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

JUDGMENT OF THE COURT (Sixth Chamber)

22 October 2014 (*)

(Appeal - Cohesion fund - Reduction of financial assistance - Irregularities in the application of the public procurement legislation - Adoption of the decision by the European Commission - Failure to comply with the time-limit - Consequences)

In Case C-429/13 P,

APPEAL under Article 56 of the Statute of the Court of Justice of the European Union, brought on 26 July 2013,

Kingdom of Spain, represented by A. Rubio González, acting as Agent,

appellant,

the other party to the proceedings being:

European Commission, represented by B. Conte and A. Tokár, acting as Agents, assisted by J. Rivas Andrés, abogado, with an address for service in Luxembourg,

defendant at first instance,

THE COURT (Sixth Chamber),

composed of S. Rodin, President of the Chamber, A. Borg Barthet and F. Biltgen (Rapporteur), Judges,

Advocate General: M. Wathelet,

Registrar: M. Ferreira, Principal Administrator,

having regard to the written procedure and further to the hearing on 15 May 2014,

having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,

gives the following

Judgment

1        By its appeal the Kingdom of Spain asks the Court of Justice to set aside the judgment of the General Court of the European Union in Spain v Commission (T-384/10, EU:T:2013:277; ‘the judgment under appeal’), by which the General Court dismissed its action seeking the annulment of Commission Decision C(2010) 4147 of 30 June 2010, reducing the assistance granted from the Cohesion Fund to the following (groups of) projects: ‘Water supply to settlements in the Guadiana basin: Andévalo area’ (2000.ES.16.C.PE.133), ‘Drainage and water treatment in the Guadalquivir basin: Guadaira, Aljarafe and the areas of natural protection of the Guadalquivir’ (2000.ES.16.C.PE.066) and ‘Water supply to multi-municipal systems in the provinces of Granada and Malaga’ (2002.ES.16.C.PE.061) (‘the decision at issue’).

 Legal context

2        Under Article 2(1) of Council Regulation (EC) No 1164/94 of 16 May 1994 establishing a Cohesion Fund (OJ 1994 L 130, p. 1), as amended by Council Regulation No 1264/1999 of 21 June 1999 (OJ 1999 L 161, p. 57) and by Council Regulation No 1265/1999 of 21 June 1999 (OJ 1999 L 161, p. 62) (‘Regulation No 1164/94’)

‘The Fund shall provide financial contributions to projects, which contribute to achieving the objectives laid down in the Treaty on European Union, in the fields of the environment and trans-European transport infrastructure networks in Member States with a per capita gross national product (GNP), measured in purchasing power parities, of less than 90% of the Community average which have a programme leading to the fulfilment of the conditions of economic convergence referred to in Article [126 TFEU].’

3        Article 8(1) of Regulation No 1164/94 provides:

‘Projects financed by the Fund shall be in keeping with the provisions of the Treaties, with the instruments adopted pursuant thereto and with Community policies, including those concerning environmental protection, transport, trans-European networks, competition and the award of public contracts.’

4        Article 12 of Regulation No 1164/94 is worded as follows:

‘1. Without prejudice to the Commission’s responsibility for implementing the Community budget, Member States shall take responsibility in the first instance for the financial control of projects. To that end, the measures they take shall include:

…

(c)      ensuring that projects are managed in accordance with all the applicable Community rules and that the funds placed at their disposal are used in accordance with the principles of sound financial management;

…’

5        Regulation No 1164/94 was applicable from 2000 to 2006. Under Article 1(11) of Regulation No 1264/1999, Regulation No 1164/94 was to be re-examined by 31 December 2006.

6        Under Article 100, entitled ‘Procedure’ of Council Regulation (EC) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund (OJ 2006 L 210, p. 25):

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

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

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

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

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

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

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

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

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

 Background to the dispute and the decision at issue

8        The background to the dispute is set out at paragraphs 28 to 57 of the judgment under appeal and may be summarised as follows.

9        In 2001 and 2002, the Commission granted aid from the Cohesion Fund to the following projects or groups of projects:

-        the project with reference number 2000.ES.16.C.PE.133 entitled ‘Water supply to settlements in the Guadiana basin: Andévalo area’ (‘the Andévalo project’), for which the eligible public cost was set at EUR 11 419 216 and the contribution from the Cohesion Fund was EUR 9 135 373;

-        the group of projects with reference number 2000.ES.16.C.PE.066 entitled ‘Drainage and water treatment in the Guadalquivir basin: Guadaira, Aljarafe and the areas of natural protection of the Guadalquivir’ (‘the Guadalquivir group of projects’), for which the eligible public cost was set at EUR 40 430 000 and the contribution from the Cohesion Fund was EUR 32 079 293; and

-        the group of projects with reference number 2002.ES.16.C.PE.061 entitled ‘Water supply to multi-municipal systems in the provinces of Granada and Malaga’ (‘the Granada and Malaga group of projects’), for which the eligible public cost was set at EUR 22 406 817 and the contribution from the Cohesion Fund was EUR 17 925 453.

10      The European Union’s cofinancing by the projects in question thus represented 80% of the total cost of the public financing or the eligible equivalent.

11      The body responsible for the implementation of the Andévalo project and the Granada and Malaga group of projects was the Directorate-General for Hydraulic Works of the Government of Andalusia (Dirección General de Obras Hidráulicas de la Junta de Andalucía). The implementation of the Guadalquivir group of projects came under the remit of the Andalusian Water Agency of the Government of Andalusia’s Environment Department (Agencia Andaluza del Agua de la Consejería de Medio Ambiente de la Junta de Andalucía). Both those bodies delegated that task to the public-sector infrastructure management company Gestión de Infraestructuras de Andalucía SA.

12      Between 2004 and 2006, the Commission’s services, assisted by an external audit company, carried out audit missions on the projects or groups of projects in question. The Commission sent the various audit reports to the Spanish authorities. The reports identified certain irregularities in each of those projects or groups of projects relating to disregard of the rules governing the award of public contracts and, more specifically, the splitting of contracts and lack of publication thereof in the Official Journal of the European Union.

13      By letter of 9 February 2009, the Commission informed the Spanish authorities that those irregularities were deemed to be proven, indicating its intention to launch the procedure for the suspension of interim payments and the application of financial corrections pursuant to Regulation No 1164/94, as amended. The Commission also asked the Spanish authorities to submit their observations to it within two months.

14      The Spanish authorities replied by letters of 11 and 18 May and 29 October 2009, in which they disputed the infringements as alleged.

15      By letter of 7 July 2009, the Spanish authorities also asked that the suspension of payments not be applied.

16      On 10 November 2009, the Commission organised a hearing with the Spanish authorities in order to reach an agreement on the matters in dispute. In the course of that hearing the Spanish authorities asked to have 15 days in which to adduce new evidence, which they then forwarded to the Commission on 2 December 2009.

17      On 30 June 2010, the Commission adopted the decision at issue.

18      In that decision, of which the Kingdom of Spain received notification on 1 July 2010, the Commission reduced the amounts granted by way of financial assistance from the Cohesion Fund for various projects, in the amount of EUR 1 642 572.60 for the Andévalo project, EUR 3 837 074.52 for the Guadalquivir group of projects and EUR 2 295 581.47 for the Granada and Malaga group of projects.

 The action before the General Court and the judgment under appeal

19      By application lodged at the Registry of the Court of First Instance on 8 September 2010, the Kingdom of Spain brought an action for the annulment of the decision at issue.

20      In support of its action the Kingdom of Spain put forward by way of principal claim two pleas in law alleging, firstly, incorrect application of the financial corrections in that they were based on an infringement of Council Directive 93/37/EEC of 14 June 1993 concerning the coordination of procedures for the award of public works contracts (OJ 1993 L 199, p. 54), whilst the relevant contracts, because of their value, do not come within the scope of that directive and, secondly, that some of the public contracts at issue were not split, contrary to Article 6(4) of that directive. It also put forward, in the alternative, a plea alleging a lack of transparency on the part of the Commission in the determination of the financial corrections and infringement of the principle of proportionality.

21      By the judgment under appeal, the General Court rejected each of those pleas and dismissed the action in its entirety.

 Forms of order sought by the parties before the Court of Justice

22      In its appeal, the Kingdom of Spain claims that the Court should:

-        set aside the judgment under appeal;

-        give final judgment in the proceedings by annulling the decision at issue; and

-        order the Commission to pay the costs.

23      The Commission contends that the Court of Justice should:

-        dismiss the appeal; and

-        order the Kingdom of Spain to pay the costs.

 The appeal

24      In support of its appeal the Kingdom of Spain puts forward a single plea in law alleging that the General Court disregarded the concept of ‘work’ within the meaning of Article 1(c) of Directive 93/37, read in conjunction with Article 6(4) thereof.

25      The Kingdom of Spain submits, in essence, that the General Court erred in law in holding that some of the contracts concerned were a single work although they did not meet the conditions required to do so according to the Court’s case-law.

26      The Commission considers this plea to be without foundation, with the result that the appeal must be dismissed.

27      It should be observed at the outset that, in the judgment under appeal, the General Court ruled on the action for annulment brought by the Kingdom of Spain by dismissing it, having declared the three pleas in law put forward by it in support of its action to be unfounded.

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

29      However, it follows from paragraphs 56 to 89 and paragraph 93 of the judgments in Spain v Commission (C-192/13 P, EU:C:2014:2156) and Spain v Commission (C-197/13 P, EU:C:2014:2157) that, as from 2000, the Commission is obliged to comply with a time-limit for adopting a decision on financial corrections.

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

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

32      Yet in the present case the hearing was held on 10 November 2009 and the Commission adopted the decision at issue only on 30 June 2010.

33      Therefore, the Commission did not comply with the six-month time-limit as required under Article 100(5) of Regulation No 1083/2006.

34      In addition, it is the Court’s settled case-law that failure to comply with the procedural rules relating to the adoption of an act adversely affecting an individual, such as failure by the Commission to adopt the decision at issue within the time-limit laid down by the Union legislature, constitutes an infringement of essential procedural requirements (see judgments in United Kingdom v Council, 68/86, EU:C:1988:85, paragraphs 48 and 49; Spain v Commission, EU:C:2014:2156, paragraph 103; and Spain v Commission, EU:C:2014:2157, paragraph 103), and that if the Union judicature finds, on examining the act in question, that it was not adopted as required it must raise the matter of infringement of procedural requirements of its own motion and, in consequence, annul the act so vitiated (see judgment in Commission v ICI, C-286/95 P, EU:C:2000:188, paragraph 51; Commission v Solvay, C-287/95 P and C-288/95 P, EU:C:2000:189, paragraph 55; Spain v Commission, EU:C:2014:2156, paragraph 103; and Spain v Commission, EU:C:2014:2157, paragraph 103).

35      During the hearing before the Court, the parties were given the opportunity to submit their observations on the matters referred to in the preceding paragraph. Moreover, in the course of the proceedings which gave rise to the judgments in Spain v Commission (EU:C:2014:2156) and Spain v Commission (EU:C:2014:2157), which concerned factual and legal issues which were in essence identical, the same parties have previously submitted detailed argument on the matters at issue.

36      In those circumstances, the Court finds that the Commission, having adopted the decision at issue in violation of the legal time-limit laid down in a Council regulation, the General Court erred in law by dismissing the action brought by the Kingdom of Spain, instead of condemning the infringement of procedural requirements vitiating the decision at issue.

37      The judgment under appeal must accordingly be set side.

 The action at first instance

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

39      In the present case, the Court has the necessary information to give final judgment on the action for annulment of the decision at issue brought by the Kingdom of Spain before the General Court.

40      For the reasons set out in paragraphs 29 to 36 of this judgment, the decision at issue must be annulled for infringement of essential procedural requirements.

 Costs

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

42      Under Article 138(1) of those rules, applicable to appeal proceedings by virtue of Article 184(1) thereof, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the Kingdom of Spain has been successful on appeal, and the action before the General Court was upheld, in accordance with the forms of order sought by the Kingdom of Spain, the Commission must be ordered to bear its own costs and to pay those incurred by that Member State, both at first instance and on appeal.

On those grounds, the Court (Sixth Chamber) hereby:

1.      Sets aside the judgment of the General Court of the European Union in Spain v Commission (T-384/10, EU:T:2013:277);

2.      Annuls Commission Decision C(2010) 4147 of 30 June 2010, reducing the assistance granted from the Cohesion Fund to the following (groups of) projects: ‘Water supply to settlements in the Guadiana basin: Andévalo area’ (2000.ES.16.C.PE.133), ‘Drainage and water treatment in the Guadalquivir basin: Guadaira, Aljarafe and the areas of natural protection of the Guadalquivir’ (2000.ES.16.C.PE.066) and ‘Water supply to multi-municipal systems in the provinces of Granada and Malaga’ (2002.ES.16.C.PE.061);

3.      Orders the European Commission to pay the costs of the Kingdom of Spain and to bear its own costs of both the proceedings at first instance and of the present appeal proceedings.

[Signatures]

* Language of the case: Spanish.