Summary
Parties
Grounds
Decision on costs
Operative part
Keywords
1 Budget of the European Union - Implementation - Commitment of significant expenditure - Need for a prior basic act - Non-significant nature of an action - Burden of proof borne by the Commission - Decision to fund a project relating to social exclusion under a given budget heading and without a basic act - Lack of competence of the Commission - Illegality
(EC Treaty, Arts 4(1), 205 and 209; Financial Regulation, Art. 22(1))
2 Actions for annulment - Judgment annulling a measure - Effects - Limitation by the Court - Annulment of a decision
(EC Treaty, Arts 173 and 174, second para.)
Summary
1 It follows from Articles 205 and 209 of the Treaty and the second subparagraph of Article 22(1) of the Financial Regulation, read together with paragraph 3(c) of Section IV of the Joint Declaration of 30 June 1982 by the European Parliament, the Council and the Commission, that implementation of Community expenditure relating to any significant Community action presupposes not only the entry of the relevant appropriation in the budget of the Community, which is a matter for the budgetary authority, but in addition the prior adoption of a basic act authorising that expenditure, which is a matter for the legislative authority, whereas implementation of budgetary appropriations for Community action which does not fall within that category - namely non-significant Community action - does not require prior adoption of such a basic act.
The requirement that a basic act must be adopted before an appropriation is implemented derives directly from the scheme of the Treaty, in accordance with which the conditions governing the exercise of legislative powers and budgetary powers are not the same. The fact that implementation of expenditure on the basis of the mere entry of the relevant appropriations in the budget is an exception to that fundamental rule means that it cannot be assumed that Community action is non-significant and the Commission must therefore prove it to be so.
The appropriations under heading B3-4103 of the budget for the financial year 1995 were to cover expenditure under a programme to combat poverty and social exclusion to be proposed by the Commission; however, when its proposal was not adopted by the Council, the Commission decided to commit that expenditure to fund the projects to combat social exclusion announced in its Press Release IP/96/67 of 23 January 1996, but did not succeed in establishing before the Court that the projects in question constituted non-significant action. Consequently, it was not competent to commit that expenditure, thus acting in breach of Article 4(1) of the Treaty, and its decision must therefore be annulled.
2 Since annulment of the Commission's decision referred to in its Press Release IP/96/67 of 23 January 1996, announcing certain grants for European projects seeking to overcome social exclusion, takes place at a time when all, or almost all, of the relevant payments have been made, important considerations of legal certainty, comparable with those arising where certain regulations are annulled, justify the Court in exercising the power conferred on it by the second paragraph of Article 174 of the Treaty when it annuls a regulation and in deciding that the annulment is not to affect the validity of payments made or undertakings given under contracts which were the subject of the funding in issue.
Parties
In Case C-106/96,
United Kingdom of Great Britain and Northern Ireland, represented by John E. Collins, Assistant Treasury Solicitor, acting as Agent, and Derrick Wyatt QC, with an address for service in Luxembourg at the British Embassy, 14 Boulevard Roosevelt,
applicant,
supported by
Federal Republic of Germany, represented by Ernst Röder, Ministerialrat in the Federal Ministry of Economic Affairs, and Bernd Kloke, Oberregierungsrat in the same ministry, acting as Agents,
by
Council of the European Union, represented by Jill Aussant, Director in the Legal Service, and Félix van Craeyenest, Legal Adviser in the same service, acting as Agents, with an address for service in Luxembourg at the office of Alessandro Morbilli, Director-General of the Legal Affairs Directorate of the European Investment Bank, 100 Boulevard Konrad Adenauer,
and by
Kingdom of Denmark, represented initially by Peter Biering, Head of Division in the Ministry of Foreign Affairs, then by Jørgen Molde, also Head of Division in the same ministry, acting as Agents, with an address for service in Luxembourg at the Danish Embassy, 4 Boulevard Royal,
interveners,
v
Commission of the European Communities, represented by Maria Patakia and Peter Oliver, of its Legal Service, acting as Agents, with an address for service in Luxembourg at the office of Carlos Gómez de la Cruz, of the same service, Wagner Centre, Kirchberg,
defendant,
supported by
European Parliament, represented by Christian Pennera and Auke Baas, of its Legal Service, acting as Agents, with an address for service in Luxembourg at the General Secretariat of the European Parliament, Tower Building, Kirchberg,
intervener,
APPLICATION for annulment of the decision or decisions referred to in the Commission's press release of 23 January 1996 (IP/96/67) announcing certain grants for European projects seeking to overcome social exclusion,
THE COURT,
composed of: G.C. Rodríguez Iglesias, President, C. Gulmann, H. Ragnemalm, M. Wathelet, R. Schintgen (Presidents of Chambers), G.F. Mancini, J.C. Moitinho de Almeida (Rapporteur), J.L. Murray, D.A.O. Edward, J.-P. Puissochet, G. Hirsch, P. Jann and L. Sevón, Judges,
Advocate General: G. Tesauro,
Registrar: L. Hewlett, Administrator,
having regard to the Report for the Hearing,
after hearing oral argument from the parties at the hearing on 4 November 1997,
after hearing the Opinion of the Advocate General at the sitting on 22 January 1998,
gives the following
Judgment
Grounds
1 By application lodged at the Court Registry on 1 April 1996, the United Kingdom of Great Britain and Northern Ireland brought an action under Article 173 of the EC Treaty, seeking annulment of the decision or decisions referred to in the Commission's press release of 23 January 1996 (IP/96/67) announcing certain grants for European projects seeking to overcome social exclusion (`the contested press release').
2 Since the adoption of its Resolution of 21 January 1974 concerning a social action programme (OJ 1974 C 13, p. 1), the Council has established various programmes to combat poverty and social exclusion, based on Article 235 of the EC Treaty.
3 First, it adopted Decision 75/458/EEC of 22 July 1975 concerning a programme of pilot schemes and studies to combat poverty (OJ 1975 L 199, p. 34), amended, most recently, by Council Decision 80/1270/EEC of 22 December 1980 concerning a supplementary programme to combat poverty (OJ 1980 L 375, p. 68), which covered the period from December 1975 to November 1981, then Council Decision 85/8/EEC of 19 December 1984 on specific Community action to combat poverty (OJ 1985 L 2, p. 24),which covered the period from January 1985 to 31 December 1988, and, finally, Council Decision 89/457/EEC of 18 July 1989 establishing a medium-term Community action programme concerning the economic and social integration of the economically and socially less privileged groups in society (OJ 1989 L 224, p. 10), which established a programme for the period from 1 July 1989 to 30 June 1994 (`the Poverty 3 programme').
4 Under Article 2 of that latter decision, the aims of the Poverty 3 programme were: (subparagraph (a)) to ensure overall coherence between all Community operations having an impact on the economically and socially less privileged groups in society, whilst adhering to the respective rules applicable to those operations; (b) to contribute to the development of preventive measures to assist groups at risk and of corrective measures to meet the needs of the very poor; (c) to produce, from a multidimensional viewpoint, innovatory organisational models for the integration of the persons concerned, involving all economic and social agents; (d) to conduct an information, coordination, assessment and exchange of experience operation at Community level; and, finally, (e) to continue to study the characteristics of the groups in question.
5 With a view to achieving those aims, the Commission was authorised, under Article 3 of the Poverty 3 programme, to promote and/or financially support: (subparagraph (a)) the carrying-out of pilot projects integrated into the fabric of local society and aimed at fostering the economic and social integration of the groups concerned by coordinating local initiatives with national or regional policies, such pilot projects having to correspond to the actual needs of those persons and to allow them to play an active role in order to become genuinely integrated into society; (b) innovatory measures to foster the economic and social integration of certain groups of people suffering from specific forms of isolation, in particular those measures undertaken by non-governmental organisations; (c) the assessment of schemes, the intra-Community exchange of knowledge and the transfer of methods, to be carried out by a network of research and development units whose members were to be appointed by the Commission in consultation with the Member States concerned; and, finally, (d) the exchange on a regular basis of comparable data on the groups in question and the improvement of knowledge of the phenomenon.
6 In accordance with Part I of the Annex to that decision, pilot projects had to relate, inter alia, to several aspects of the situation of the less privileged and to have the support of private participants or associations and of the public authorities. Furthermore, in accordance with Part II of the same annex, when measures were selected, account was to be taken of, inter alia, the extent to which they encouraged the independence and self-confidence of the persons concerned, helped the employment situation, channelled aid to the most disadvantaged and concentrated on socially and economically disadvantaged areas.
7 In order to continue and extend that action, the Commission submitted on 22 September 1993 a proposal for a Council Decision establishing a medium-term action programme to combat exclusion and promote solidarity: a new programme to support and stimulate innovation (1994-1999) (COM (93) 435 final, not published in the Official Journal of the European Communities, hereinafter `the Poverty 4 proposal'). That proposal envisaged a programme to be implemented between 1 July 1994 and 31 December 1999.
8 Under Article 2 of the Poverty 4 proposal, actions to combat exclusion and promote solidarity were to be specifically aimed at the economic and social integration of the economically and socially least-privileged groups and persons exposed to social exclusion, especially in urban areas. Such integration was to be ensured through multi-dimensional action covering all relevant fields in society, an indicative list of which was annexed. Employment and training were among the fields of action listed.
9 Article 3 of the Poverty 4 proposal stated that the aims of the programme were to include (subparagraph (a)) contributing through model actions to the development of preventive and curative measures at local, national or regional levels and (b) supporting the creation and development of transnational networks of partnership projects.
10 Under Article 4 of the Poverty 4 proposal, the measures designed to attain those aims were to comprise, for example, the carrying-out of model actions at local and national levels, in partnership between the public and private sectors.
11 In Annex 1 to the Poverty 4 proposal, it was stated that in selecting model actions, account should be taken of, inter alia, the fact that they should devise effective ways of channelling aid to the population most concerned, that they should encourage the independence and self-confidence of the persons concerned, that they should enhance employment possibilities and that they should concentrate on socially and economically disadvantaged areas.
12 By late June 1995, it was apparent that the Poverty 4 proposal would not be adopted by the Council.
13 Heading B3-4103 of the general budget of the European Union for the financial year 1995 (OJ 1994 L 369, p. 1) provided for expenditure of ECU 20 000 000 to combat poverty and social exclusion. According to the budgetary remarks relating to that heading, it was to cover both the expenditure on the programme in the Poverty 4 proposal and other expenditure outside that programme.
14 It is apparent from the contested press release that during 1995 the Commission decided to fund, under budget heading B3-4103, 86 projects to combat social exclusion, a list of which was annexed, for a total amount of approximately ECU 6 000 000.
15 That decision was preceded, in particular, by the Commission's press release of 11 August 1995 announcing a programme in the field of social exclusion for 1995 (IP (95) 918), and by an information note from the Commission dated 16 August 1995, entitled `European Funding for Projects Seeking to Overcome Social Exclusion - 1995' and comprising a set of guidelines for organisations potentially interested in the programme in question. Those guidelines described, inter alia, the types of initiative which would qualify for funding and the procedure to be followed by potential applicants.
16 The guidelines stated: `Support may be given to activities aimed at identifying and encouraging best practice in:
(i) revitalising urban society / social integration in cities and conurbations with problems of high unemployment and social exclusion;
(ii) enabling socially excluded people to move towards employability.
Areas of interest should be upstream from employment as such, and should focus on reducing the degree of exclusion which currently prevents target groups from even taking the first steps towards approaching the labour market.
Commission support can be given to the creation and development of exchange and self-help networks (such as lone parent families, women afflicted by poverty, long-term unemployed, families in extreme poverty), the improvement of social integration in urban communities, the improvement of urban amenities and access to urban services, from the point of view of the excluded populations.
Specific examples could be actions such as: reducing isolation in urban areas, innovative transport arrangements enabling excluded people to move closer towards the labour market (such as approaching information points regarding employment and training), socialising with others so as to prevent and break down isolation, creation of self-help groups or drop-in centres, improving access to health care and access to public services such as housing, welfare, information, citizens' advice and legal aid.
This list is not intended to be exhaustive, but rather indicative. Actions should help to generate new ideas helpful to socially excluded people with a combination of difficulties, and they should stimulate other projects aiming to overcome social exclusion.'
17 In support of its action for annulment of the decision or decisions to fund the 86 projects referred to in the contested press release, the United Kingdom Government puts forward two pleas in law alleging, first, lack of competence on the part of the Commission and breach of Article 4 of the EC Treaty and, second, infringement of an essential procedural requirement.
The plea alleging lack of competence on the part of the Commission and breach of Article 4 of the Treaty
18 In the submission of the United Kingdom, supported by the Federal Republic of Germany, the Kingdom of Denmark and the Council, the Commission did not have competence to commit the expenditure for funding the 86 contested projects under budget heading B3-4103. The Commission thus also acted in breach of Article 4 of the Treaty, in accordance with which each institution is to act within the limits of the powers conferred upon it by that Treaty.
19 Any Community expenditure, it is submitted, requires a dual legal basis: entry in the budget and, as a general rule, prior adoption of an act of secondary legislation authorising the expenditure in question. The only exception to the latter requirement concerns the funding of non-significant actions, namely pilot projects or preparatory actions designed to assess the policy pros and cons of a proposal for a basic measure. In that event, the legal basis lies in the Commission's power of initiative derived directly from the Treaty. The contested projects are clearly not such non-significant actions. No other basic act authorising their funding was, however, adopted by the Council.
20 The Commission, supported by the Parliament, whilst accepting that only non-significant Community action may be funded on the sole basis of the entry of the corresponding appropriation in the budget, considers that the contested projects fall within that category and that it was thus competent to decide to fund them.
21 In responding to the parties' arguments, it must first be borne in mind that under Article 205 of the EC Treaty, the Commission is to implement the budget, in accordance with the provisions of the regulations made pursuant to Article 209 of that Treaty, on its own responsibility and within the limits of the appropriations.
22 It is also clear from the Court's case-law (see, to that effect, in particular, Joined Cases 87/77, 130/77, 22/83, 9/84 and 10/84 Salerno and Others v Commission and Council [1985] ECR 2523, paragraph 56; Case 294/83 Les Verts v Parliament [1986] ECR 1339, paragraph 28; Case 242/87 Commission v Council [1989] ECR 1425, paragraph 18; and Case 16/88 Commission v Council [1989] ECR 3457, paragraphs 15 to 19) that, in the system of the Treaty, any implementation of expenditure by the Commission in principle presupposes, in addition to the entry of the relevant appropriation in the budget, an act of secondary legislation (commonly called the `basic act') from which the expenditure derives.
23 The Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities (OJ 1977 L 356, p. 1; `the Financial Regulation'), as amended by Council Regulation (Euratom, ECSC, EEC) No 610/90 of 13 March 1990 (OJ 1990 L 70, p. 1), which was adopted on the basis of Article 209 of the Treaty, specifies, in the second subparagraph of Article 22(1): `The implementation of appropriations entered for significant Community action shall require a basic act, in accordance with the procedure and the provisions laid down in paragraph 3(c) of Section IV of the Joint Declaration of 30 June 1982.'
24 Paragraph 3(c) of Section IV of the Joint Declaration of 30 June 1982 by the European Parliament, the Council and the Commission on various measures to improve the budgetary procedure (OJ 1982 C 194, p. 1), states:
`The implementation of appropriations entered for significant new Community action shall require a basic regulation. If such appropriations are entered the Commission is invited, where no draft regulation exists, to present one by the end of January at the latest.
The Council and the Parliament undertake to use their best endeavours to adopt the regulation by the end of May at the latest.
If by this time the regulation has not been adopted, the Commission shall present alternative proposals (transfers) for the use during the financial year of the appropriations in question.'
25 In a statement appended to the Interinstitutional Agreement of 29 October 1993 on budgetary discipline and improvement of the budgetary procedure (OJ 1993 C 331, p. 1), the European Parliament, the Council and the Commission confirmed their support for those principles and undertook to improve their application.
26 It follows from the above that implementation of Community expenditure relating to any significant Community action presupposes not only the entry of the relevant appropriation in the budget of the Community, which is a matter for the budgetary authority, but in addition the prior adoption of a basic act authorising that expenditure, which is a matter for the legislative authority, whereas implementation of budgetary appropriations for Community action which does not fall within that category - namely non-significant Community action - does not require prior adoption of such a basic act.
27 It is true that no definition of what constitutes significant Community action is given either in the Financial Regulation or in the abovementioned interinstitutional declarations of 1982 and 1993.
28 However, the requirement that a basic act must be adopted before an appropriation is implemented derives directly from the scheme of the Treaty, in accordance with which the conditions governing the exercise of legislative powers and budgetary powers are not the same (Case 242/87, cited above, paragraph 18).
29 Moreover, according to a statement entered in the minutes of the meeting of 28 June 1982 between the Council, the European Parliament and the Commission in the context of the interinstitutional tripartite dialogue, which took place two days before the adoption of the abovementioned interinstitutional declaration of 1982, the requirement that a basic act be adopted before an appropriation entered in the budget for significant Community action can be used is to enable the Commission, in accordance with standard practice, to assume its rightful role and in particular exercise its powers of initiative by initiating, on its own responsibility, the studies or projects required to prepare its proposals.
30 Furthermore, as the Commission itself accepted in its communication of 6 July 1994 to the budgetary authority concerning legal bases and maximum amounts (SEC (94) 1106 final), because implementation of expenditure on the basis of the mere entry of the relevant appropriations in the budget is an exception to the fundamental rule that a basic act must first be adopted, it cannot be assumed that Community action is non-significant and the Commission must therefore clearly demonstrate that the planned measure is not significant Community action.
31 In the present case, however, the Commission has not succeeded in refuting the United Kingdom Government's assertion that the projects to which the contested press release refers in fact cover actions which were already included under the Poverty 3 programme and could have been adopted under the Poverty 4 programme. Nor is it denied that those two programmes concern significant Community action which therefore required the adoption of a basic act for the relevant appropriations to be implemented.
32 In that regard, it must be noted that, of the contracts given Community funding in 1995 on the sole basis of budget heading B3-4103, those referred to by the Commission in support of its submission in the present proceedings concern: a literacy programme for families living in disadvantaged areas with a view to improved access to employment; a training programme for unemployed school leavers living in an area with high youth unemployment; and a programme to assist with social rehabilitation for unemployed single mothers and unemployed people suffering from alcohol addiction.
33 Such actions were specifically covered by the Poverty 3 programme and the Poverty 4 proposal. Article 3(a) and (b) of the Poverty 3 programme allowed the Commission to promote or financially support pilot projects integrated into the fabric of local society and aimed at fostering the economic and social integration of economically and socially less privileged groups, and innovatory measures to foster the economic and social integration of certain groups of people suffering from specific forms of isolation. Similarly, it is clear from a reading of Article 2 of the Poverty 4 proposal in conjunction with Annex 1 thereto that the proposal provided for implementation by the Commission of actions aimed at the economic and social integration of the economically and socially least-privileged groups and persons exposed to social exclusion through action in various fields, including training, with a view to improving their chances of employment.
34 Thus, contrary to what the Commission has argued, the purpose of the projects mentioned above was not to prepare future Community action or launch pilot projects. Rather, it is clear from the activities envisaged, the aims pursued and the persons benefited that they were intended to continue the initiatives of the Poverty 3 programme, at a time when it was obvious that the Council was not going to adopt the Poverty 4 proposal, which sought to continue and extend Community action to combat social exclusion.
35 In support, however, of its argument that the contested projects constitute non-significant action, the Commission points out that they relate to short-term activities, with a maximum duration of one year, which are not coordinated inter se and which entail considerably less expenditure than the pluriannual programmes under the Poverty 3 programme and the Poverty 4 proposal, which involve the creation of an Observatory on National Policies to Combat Social Exclusion to coordinate those actions.
36 That argument must be rejected. There is nothing to prevent significant Community action from entailing limited expenditure or having effects for only a limited period. To accept the contrary would be tantamount, moreover, to allowing the Commission to circumvent application of the principle that a basic act must first be adopted merely by limiting the scope of the action in question while carrying it over from one year to the next. Nor, similarly, can the degree of coordination to which action is subject at Community level determine whether it is significant or not.
37 It must thus be concluded that the Commission was not competent to commit the expenditure necessary to fund the projects referred to in the contested press release under budget heading B3-4103 and that it acted in breach of Article 4(1) of the Treaty, so that the decision to commit that expenditure must be annulled.
38 It is therefore unnecessary to rule on the plea in law alleging the lack of a proper statement of reasons.
Limitation of the effects of the annulment
39 The United Kingdom, supported by the Kingdom of Denmark, has stated that, in order not to defeat the legitimate expectations of those to whom the Commission has made grants for their projects to overcome social exclusion, it would not object, in the event of its application being upheld, to the Court's using its power under Article 174 of the EC Treaty to decide to preserve the effects of the decisions annulled. The Parliament has expressed the same wish.
40 It must be borne in mind that annulment of the decision to commit the expenditure relating to the contracts in issue takes place at a time when all, or almost all, of the relevant payments have been made.
41 Thus, important considerations of legal certainty, comparable with those arising where certain regulations are annulled, justify the Court in exercising the power conferred on it by the second paragraph of Article 174 of the Treaty when it annuls a regulation and in stating which of the effects of the decision annulled must be preserved (with regard to a directive, see, for example, Case C-21/94 Parliament v Council [1995] ECR I-1827, paragraph 31).
42 In the specific circumstances of this case, it is appropriate to rule that the annulment should not affect the validity of payments made or undertakings given under the contracts in issue.
Decision on costs
Costs
43 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been asked for in the successful party's pleadings. Since the United Kingdom has asked for costs and the Commission has been unsuccessful, the Commission must be ordered to pay the costs. Under the first subparagraph of Article 69(4), the Federal Republic of Germany, the Kingdom of Denmark, the Council and the Parliament, which have intervened in the proceedings, must be ordered to bear their own costs.
Operative part
On those grounds,
THE COURT
hereby:
1. Annuls the decision referred to in the Commission's press release of 23 January 1996 (IP/96/67) announcing certain grants for European projects seeking to overcome social exclusion;
2. Declares that the annulment of the abovementioned decision shall not affect the validity of payments made or undertakings given under the contracts in issue;
3. Orders the Commission of the European Communities to pay the costs;
4. Orders the Federal Republic of Germany, the Kingdom of Denmark, the Council of the European Union and the European Parliament to bear their own costs.
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