(publication by extracts) Republic of Lithuania v European Commission (T-365/13)

Contents

Judgment of the General Court (Seventh Chamber)26 February 2015^note(EAGGF — Guarantee Section — EAGF and EAFRD — Expenditure excluded from financing — Rural development measures — Natural handicaps and agri-environment — Appropriateness of controls — Flat-rate financial corrections — Proportionality)In Case T‑365/13,Republic of Lithuania, represented by D. Kriaučiūnas, R. Krasuckaitė and A. Petrauskaitė, acting as Agents,vEuropean Commission, represented by A. Steiblytė and G. von Rintelen, acting as Agents,THE GENERAL COURT (Seventh Chamber),composed of M. van der Woude (Rapporteur), President, I. Wiszniewska-Białecka and I. Ulloa Rubio, Judges,Registrar: C. Heeren, Administrator,having regard to the written procedure and further to the hearing on 11 September 2014,gives the following

JudgmentOnly the paragraphs of the present judgment which the Court considers it appropriate to publish are reproduced here.

Background to the dispute

1By Implementing Decision 2013/214/EU of 2 May 2013 on excluding from European Union financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), under the European Agricultural Guarantee Fund (EAGF) and under the European Agricultural Fund for Rural Development (EAFRD) (OJ 2013 L 123, p. 11) (‘the contested decision’), the European Commission excluded certain expenditure incurred by the Republic of Lithuania, declared in respect of financial years 2008 and 2009, as expenditure excluded from Community financing. The expenditure excluded related to EAFRD support measures, covered by Axis 2 of the Lithuanian Rural Development Programme for 2007-2013 (‘the programme’), approved by Commission Decision C(2007) 5076 of 19 October 2007, last amended by Commission Decision C(2009) 10216 of 14 December 2009.

2The contested decision was adopted following an investigation carried out in Lithuania, from 21 to 25 September 2009, in the context of clearing the accounts of EAFRD, in order to establish whether the management system of Axis 2 of the programme was compatible with the EU legislation.

3The audit report drawn up following that investigation was sent to the Republic of Lithuania by letter of 10 December 2009. The Commission received the reply of the Lithuanian authorities on 1 February 2010.

4The Commission convened a bilateral meeting, which was held on 21 October 2010. During that meeting, the representatives of the Republic of Lithuania and of the Commission discussed the results of the audit. The minutes of that meeting were sent to the Lithuanian authorities on 13 December 2010.

5By letter of 10 November 2011, the Commission sent the Republic of Lithuania the findings of its investigation, in accordance with Article 11(1) of 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). In that letter, the Commission proposed, concerning the expenditure relating to the applications lodged in 2008 and 2009, a flat-rate correction of 5% to the agro-environmental measure (measure No 214) and of 2% to the aid measure in favour of farmers in areas with natural handicaps other than those of mountain areas (measure No 212) (‘the measure relating to natural handicaps’).

6By letter of 22 December 2011, the Lithuanian authorities referred that proposal for financial corrections to the Conciliation Body, in accordance with Article 16 of Regulation No 885/2006. On 30 March 2012, the Conciliation Body issued its final report. The Commission took account in part of the findings of that report.

7By letter of 23 November 2012, the Commission altered its final position.

8The contested decision was sent to the Republic of Lithuania on 3 May 2013, together with a summary report setting out the grounds for the financial correction. By that decision, a financial correction of EUR 3 448 510 was imposed in respect of 2008 and 2009 for the submission of applications, concerning measures Nos 1 and 9 of Axis 2 of the programme.

9In essence, the Commission gave the following reasons for the imposition of a financial correction:— failure to satisfy the eligibility criterion relating to density of animals as regards the measure relating to natural handicaps;— the commitments relating to the agro-environmental measure were not checked in any of the agricultural parcels;— the review of the commitment relating to the use of fertilisers was not sufficient, for the check was purely visual.

Procedure and forms of order sought

10By application lodged at the Court Registry on 12 July 2013, the Republic of Lithuania brought the present action.

11The Republic of Lithuania claims that the Court should:— annul the contested decision in that it excludes from Community financing certain expenditure which it incurred under EAFRD;— order the Commission to pay the costs.

12The Commission contends that the Court should:— dismiss the action;— order the Republic of Lithuania to pay the costs.

Law

13In support of its action, the Republic of Lithuania puts forward five pleas in law. The first two pleas in law concern the measure relating to natural handicaps. The first plea alleges an infringement of Articles 10 and 15 of Commission Regulation (EC) No 1975/2006 of 7 December 2006 laying down detailed rules for the implementation of Council Regulation (EC) No 1698/2005, as regards the implementation of control procedures as well as cross-compliance in respect of rural development support measures (OJ 2006 L 368, p. 74), and of Article 48 of Commission Regulation (EC) No 1974/2006 of 15 December 2006 laying down detailed rules for the application of Council Regulation (EC) No 1698/2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) (OJ 2006 L 368, p. 15). The second plea alleges an infringement of Article 31(2) of Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural policy (OJ 2005 L 209, p. 1) and of the principle of proportionality.

14The other pleas in law relate to the agro-environmental measure. The third plea in law, alleging an infringement of Article 14(2) of Regulation No 1975/2006, Article 48(1) of Regulation No 1974/2006 and Article 29 of Commission Regulation (EC) No 796/2004 of 21 April 2004 laying down detailed rules for the implementation of cross-compliance, modulation and the integrated administration and control system provided for in Council Regulations (EC) No 1782/2003 and (EC) No 73/2009, and the cross compliance provided for in Council Regulation (EC) No 479/2008 (OJ 2008 L 141, p. 18), concerns the control of the commitments in all of the packages. The fourth and fifth pleas in law, alleging, first, an infringement of Article 10 of Regulation No 1975/20006 and, secondly, an infringement of Article 31(2) of Regulation No 1290/2005 and the principle of proportionality, concern checking the commitments in relation to the use of fertilisers.

The first plea in law, alleging an infringement of Articles 10 and 15 of Regulation No 1975/2006 and of Article 48 of Regulation No 1974/2006, concerning the control of the density of animals criterion…

The legislation regarding controls…

The interpretation of the legislation regarding controls…

The second plea in law, alleging an infringement of Article 31(2) of Regulation No 1290/2005 and of the principle of proportionality…

Legal context of the financial penalties…

The effectiveness of control measures implemented by the Lithuanian authorities…

The third plea in law, alleging infringement of Article 14(2) of Regulation No 1975/2006, Article 48(1) of Regulation No 1974/2006 and Article 29 of Regulation No 796/2004…

The fourth plea in law, alleging infringement of Article 10 of Regulation No 1975/2006…

The fifth plea in law, alleging infringement of Article 31(2) of Regulation No 1290/2005 and of the principle of proportionality

108The Republic of Lithuania challenges the imposition of a financial correction of 5% to the agro-environmental measures concerned by the criterion of use of fertilisers, based on the Commission’s finding that the visual controls carried out were insufficient. It claims that the financial correction of 5% is disproportionate in the light of the alleged infringement, and exceeds what is appropriate and necessary in order to protect the financial interests of the European Union.

109The Republic of Lithuania maintains that, in its report, the conciliation body expressed doubts concerning the merits of the financial correction of 5%. The retroactive controls showed that there was not one single infringement, so that the alleged infringement created a limited risk for the EAFRD.

110It is to be noted that, according to Article 31(2) of Regulation No 1290/2005, the Commission is to assess the amounts to be excluded from Community financing, by taking account, first, of the nature and gravity of the infringement and, secondly, of the financial damage caused to the European Union.

111In that regard, Document No VI/5330/97 provides for a financial correction of 5% when all key controls are applied, but fails to respect the number, frequency or the depth required by the regulation, and it can thus reasonably be concluded both that those controls do not provide the expected degree of assurance that claims are regular and that the risk of loss to the EU budget is significant.

112In the present case, concerning, in the first place, the nature and gravity of the infringement, the Commission correctly maintains that, when the controls of the criterion relating to the use of fertilisers are only visual, that deficiency must be regarded as affecting an essential element of the control, which may in principle justify a financial correction of 5%, in accordance with Document No VI/5330/97 (see paragraph 111 above).

113Moreover, as the Commission observes, that flat-rate correction was applied only to measures concerned by the criterion relating to the use of fertilisers. That is apparent from the summary report and is not disputed by the applicant.

114However, concerning, in the second place, the seriousness of the financial risk represented by the deficiency of control of the measures affected by the criterion relating to the use of fertilisers, it is necessary to check whether the Commission could correctly have considered that that deficiency represented a risk of significant losses for the European Union budget, in accordance with Document No VI/5330/97 (see paragraph 111 above).

115According to the case-law, although it is for the Commission to prove that EU rules have been infringed, once such an infringement is established it is for the Member State to demonstrate, if appropriate, that the Commission made an error as to the financial consequences to be attached to that infringement (judgment of 7 July 2005 in Greece v Commission, C‑5/03, ECR, EU:C:2005:426, paragraph 38).

116In the present case, the Republic of Lithuania, requested in writing by the Court to state, at the hearing, the nature of the more exhaustive controls carried out ex post facto, in order to check the reliability of the visual controls carried out in 2008 and 2009, explained that, following the recommendations made in the audit report sent to the Lithuanian authorities on 10 December 2009, the ex post controls had been carried out in accordance with the methods recommended by the Commission, by checking in particular the invoices and the accounting of 10% of the farmers concerned.

117The Commission has not disputed that the methods used during the ex post controls were compatible with its recommendations. It contended that those controls did not make good the initial deficiency.

118In so far as those controls ex post, based on a combination of methods, and carried out on 10% of the sample, did not lead to the finding of any infringement amongst the 215 applicants thus controlled (see paragraph 109 above), it must be held that the Republic of Lithuania has shown to the requisite legal standard that, in practice, the lack of cross-checks in conformity with EU legislation had created only a minor financial risk for the EU budget. According to the provisions of Document No VI/5330/97, that risk did not warrant the application of a financial correction of 5% with respect to the measures concerned, which is provided for solely when the risk of loss to the EU budget is significant.

119Therefore, the imposition of a financial correction of 5% with respect to the agro-environmental measures connected with the criterion relating to the use of fertilisers is contrary to Article 31(2) of Regulation No 1290/2005 and to the principle of proportionality.

120It must, therefore, be held that the fifth plea in law is well-founded. The action must be dismissed in so far as it is based on the four other pleas in law.

121It follows that the contested decision must be annulled, in so far as it imposes a financial correction of 5% with respect to the agro-environmental measures connected with the criterion relating to the use of fertilisers.

Costs

122Under the second paragraph of Article 87(2) of the Rules of Procedure, where there are several unsuccessful parties the Court is to decide how the costs are to be shared.

123In the present case, it must be held that each party is to bear its own costs.

Operative part

On those grounds,THE GENERAL COURT (Seventh Chamber)hereby:

1.Annuls Commission Implementing Decision 2013/214/EU of 2 May 2013 on excluding from European Union financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), under the European Agricultural Guarantee Fund (EAGF) and under the European Agricultural Fund for Rural Development (EAFRD) in so far as it imposes a financial correction of 5% with respect to the agro-environmental measures connected with the criterion relating to the use of fertilisers;

2.Dismisses the remainder of the action;

3.Orders the Republic of Lithuania and the European Commission to bear their own costs.

Delivered in open court in Luxembourg on 26 February 2015.