Robert Adam v European Commission (828/79)

I —Facts and procedure

II —Conclusions of the parties

The applicant claims that the Court should:1. Annul the implied decision rejecting the complaint submitted in due time by the applicant and, in the alternative, the so-called express decision of 28 September 1979 in so far as they are vitiated by breach of the general principles of law, breaches of rules of law relating to the application of the Treaty, misuse of power and infringement of essential procedural requirements which invalidate both them and Regulations Nos 3085 and 3086/78 upon which they are based;2. Declare unlawful the decrease in the part of the remuneration paid to the applicant in Italian lire, ceteris paribus, with effect from April 1979 for the reasons and on the grounds set forth in the application;3. Declare, in the exercise of the Court's unlimited jurisdiction in that regard, that the applicant is entitled to have the parts of his salary which are paid in Italian lire and in foreign currency maintained unchanged, consolidated at the March 1979 level until the effects of the change are absorbed by increases in remuneration — other than those payable in respect of variations in purchasing power — and is also entitled to rectification of the monthly payments made in the intervening period;4. Order the defendant to pay the costs of the proceedings.The Commission claims that the Court should:Dismiss the application as unfounded;Order the applicant to pay the costs.

III —Submissions and arguments of the parties

The applicant's first submission is based on breach of the principle of the protection of legitimate expectation in so far as the action taken has resulted in a decrease of the part of his remuneration paid in lire. The fact that the defendant itself admits that “the effect of the reorganization decided upon by the Council has in several cases been to increase the cost of transfers” belies the alleged “neutral” character of the transaction. It is not, as the Commission maintains, a case of lucrum cessans — the advantageous exchange rate for transfers was previously offset by the disadvantageous conversion into lire of the major part of the remuneration — but of damnun emergens.The principle of non-discrimination is also breached. In fact, there are no transitional provisions applicable to the special category of officials who make transfers authorized by the Commission, whereas Regulation No 3085/78 contains such provisions with regard to those entitled to pensions. The necessary pre-condition for application of the principle of non-discrimination, namely the similarity of the situation at the time when such similarity is called in aid, is certainly satisfied in this case.The applicant contests the lawfulness of the weighting introduced by Regulation No 3086/78 and the methods ıy which it was calculated. In fact, instead of the rule laid down in the first paragraph of Article 64 of the Staff Regulations being followed, the weightings were fixed so as to obtain, by a simultaneous application of the new exchange rates, salaries nominally equal to those paid in March 1979. The applicant claims that the infringement of that provision also amounts to a case of misuse of power since the Commission used the weighting for a purpose different from that laid down in the rules for that institution.There has also been an infringement of essential procedural requirements since the change made to the proposed rules was not submitted in advance to the bodies set up under the Staff Regulations which must be consulted whenever measures are to be adopted which involve amendment of the Staff Regulations and which affect personnel management. The fact that the amendment in question was unanimously approved by the Council makes no difference. Moreover, Regulations Nos 3085 and 3086/78 are characterized by the inadequacy of the statement of the grounds on which they are based, which is limited to an affirmation of the need “to amend the provisions of the Staff Regulations concerning the monetary parities used in application of the Staff Regulations and the detailed arrangements for the transfer of part of an official's emoluments to a country other than the country of employment of the person concerned”.As regards the alleged individual decision of 28 September 1979, it was notified “in incertam personam”, on an unspecified date. If the Court were to regard the relevant note as constituting an individual decision rejecting a request, it would inevitably have to be regarded as invalid by reason of infringement of essential procedural requirements. Furthermore, the stated reasons for the note in question contain an inexact statement of the facts regarding the alleged “neutrality” of the new exchange rates and the alleged unlawfulness of the exchange gains which accrued to certain officials under the earlier system. The case-law of the Court regarding the statement of the grounds on which decisions are based is quite explicit with regard to the requirement of clarity and completeness.In its defence, the Commission points out that before the rule of protection of legitimate expectation may be relied upon, the authority concerned must have entered into commitments, that is to say “assumed obligations which it has bound itself to observe” (cf. Case 81/72 Commission v Council [1973] ECR 575). At no time has the defendant given the applicant an undertaking not to change the conditions of the Staff Regulations governing the employment relationship, in particular as far as the detailed arrangements for transfers are concerned. Moreover, it could not have validly given such an undertaking, in view of the fact that the contract of service and the rights and duties flowing therefrom are governed by regulations. It is thus pointless for the applicant to maintain that the draftsmen of the Staff Regulations intended to introduce, by means of Article 17 of Annex VII, an “exchange guarantee” for the benefit of officials so as to safeguard them for all time from the effects of such fluctuations as might occur in the monetary parities and from the increased cost to which such fluctuations might give rise with regard to the financial obligations assumed by the staff in any particular Member State (cf. Opinion of Mr Advocate General Dutheillet de Lamothe in Joined Cases 63 to 75/70 Bode [1971] ECR 549, p. 557). The true reason for the transfer facilities regulated by that provision must be seen in the light of the historical context of the preparatory work on the texts of the Staff Regulations in 1961 when exchange control was often very strict and yet officials of different nationalities had to be freely allowed to honour their financial commitments in their countries of oıigin or in the countries where their families resided.Subsequently, as a result of the new situation in which currencies float, it became in practice easy to take improper advantage of the ratio legis of Article 17 of Annex VII, since transfers of a part of officials' remuneration, although within the limits laid down in a “code of good conduct” established in June 1974, became a means of obtaining “strong currencies” at a rate much lower than the market rate, with consequent adverse effects on the Community budget.The staff could not have been under any misapprehension as to the practical repercussions on transfers of the updating of exchange rates. An administrative circular distributed in May 1978 drew attention to “the disappearance of certain advantages now available” in that area and indicated that the transfers would thereafter be made on the basis of the value of the European unit of account, giving an example of the results of the calculations. It was therefore out of the question to conclude that the operation would be absolutely neutral from the financial point of view, since the object was to eliminate unjustified advantages in the future. For a long time therefore staff representatives had been well acquainted with the Commission's intentions and even expressed their agreement regarding that “rationalizing” operation by imposing only one condition with regard thereto, namely that the Italian weighting should be re-examined so that it more accurately refelected the true state of affairs. Thus on 21 December 1978 the Council adopted Regulation No 3087/78 adjusting the weighting applicable to the remuneration and pension of Officials and Other Servants of the European Communities employed or having a home in Italy (Official Journal 1978 L 369, p. 10), granting an increase of 6.4 % to the Italian weighting with effect from 1 January 1978. Therefore, there was no longer any justification for the “offsetting” claimed of the “undervalued” weighting by means of the transfers. During the period from 1 January 1978 to 31 March 1979 officials even enjoyed the advantages of the old transfer system whilst at the same time they also had the benefit of a “corrected” weighting. It is therefore totally improper to claim that the assurances given by the defendant regarding the neutrality of the proposed updating operation with regard to remuneration referred also to transfers.As regards the alleged discrimination between officials and pensioners, the Commission contends that in fact the only legal principle applicable is that there must be no arbitrary discrimination, that is to say discrimination for which there are no objective grounds, and that the principle of equality is not applicable. The situation of pensioners, taken into account in Article 4 of Regulation No 3085/78, is not the same as or even comparable with that of officials who arrange for transfers to be made. In the case of pensioners the new system has entailed a sharp reduction, from one month to the next, which may be as much as half the amount in lire previously obtained from resale of the amount paid in Belgian francs or German marks in respect of the pension. On the other hand, in the case of serving officials, the increase in the amount of funds required for the transfers is nowhere near that proportion since at the most only 35 % of remuneration may be transferred. In extreme cases, those of transfers to Germany of 35 % of the remuneration for March of an official employed in Italy, the increased cost of the transfer might at the most be around 25 % of the total remuneration for April.Having regard to the case-law of the Court, the Commission can find no grounds to conclude that the amendments made by the Council to Article 63 of the Staff Regulations and Article 17 of Annex VII thereto might constitute a misuse of its powers. Being entitled to adapt the Staff Regulations to “economic realities” (Cıse 28/74 [1975] ECR 463) the Council, on the contrary, attained the objective which it pursued (updating of the rates) without misusing its powers.The Italian weighting was calculated mathematically. If in March an official employed in Italy received net remuneration of 1000000 lire by application of the Italian weighting which took into account both the cost of living and the monetary parity applied, identical remuneration should therefore have been paid to him in April. It is indeed unthinkable that in one month the cost of living might vary sufficiently to justify an increase in remuneration. Since one of the factors influencing the weighting, namely monetary parities, had been brought into line with the true situation, it became necessary to alter the weighting so as to obtain a result which did not alter the amount of the April remuneration. Certainly, the transfers cost more, but the rationalization of the system was one of the specific objects pursued.As regards the allegation of insufficient consultation, the Commission observes that the applicant's view would be well founded if, after a first proposal from the Commission was put forward and before the Council adopted any decision on it, a quite new proposal was submitted, that is to say one concerning other matters or making substantial amendments (cf. a contrario Case 41/69 ACF Chemiefarma [1970] ECR 661). In the same way, the consultation procedure provided for in Article 10 of the Staff Regulations does not have to be repeated every time a minor alteration is made. In this case, by a communication of 30 November 1978 the Commission informed the Council of its desire that Article 1 of the initial proposal of April 1977 be re-worded. A comparison with the last-mentioned text shows clearly that the new provisions do not amount to a substantial amendment. The nub of the amendment to the Staff Regulations is merely the abandonment of the old IMF parities and replacement of them by updated parities whereby every offical is still entitled to the same total remuneration in the currency of the place of his employment. That would have been the result obtained if the rates had been updated by application of the European unit of account. That is in fact the result obtained by the updating of the rates under the procedure finally adopted. In the case of transfers, updating on the basis of the European unit of account of the exchange rates to be applied to such transactions involved an increase in the cost thereof to an extent equivalent to that resulting from the application of Regulation No 3085/78. In fact, the exchange rates used for implementation of the general budget of the Communities as at 1 July 1978 were strictly related to the value of the currencies considered (Belgian franc on the one hand, other currencies on the other) with respect to the European unit of account on the same date.In his reply, the applicant emphasizes that the Commission deliberately omitted to mention an essential fact, namely that whilst in the past transfers outside Italy could be made at a favourable exchange rate, the value of the remaining remuneration was reduced by the unfavourable impact of that same exchange rate. The Commission was not entitled to claim that it had remedied that situation by means of the weighting. In fact, the increase of the weighting took place some considerable time after the increase in the cost of living; it did not take into account the changes in the cost of living peculiar to the province of Varese and did not even offset the loss of purchasing power of the currency within the State or loss of value of the Italian currency with respect to the currencies of the other Member States, as indicated by the difference between the purchasing-power parity and the monetary parity. The applicant maintains that in the past the Commission — at the expense of criticism, on legal grounds, from the financial controller bıt with the clear intention of offering some compensation to the staff — extended the possibilities of making transfers abroad.The applicant indicates that, even in 1974, the Parliament did not give a favourable opinion on the Commission's initial proposal. That opinion was given only after repeated initiatives in 1977 and in particular after the Commission had given formal guarantees that the position regarding remuneration would be left untouched. Since the Parliament explicitly mentions transfers in the second recital in the preamble to its resolution, it is clear that the guarantees that the rights of the staff would be left untouched related also to those transfers. By adhering to its position, the Commission is guilty of very serious misconduct consisting of misleading the Parliament, which had assumed the role of intermediary regarding the guarantees given to officials.The applicant is of the opinion that, for a number of reasons, serving officials should have been accorded treatment analogous to that accorded to pensioners. In the first place, a reduction in the emoluments of pensioners involves the loss of certain specific, and without doubt favourable, possibilities whereas the reduction suffered by serving officials does not offer any corresponding extra advantage or benefit from the combined effect of any provisions of the Staff Regulations. In the second place, whilst a pensioner may establish his residence wherever he thinks most appropriate or beneficial to his own interests, a serving official's residence is linked to his place of employment and involves the need for transfers of funds to another State or States. In the third place, the refusal to draw a comparison between serving officials and retired officials goes too far; both cases are concerned with relationships and benefits which have the same legal basis corresponding to situations which display at least some affinities. The applicant notes that the Commission considered transitional provisions to be necessary also for its own officials, who suffered not insignificant decreases of salary following the elimination of certain distortions of remuneration, an operation known as the “nettoyage de la grille [readjustment of salary scales]” (cf. Council Regulation No 160/80).The applicant reiterates the objection that essential procedural requirements have been infringed, indicating that the 1977 proposal sought inter alia to introduce the European unit of account into the Staff Regulations and to express in those units all the amounts until then expressed in Belgian francs, whilst Regulation No 3085/78 maintains the Belgian franc as the monetary parameter and only the parities to be used pursuant to the Staff Regulations are changed together with the detailed arrangements for any partial transfer of emoluments outside the State of the place of employment. These differences of principle between the two instruments seem even more substantial if the following is borne in mind: that the proposal related to a measure which was intended to conform to the Community monetary policy and to apply in practice the unit of account which was created on 18 December 1975 in all the areas of activity governed by the Treaties; that those fundamental objectives were not attained by Regulation No 3085/78 (the important sector of the common agricultural policy in particular being excluded therefrom); that in view of the fact that the unit of account was definitive and subject to changes in case of need, the regulation provides that the power of review is to be exercised only when the annual examination of remuneration takes place, even though the interests of officials may in the meantime have been seriously harmed; that whilst the 1977 proposal does not provide for the adoption of supplementary provisions regarding transfers, Regulation No 3085/78 refers to rules established on the basis of common agreement by the institutions of the Communities after consultation of thı Staff Regulations Committee, since those rules lay down restrictive and inflexible limits on transfers, they make Regulation No 3085/78 much more important than the 1977 proposal; that numerous “innovations”, of which there is no trace in the 1977 proposal, were incorporated in Regulation No 3085/78, such as transfers effected by officials serving outside the territory of the Community and the introduction of other currencies, transfers in exceptional circumstances, transitional provisions in favour of pensioners, whilst rules of no lesser necessity which were envisaged in the proposal were not included in the regulation, such as calculation for the reimbursement of expenses still carried out on the basis of quarterly exchange rates in pursuance of a decision of the Commission of 4 November 1974 and of the Director General for Administration of 21 January 1976.In its rejoinder, the Commission admits that the weighting has been used for a purpose other than that for which it was designed, but asserts that this was done solely to protect officials from the adverse effects of an out of date exchange rate. The Council regulations contested in these proceedings made it possible to bring order into the system, on the one hand by restoring to the weighting its essential function of making adjustments for the cost of living and, on the other hand, by applying exchange rates which are fully in line with reality. If, before the adoption of Regulation No 3087/78, advantages in respect of transfers had been desired by the Commission to offset an inappropriate weighting, there would be no grounds for granting such compensation after the weighting was increased by 6,4% because there would no longer be anything to compensate.The Commission replies that the opinion given by the Parliament on 15 October 1974 is favourable to amendment of the weighting applicable to transfers and that inter alia it advocates the use for the amounts to be transferred of a coefficient based on the ratio between the weighting fixed for the country in whose currency the transfer was made and the weighting applicable to the remuneration of the officials. That opinion was not retracted in 1977 and the definitive text adopted by the Council in 1978 incorporated the amendment proposed by the Parliament in May 1974 in its precise terms. The Members of Parliament were perfectly aware that the proposal to adjust the rates between the different “values” considered also extended to “transfers of funds” and involved an increase in the cost of transactions where the country of destination was one with a strong currency. The “financial neutrality” which was expected to be the result of the proposed system referred to the total remuneration, disregarding any transfers, so that the total remuneration remained at exactly the same level as before adjustment of the rates. The Parliament cannot have been mistaken on this point since immediately after referring to the “financial neutrality” Mr Tugendhat, the Member of the Commission who was concerned, drew the attention of the Members of the Parliament to the specific problem of transfers, which, he said, “is also one that has preoccupied the Commission”. The report of the Committee on Budget (Document 218/77) referred to in the opinion of 7 July 1977 was moreover particularly explicit on that point.As regards the alleged breach of the principle of equality between officials and pensioners, the Commission adds that whilst it may be true that pensioners had enjoyed treatment which was certainly favourable, it is not true that the system of transfers gave no advantage to officials. If there was no loss of any advantage, why did the latter demand that the previous system, which gave them “no advantage” should be applied to them? The fact that pensioners have the opportunity to establish their residence where they wish has no legal effect other than to show that the positions underıthe Staff Regulations are different and are not comparable. The Commission took into account the fact that serving officials may be obliged to make transfers to other Member States, since it authorizes such transfers and, moreover, does so on favourable terms — the ratio between the two weightings. What may no longer be authorized is the execution of such transfers in a manner allowing considerable profits to be made in certain cases. Although there is discrimination, those discriminated against are not officials employed in Italy but those employed in Belgium! As regards the absence of transitional measures, it is sufficient to point out that the essential feature of transitional provisions is their “voluntary” character.The Commission observes that both under the system rationalized by the direct introduction of the European unit of account into the Staff Regulations and under a system which maintained the Belgian franc as the monetary basis, the applicant would have paid the same sum in Belgian francs to make an identical transfer. The monetary parities have a direct effect on purchasing power and the repercussions of an unforeseen change in those parities are certainly neutralized by an adjustment of the weighting which, pursuant to Article 65 (2) of the Staff Regualtions, may be modified at any time. The other numerous “innovations” are, in the opinion of the Commission, measures of a minor and supplementary nature. The restrictive limit of 35%, the maximum percentage of remuneration which may be transferred, is not an innovation since that percentage was already the maximum provided for in the “Code of Good Conduct” in force in 1974. Moreover, the Commission points out that Regulation No 3085/78 was adopted by the Council unanimously and that that fact alone is sufficient to remove the obligation to consult the Parliament again (Article 149 of the EEC Treaty).

IV —Oral procedure

The parties presented oral argument at the sitting on 19 and 20 February 1981.The Advocate General delivered his opinion at the sitting on 14 May 1981.

Infringement of essential procedural requirements

Content and effects of the regulations

Costs