss caused to the EU budget by the failure to respect the EU public procurement procedures.

78. For the reasons that I have just given, I would rule out the third option in the present case.

79. That leaves nil recovery or recovery in full.

80. Nil recovery seems to me to be incompatible with the principles underpinning the Court’s case-law thus far. (38) It would send entirely the wrong message, in terms of the obligation for recipients of EU funds to respect the rules governing the grant of such funds.

81. It is true that recovery in full may seem, in the circumstances of this case, a harsh result. There may, in reality, have been little or no actual detriment to the EU budget. However, it seems to me that there are nevertheless at least three cogent reasons for concluding that the subsidy should indeed be recovered in full.

82. First, under Article 2(3) of Regulation No 2988/95 the national authorities in executing their obligation to recover the sums in question are required to have regard, inter alia, to the nature and seriousness of the irregularity and the degree of responsibility involved. In the present case, the prior information communicated to the prefect indicating a total failure to respect the EU public procurement procedures must, it seems to me, be a very significant factor to be taken into account.

83. Second, the EU public procurement procedures are intended to be applied to all contracts above the threshold value precisely in order to open up those contracts to potential service providers from other Member States. It is of course to be hoped that that process will (often) result in better value for money than would be the case were a purely national tendering procedure to take place. But that is only part of the story. An equally important element is that following the procedures enhances the proper functioning of the single market.

84. Third, in the circumstances of this case a choice between nil recovery and full recovery is unavoidable. Applying Article 2(1) of Regulation No 2988/95 (which requires that the measures to ensure the proper application of [EU] law should be ‘effective, proportionate and dissuasive’), nil recovery would be neither effective nor dissuasive. Recovery in full is both effective and dissuasive. Since partial recovery is here not an option, recovery in full is also proportionate.

85. The referring court wonders, however, whether classification as an irregularity could be affected by the fact that the prefect must have been aware, when he granted the ERDF subsidy to the CCI, that there had been a failure to comply with the EU public procurement procedures in selecting the service provider.

86. In Emsland-Stärke (39) the Court held that the fact that the competent national authority was informed of an irregularity does not in itself mean that the irregularity in question cannot be described as an irregularity ‘caused by negligence’ or ‘intentional’ within the meaning of Article 5(1) of Regulation No 2988/95. By the same token, therefore, such a circumstance cannot alter the classification of the conduct in question as an irregularity for the purposes of Article 23(1) of Regulation No 4253/88.

87. In my view, the answer to the first question and question 2a should therefore be that where a recipient of subsidies from the Structural Funds which is a contracting authority for the purposes of the EU public procurement procedures, fails to comply with those procedures in selecting a service provider to conduct an operation funded in whole or in part from those Funds, the second indent of Article 23(1) of Regulation No 4253/88 requires Member States to take action for recovery of the subsidies in question. In such circumstances the conduct of the recipient constitutes an irregularity within the meaning of Article 1(2) of Regulation No 2988/95.

Question 2b

88. Question 2b concerns the interpretation of Article 3 of Regulation No 2988/95.

89. The referring court asks three questions concerning the limitation period applicable in the circumstances of the main proceedings. First, when did it start? Second, was it interrupted by the communication of the audit report to the CCI by the prefect of the region? Third, what are the criteria for determining the maximum length of the limitation period for the purposes of Article 3(3) of Regulation No 2988/95?

90. The Commission submits that the limitation period started when the CCI decided to award the contract to DDB-Needham in breach of the EU public procurement procedures or, in the alternative, when it decided which type of procedure to follow and whether to call for tenders.

91. France contends that the period started when the CCI paid DDB-Needham under the contract. That payment constituted the irregularity for the purposes of the legislation in issue, since the CCI could have chosen to run a proper procurement procedure at any point up until then.

92. The Polish Government submits that the limitation period started from the date of payment of the ERDF subsidy to the CCI. Poland argues that an infringement of the EU public procurement procedures becomes an irregularity within the meaning of Article 1(2) of Regulation No 2988/95 only at the point when the EU budget is prejudiced. Such a prejudice occurs when funds are paid out under the budget. Poland contends further that the amount to be recovered is equivalent to the difference between the amount paid following the non-compliant procedure and the amount that would have been paid if the service provider had been chosen in conformity with the EU public procurement procedures. (40)

93. Regulation No 4253/88 does not lay down any rules concerning the limitation period applicable to an action for the recovery of sums unduly awarded. In my view, the period set out in Article 3(1) of Regulation No 2988/95 must therefore apply. (41)

94. According to that provision, read in conjunction with Article 1(1) and (2) of the same regulation, the limitation period starts when the irregularity resulting from the act or omission of the recipient of the subsidy has the effect of prejudicing the European Union’s budget (or budgets managed by the EU, such as the Structural Funds) by, inter alia, incurring unjustified expenditure.

95. That happened when the ERDF subsidy was awarded to the CCI. The date of the agreement to award the subsidy (20 December 1996) thus marked the beginning of the limitation period for the purposes of Article 3(1) of Regulation No 2988/95. That was the point at which expenditure by the ERDF was committed. At that stage, the irregularities in the procurement procedure – namely, the fact that the CCI had chosen DDB-Needham without publishing a call for tenders in the Official Journal of the European Communities and had indicated its intention to choose that firm even before publishing any call for tenders – had already arisen. (42)

96. As to the second question – whether the limitation period was interrupted by the communication of the auditor’s report by the prefect of the region to the CCI – it is clear from the third subparagraph of Article 3(1) of Regulation No 2988/95 that the limitation period is interrupted by any act of the competent national authority, notified to the person in question, relating to investigation or legal proceedings concerning the irregularity, and starts again following each interrupting act. (43)

97. The communication of the audit report constituted an act of a competent national authority concerning the investigation of an irregularity. (44) The audit report was, in my view, sufficiently specific and precise to interrupt the limitation period for proceedings within the meaning of the third subparagraph of Article 3(1) of Regulation No 2988/95. (45)

98. The third question is: what criteria determine the maximum length of the limitation period?

99. As the Court acknowledged in Ze Fu Fleischhandel, (46) the Member States enjoy a discretion under Article 3(3) of Regulation No 2988/95 to fix a longer limitation period than the four years provided for in Article 3(1) of that regulation.

100. However, the Court went on to hold that ‘in light of the objective of protecting the European Union’s financial interests, an objective for which the European Union legislature considered that a limitation period of four, or indeed even three, years was already in itself sufficient to enable the national authorities to bring proceedings in respect of an irregularity detrimental to those financial interests and capable of leading to the adoption of a measure such as recovery of a wrongly received advantage, it is apparent that to grant those authorities a period of 30 years goes beyond what is necessary for a diligent public service’. (47)

101. In my view the Court’s reasoning in Ze Fu Fleischhandel should apply by analogy to the present matter.

102. It follows that, if the Member State concerned exercises the discretion which it enjoys under Article 3(3) of Regulation No 2988/95, the principle of proportionality nevertheless precludes application of a 30-year limitation period to proceedings relating to the repayment of wrongly received funds.

Question 2c

103. Question 2c asks essentially whether, where there is no irregularity for the purposes of Article 1(2) of Regulation No 2988/95, any issue of recovery should be governed by national law or whether the European Union’s financial interest in recovering funds precludes the national judge from applying national rules on the withdrawal of decisions creating rights.

104. Since I am of the view that the issue is governed by European Union law, it follows that national law does not apply, and there is no need to answer this part of the question.

Conclusion

105. Accordingly, I am of the opinion that, in answer to the questions referred by the French Conseil d’État, the Court should rule as follows:

Where a recipient of subsidies from the Structural Funds which is a contracting authority for the purposes of the EU public procurement procedures, fails to comply with those procedures in selecting a service provider to conduct an operation funded in whole or in part from those Funds:

– The second indent of Article 23(1) of Council Regulation (EEC) No 4253/88 of 19 December 1988 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, as amended by Council Regulation (EEC) No 2082/93 of 20 July 1993, requires Member States to take action for recovery of the subsidies in question.

– The conduct of the recipient constitutes an irregularity within the meaning of Article 1(2) of Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities’ financial interests.

– The fact that the competent national authority could not have been unaware of the irregularity cannot alter the classification of the conduct in question as an irregularity for the purposes of Article 23(1) of Regulation No 4253/88.

– The limitation period starts on the date that the ERDF subsidy was awarded to the recipient for the purposes of Article 3(1) of Regulation No 2988/95.

– An audit report communicated by the competent national authority is sufficiently specific and precise to interrupt the limitation period for the purposes of Article 3(1) of Regulation No 2988/95.

– If the Member State concerned exercises the discretion which it enjoys under Article 3(3) of Regulation No 2988/95, the principle of proportionality nevertheless precludes application of a 30-year limitation period to proceedings relating to repayment of wrongly received refunds.

1 – Original language: English.

2 – Council Regulation (EEC) No 2052/88 of 24 June 1988 on the tasks of the Structural Funds and their effectiveness and on the coordination of their activities between themselves and with the operations of the European Investment Bank and other existing financial instruments (OJ 1988 L 185, p. 9, as amended by Council Regulation (EEC) No 2081/93 of 20 July 1993, OJ 1993 L 193, p. 5).

3 – Council Regulation (EEC) No 4253/88 of 19 December 1988, laying down provisions for implementing Regulation (EEC) 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, as amended by Council Regulation No 2082/93 of 20 July 1993, OJ 1993 L 193, p. 20).

4 – Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities’ financial interests (OJ 1995 L 312, p. 1).

5 – Regulation No 2052/88 and Regulation No 4253/88 were subsequently repealed by Council Regulation (EC) No 1260/1999 laying down general provisions on the Structural Funds (OJ 1999 L 161, p. 1), which was in turn replaced by Council Regulation (EC) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999 (OJ 2006 L 210, p. 25).

6 – The three main Structural Funds are the European Regional Development Fund (‘ERDF’), the European Social Fund and the Cohesion Fund. I shall refer to them as ‘the Structural Funds’ or ‘the Funds’.

7 – As laid down in Council Directive 92/50/EEC of 18 June 1992 relating to the coordination of procedures for the award of public service contracts (OJ 1992 L 209, p. 1) (‘Directive 92/50/EEC’). A ‘contracting authority’ is defined in Article 1(b) of that Directive.

8 – See the third recital in the preamble, referring to Article 130d of the EEC Treaty (now, after several amendments, Article 177 TFEU). The current text of Articles 1 to 19 of Regulation No 2052/88 appears in Regulation No 2081/93, cited in footnote 2 above.

9 – Cited in footnote 3 above. The text of Articles 1 to 33 of Regulation No 4253/88 now appears in Regulation No 2082/93.

10 – See point 35 and footnote 18 below.

11 – Article 6(1) provides for the possibility of suspension if criminal proceedings are initiated.

12 – Cited in footnote 5 above.

13 – See point 47 below.

14 – See respectively footnotes 2 and 3 above.

15 – Joined Cases C-278/07 to C-280/07 [2009] ECR I-457.

16 – Cited in footnote 7 above.

17 – Article 15(2) of Directive 92/50/EEC.

18 – Josef Vosding Schlacht-, Kühl- und Zerlegebetrieb and Others, cited in footnote 15 above, at paragraphs 25 to 28. See also the third recital to the preamble to Regulation No 2988/95, summarised in point 11 above.

19 – Cited in footnote 2 above. See further the Commission’s Proposal for a Council Regulation amending that regulation, 10 March 1993 (COM (1993) 67 final, p. 3).

20 – Cited in footnote 3 above. See further the Proposal cited in footnote 19 above, p. 3.

21 – Thus, for example, the French says, ‘Toute irrégularité entraîne, en règle générale, le retrait de l’avantage indûment obtenu …’

22 – Joined Cases C-383/06 to C-385/06 Vereniging Nationaal Overlegorgaan Sociale Werkvoorziening [2008] ECR I-1561, paragraph 37.

23 – Vereniging Nationaal Overlegorgaan Sociale Werkvoorziening, paragraph 38.

24 – Vereniging Nationaal Overlegorgaan Sociale Werkvoorziening, paragraph 40.

25 – Case C-199/03 Commission v Ireland [2005] ECR I-8027, paragraph 30.

26 – One may perhaps recall the (no doubt apocryphal) exchange between the Victorian mistress of the house and the housemaid: ‘Mary, what is this? I find that you have had a baby!’ ‘Please, ma’am, it’s only a little one.’

27 – The wording of Article 2(7) of Regulation No 1083/2006 is similar to that of Article 1(2) of Regulation No 2988/95. See point 17 above.

28 – See the Opinion of Advocate General Léger in Case C-44/96 Mannesmann Anlagenbau Austria and Others [1998] ECR I-73 at point 108; see also Commission v Ireland, cited in footnote 25 above, paragraph 26.

29 – Cited in footnote 25 above.

30 – Commission v Ireland, paragraphs 15 and 16.

31 – Commission v Ireland, paragraphs 29 to 31.

32 – Cited in footnote 22 above, paragraph 54.

33 – See point 21 above.

34 – See point 13 above.

35 – See point 15 above.

36 – See, for example, Case C-271/01 COPPI [2004] ECR I-1029, which concerned revocation of assistance from the European Agricultural Guidance and Guarantee Fund (EAGGF) and partial repayment of that assistance under Article 23(1) of Regulation No 4253/88. That article provides for the recovery of ‘any amounts lost as a result of an irregularity or negligence’ (see point 8 above). Paragraphs 16, 22, 29, 42, 45 and 48 of the judgment all refer to, and implicitly endorse, partial rather than full repayment.

37 – See points 20 to 23 above.

38 – See points 38 and 39 above.

39 – Case C-94/05 [2006] ECR I-2619, paragraph 62.

40 – See points 70 to 84 above.

41 – See, by analogy, Case C-367/09 SGS Belgium [2010] ECR I-0000, paragraph 66 and case-law cited.

42 – See points 20 and 25 above.

43 – SGS Belgium, cited in footnote 41 above, paragraph 67.

44 – See point 24 above.

45 – See, by analogy, SGSBelgium, cited in footnote 41 above, paragraphs 67 to 70.

46 – Joined Cases C-201/10 and C-202/10 Ze Fu Fleischhandel and Vion Trading [2011] ECR I-0000, paragraphs 41 and 42.

47 – Paragraph 43 of the judgment; see also paragraphs 44 to 46.

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