Judgments nº T-28/16 of The General Court, April 03, 2017

• Resolution Date: April 03, 2017
• Issuing Organization: The General Court
• Decision Number: T-28/16

(EAGF and EAFRD - Expenditure excluded from financing - Rural development - Land consolidation and village renewal - Criteria used for selection of operations - Principle of sincere cooperation - Subsidiarity - Legitimate expectations - Proportionality - Obligation to state reasons)

In Case T-28/16,

Federal Republic of Germany, represented initially by T. Henze and A. Lippstreu, and subsequently by T. Henze and D. Klebs, acting as Agents,

applicant,

v

European Commission,represented by J. Aquilina and B. Eggers, acting as Agents,

defendant,

APPLICATION pursuant to Article 263 TFEU seeking the annulment of Article 1 and the Annex of Commission Implementing Decision (EU) 2015/2098, of 13 November 2015, excluding from European Union financing certain expenditure incurred by the Member States under the European Agricultural Guarantee Fund (EAGF) and under the European Agricultural Fund for Rural Development (EAFRD) (OJ 2015 L 303, p. 35), in so far as the payments made by the agency responsible for payment in the Federal Republic of Germany under the European Agricultural Fund for Rural Development (EAFRD), in the total amount of EUR 7 719 920.30, are excluded from EU financing,

THE GENERAL COURT (Second Chamber),

composed of M. Prek, President, F. Schalin (Rapporteur) and J. Costeira, Judges,

Registrar: S. Bukšek Tomac, Administrator,

having regard to the written part of the procedure and further to the hearing on 13 December 2016,

gives the following

Judgment

Background to the dispute

1 According to Article 15 of Council Regulation (EC) No 1698/2005 of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) (OJ 2005 L 277, p. 1), the European Agricultural Fund for Rural Development (EAFRD) is to act in the Member States through rural development programs which may include a set of regional programs, as is the case in the Federal Republic Germany in view of the federal structure of that Member State.

2 As regards the 2007 to 2013 programming period, the Rural Development Programme for the Free State of Bavaria (Germany), entitled ‘Bayerisches Zukunftsprogramm Agrarwirtschaft und Ländlicher Raum 2007-2013 aus dem Europäischen Landwirtschaftsfonds (ELER) gemäss Verordnung (EG) Nr. 1698/2005’ (Bavarian Programme for the Development of the Agricultural and Rural Economy for the period 2007 to 2013 with the support of the EAFRD under Regulation No 1698/2005, the ‘BayZal’), which includes actions in respect of land consolidation and village renewal, was submitted to the Commission of the European Communities. The Commission approved it by Decision C(2007) 3994 final of 5 September 2007 (‘the Decision of 5 September 2007’), which provides for EAFRD financing of a maximum total amount of EUR 1 253 943 708 for the entire programming period.

3 Following an initial inspection carried out by its services from 2 to 6 March 2009, the Commission considered that there were shortcomings in the application of the criteria for the selection of land consolidation and village renewal operations in Bavaria supported by EAFRD for the 2007 and 2008 and that this amounted to a failure to meet a key criterion. At the end of the procedure which included referral to the Conciliation Body under Commission Regulation (EC) No 885/2006 of 21 June 2006 laying down detailed rules for the application of Council Regulation (EC) No 1290/2005 as regards the accreditation of paying agencies and other bodies and the clearance of the accounts of the EAGF and of the EAFRD (OJ 2006 L 171, p. 90), the Commission applied a financial correction in the form of a flat-rate set-off of 10%, namely EUR 1 040 620.50, to the projects in question which had received EAFRD financing for 2007 and 2008.

4 From 8 to 12 July 2013, the Commission services carried out a second inspection, which included the implementation of land consolidation and village renewal under the BayZal, in order to verify the management and control system put in place in Bavaria.

5 By letter of 3 September 2013 the Commission sent the results of the inspection to the German authorities and informed them of its finding of shortcomings in the establishment or application of selection criteria, as regards the operations supported by EAFRD in Bavaria, both for the years 2007 to 2008, which had already given rise to a correction, and for 2009 to 2012, as well as from 2013. Bilateral discussions took place between the Commission services and the German authorities. A second conciliation procedure under Article 16 of Regulation No 885/2006 was also initiated, but it was not possible to complete it.

6 On 13 November 2015, the Commission finally adopted Implementing Decision (EU) 2015/2098 of 13 November 2015 excluding from European Union financing certain expenditure incurred by the Member States under the European Agricultural Guarantee Fund (EAGF) and under the European Agricultural Fund for Rural Development (EAFRD) (OJ 2015 L 303, p. 35, ‘the contested decision’), by which it applied a flat-rate correction of 10% to the expenditure incurred in Bavaria by the German authorities for 2009 to 2014. After rectification of the basis of calculation - the Commission having initially envisaged applying a correction of EUR 11 046 145.96 - the final amount of the correction came to EUR 7 719 920.

7 The criticisms made by the Commission which are the basis for the adoption of the contested decision are set out both in the report drawn up on 12 June 2015 by the Conciliation Body after being consulted by the German authorities following the second inspection, and in the summary report drawn up on 19 October 2015 by the Commission (‘the summary report’). In essence, those criticisms can be summarised as follows.

8 The land consolidation and renewal of the villages in Bavaria, as presented by the German authorities, take place in three stages:

- the first stage, which corresponds to the initial and consultation stage, brings together regional, municipal or local actors in order to consult them and to clarify the objectives pursued, to distribute the tasks and to determine whether the various actors wish to continue the process and make use of the possibilities for aid. This stage is instigated by the competent regional public authorities, in the present case the Ämter für ländliche Entwicklung (rural development offices), when they consider that a procedure for the land consolidation and renewal of a village is necessary and must be undertaken in the interest of the stakeholders;

- the second stage involves the decision by the rural development office to initiate the land consolidation and renewal of the villages, leading to the formation of a community of stakeholders, bringing together landowners and owners of property rights; this community is the future applicant and the beneficiary of the grants;

- the third stage involves detailed planning and specific implementation of the land consolidation and village renewal operations in each area concerned.

9 First, according to the Commission, in 2007 and 2008, the land consolidation and village renewal operations were not approved on the basis of selection criteria laid down by the competent body as provided for by Article 71(2) of Regulation No 1698/2005.

10 Second, as regards 2009 to 2012, the criteria for the selection of projects as originally included in the BayZal were, following a decision of 22 December 2008 of the Monitoring Committee set up under Article 77 of Regulation No 1698/2005 to examine the selection criteria to be applied during the 2007 to 2013 programming period (the ‘Decision of 22 December 2008’), the subject of an amendment as regards the first and second stages of the land consolidation and village renewal operations, but the Commission considers that those criteria are not appropriate for the purposes of selecting projects from those eligible in so far as such projects are not ranked and their selection is opaque and therefore not transparent. In addition, no selection criteria were laid down for deciding on the opening of procedures. Those procedures consist of different projects or operations which are not known at the time a decision is taken concerning them, so that they are approved only in the years following the opening of the procedure.

11 Third, as regards 2013, new selection criteria were approved in December 2012, which also apply to the pre-selection process, namely the selection of procedures implemented in Bavaria. The selection criteria are applied on the basis of three checklists:

- Checklist A sets out the selection criteria for checking whether the procedure can be considered to be in conformity with the BayZal’s work programme and capable of being registered in that programme;

- Checklist B sets out the selection criteria for verifying whether the execution of a procedure or operation, which may be registered in the work programme, can proceed;

- Checklist C sets out the selection criteria for selecting a project.

12 The introduction of checklist C was decided on as early as December 2008 and applied from 2009. Checklists A and B were introduced in 2013 and applied retroactively to all procedures and projects from 2009.

13 However, the Commission considers that those checklists remain inadequate, in so far as, inter alia, they still do not include a ranking of the procedures implemented in Bavaria and do not apply to procedures on the opening of which no decision has been made, with the result that the selection of operations and projects at this stage remains non-transparent.

Procedure and forms of order sought

14 By document lodged at the Court Registry on 26 January 2009, the Federal Republic of Germany brought the present action.

15 The defence, the reply and rejoinder were lodged at the Court Registry on 8 April, 25 May and 7 July 2016, respectively.

16 The Federal Republic of Germany claims that the Court should:

- annul Article 1 and the...