VeriGraft AB v European Innovation Council and SMEs Executive Agency (T-457/20)

Contents

Judgment of the General Court (Ninth Chamber)13 July 2022^note(Arbitration clause — ‘Horizon 2020 — Framework Programme for Research and Innovation’ (2014-2020) — Grant Agreement ‘Personalised Tissue-Engineered Veins as the first Cure for Patients with Chronic Venous Insufficiency — P‑TEV’ — Unforeseen subcontracting costs — Simplified approval procedure — Subcontracting mentioned in the periodic technical reports — Approved periodic technical reports — Eligible costs)In Case T‑457/20,VeriGraft AB, established in Gothenburg (Sweden), represented by P. Hansson and M. Persson, lawyers,vEuropean Innovation Council and SMEs Executive Agency (Eismea), represented by A. Galea, acting as Agent, and by D. Waelbroeck and A. Duron, lawyers,THE GENERAL COURT (Ninth Chamber),composed of M.J. Costeira, President, M. Kancheva (Rapporteur) and T. Perišin, Judges,Registrar: I. Pollalis, Administrator,having regard to the written part of the procedure and further to the hearing on 13 January 2022,gives the following

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

1By its action based on Article 272 TFEU, the applicant, VeriGraft AB, seeks a declaration: (i) that the subcontracting costs rejected by the Executive Agency for Small and Medium-sized Enterprises (EASME) constitute eligible costs under the Grant Agreement relating to the project ‘Personalised Tissue-Engineered Veins as the first Cure for Patients with Chronic Venous Insufficiency – P‑TEV’ (‘the P‑TEV project’), with reference 778620 (‘the Grant Agreement’); (ii) that debit note No 3242004635 issued by EASME in the amount of EUR 106 928.74 is unfounded; and (iii) that the recovery of the sum of EUR 109 230.19 from the guarantee fund set up by the Grant Agreement is also unfounded.

Background to the dispute

2The applicant is a Swedish biotechnology company founded in 2005 under the name NovaHep, specialising in the development of personalised human tissue-engineered transplants for use in regenerative medicine. Since August 2017, the applicant has been called VeriGraft.

3On 9 August 2017, the applicant and the European Union, represented by EASME, which became, as of 1 April 2021, the European Innovation Council and SMEs Executive Agency (Eismea), entered into the Grant Agreement (see paragraph 1 above). The Grant Agreement was concluded as an instrument to support innovation in small and medium-sized enterprises (SMEs) referred to in Article 22(2) of Regulation (EU) No 1291/2013 of the European Parliament and of the Council of 11 December 2013 establishing Horizon 2020 – Framework Programme for Research and Innovation (2014-2020) and repealing Decision No 1982/2006/EC (OJ 2013 L 347, p. 104) and defined in Council Decision 2013/743/EU of 3 December 2013 establishing the specific programme implementing [the Horizon 2020 Framework Programme] (2014-2020) and repealing Decisions 2006/971/EC, 2006/972/EC, 2006/973/EC, 2006/974/EC and 2006/975/EC (OJ 2013 L 347, p. 965).

4In accordance with Articles 2, 3, 4 and 5 of the Grant Agreement, the applicant was awarded a maximum grant of EUR 2 184 603.75 for the P‑TEV project, as described in Annex 1 to that agreement, and the implementation of that project was to begin on 1 September 2017 and last for 24 months. According to Article 5.2 of the Grant Agreement, the ‘grant reimburses 100% of the … eligible costs’.

5Article 20 of the Grant Agreement stated that the applicant was required to submit to EASME a technical report and a financial report for each reporting period. The action was divided into a first reporting period from month 1 to month 12 (‘RP1’) and a second reporting period from month 13 to month 24 (‘RP2’). The periodic technical report was to contain an explanation of the work carried out by the beneficiary of the grant, an overview of progress towards the objectives of the action, including the milestones and deliverables of the project identified in Annex 1 to the Grant Agreement, and explanations justifying the differences between work expected to be carried out in accordance with Annex 1 and that actually carried out. The financial report was to contain an individual financial statement detailing the eligible costs for each budget category and, in particular, an explanation of the use of resources and information on subcontracting for the reporting period concerned. In addition to the periodic report for the last reporting period, the beneficiary was to submit the final report within 60 days of the last reporting period. That final report was to contain a final technical report and a final financial report. The final financial report was to contain, inter alia, a final summary financial statement consolidating the individual financial statements for all reporting periods and including the request for payment of the balance.

6Article 21 of the Grant Agreement stated that the aim of pre-financing was to provide the beneficiary with a float and that it remained the property of the European Union until payment of the balance of the grant. The amount of pre-financing was EUR 1 092 301.88, from which an amount of EUR 109 230.19 was retained by EASME and transferred into a guarantee fund. Article 21 also stated that the amount of the balance was to reimburse the remaining part of the eligible costs incurred by the applicant for the implementation of the action. If, however, the total amount of earlier payments was greater than the final grant amount, the payment of the balance was to take the form of a recovery. It was stipulated that the balance was to be calculated by EASME by deducting the total amount of pre-financing and any interim payments already made from the final grant amount. At the time of payment of the balance, if the balance was positive, the amount retained for the guarantee fund was to be released and paid to the beneficiary. If, on the other hand, the balance was negative, thus taking the form of a recovery, it had to be deducted from the amount allocated to the guarantee fund. If the balance remained negative after deduction of the amount retained for the guarantee fund, the amount of the balance was to be recovered.

7Annex 1 to the Grant Agreement consists of two parts, Part A and Part B. Part A includes a brief summary of the P‑TEV project, a description of the beneficiaries and a description of the implementation of the action. Part B of Annex 1 contains a detailed description by the applicant of the P‑TEV project, the technique used, the ambitions of the project, its impact, its implementation, the members of the consortium, and ethics and security. Section 4.1 of Part B of Annex 1 to the Grant Agreement, entitled ‘Third parties involved in the project’, thus lists the subcontractors to be used for the project as well as the estimated budget for subcontracting. Section 4.1 also lists the tasks to be subcontracted.

8Section 4.1 of Part B of Annex 1 to the Grant Agreement included the description of seven tasks to be subcontracted either to the contract research organisation (CRO) active in Sweden, IRW Consulting AB (‘the CRO IRW’), or to the Department of Vascular Surgery in Oslo University Hospital (Norway). Accordingly, first, the CRO IRW was entrusted with tasks 1.3 ‘Data quality assurance, monitoring and auditing procedures’, 1.4 ‘Safety reporting to NoMA [(the Norwegian Medicines Agency)]’, 3.5 ‘Study monitoring, data collection and follow-up of patients’ and 3.6 ‘Data analysis, Clinical Trial Report and scientific paper development’. Secondly, the Department of Vascular Surgery at Oslo University Hospital was entrusted with tasks 3.2 ‘Subject recruitment and informed consent’, 3.3 ‘Preparation of personalised tissue-engineered veins’ and 3.4 ‘Surgery’. The total cost of those subcontractors was estimated at EUR 276425 (EUR 125372 for the Department of Vascular Surgery at Oslo University Hospital and EUR 151053 for the CRO IRW).

9By letter of 16 April 2018, the applicant notified EASME that it expected the Phase I safety studies in the project to be delayed, due to the necessary change of trial sites for clinical studies from Oslo University Hospital to trial sites located at Hospital de Valme in Seville (Spain) and at Kaunas Medical University Hospital (Lithuania), where preparations for Phase II efficiency trials were well underway. In that letter, the applicant asked for a change in the due date for deliverables within the Phase I study. A revised version of Annex 1 to the Grant Agreement, which included the change to the date of deliverables for the Phase I study, the change of trial sites, the change of name from NovaHep to VeriGraft and the change of collaboration partners, was enclosed with that letter (‘Revised Annex 1 to the Grant Agreement’).

10Part B of Revised Annex 1 to the Grant Agreement contained a revised list of tasks to be subcontracted, including new subcontractors in view of the change in trial sites for the Phase I clinical studies. The tasks listed in that part B of Revised Annex 1 to the Grant Agreement were the same as those in Part B of the original Annex 1 to that agreement. Each of those tasks was to be subcontracted to the Department of Vascular Surgery at Hospital de Valme, to the Department of Vascular Surgery at Kaunas Medical University Hospital or to the CRO IRW, Clinical Accelerator and Iniciativa Andaluza en Terapias Avanzadas (IATA). The total cost of those subcontractors had remained the same as in the original budget, at an estimated EUR 276425 (EUR 135372 for the Department of Vascular Surgery and EUR 141053 for the CRO).

11EASME approved the Revised Annex 1 to the Grant Agreement on 16 April 2018.…

13On 1 November 2018, the applicant submitted to EASME, pursuant to Article 20 of the Grant Agreement, the technical and financial reports for the P‑TEV project covering RP1.…

16By letter of 22 November 2018, EASME informed the applicant that, on the basis of the review report concerning RP1 drafted by external experts, EASME considered the project implementation to be satisfactory. It stated, however, that the experts’ assessment of the use of the resources did not imply acceptance of the corresponding costs by itself. It further stated in that regard that the eligibility of the costs claimed would be assessed by its services on the basis of the financial statements submitted by each beneficiary.…

20After the termination of the Grant Agreement, the applicant submitted to EASME the technical report and the financial report for RP2, which, in view of that termination, covered the period from 1 September 2018 to 17 April 2019.

21By letter of 7 August 2019, EASME informed the applicant that, in its view, based on the review report drafted by external experts concerning the periodic technical report for RP2, the implementation of the P‑TEV project was satisfactory, but that, since that project had been terminated, it did not recommend any changes to improve its implementation.…

25On 3 October 2019, the applicant sent EASME its use of resources report and final financial statements in the format laid down in Annex 4 to the Grant Agreement.…

27By letter of 14 November 2019, EASME sent the applicant a pre-information letter with a view to initiating the inter partes procedure set out in Article 44 of the Grant Agreement. In that letter, EASME informed the applicant that, since the latter had received payments exceeding the final grant amount, EASME intended to recover the difference partly from the applicant’s guarantee fund contribution, in the amount of EUR 109 230.19, and partly through a recovery procedure, in the amount of EUR 259 123.24. EASME also asked the applicant to submit to it its observations within 30 days and informed it that the deadline for payment of the balance of the grant would be suspended until the end of the inter partes procedure.…

31On 12 December 2019, the applicant submitted to EASME its observations on the pre-information letter of 14 November 2019. In its observations, the applicant challenged EASME’s assessment of certain subcontracting costs as ineligible, maintaining, in essence, that those costs were linked to subcontracting activities foreseen in Revised Annex 1 to the Grant Agreement, or to subcontracting activities which had been mentioned in the RP1 technical report and approved by EASME.…

33By letter of 6 March 2020, EASME informed the applicant that, as explained in the list of arguments enclosed with that letter, it had accepted some of the applicant’s explanations and had adapted its calculations accordingly. EASME then stated that, since the applicant had received payments which exceeded the final amount of the grant, it was going to recover the difference by using the applicant’s guarantee fund contribution, in the amount of EUR 109 230.19, and by recovering the rest, in the amount of EUR 106 928.74, through the debit note enclosed with that letter. EASME also stated that, if payment was not received by the date set out in that debit note, the applicant would be liable for late-payment interest and that EASME would enforce its claim by using one of the procedures provided for in the Grant Agreement, for example, by offsetting the debt or by adopting an enforceable decision. A document entitled ‘Division of final grant amount table,’ was also enclosed with the letter in question.

34The ‘List of arguments’ enclosed with the letter of 6 March 2020 read:‘1. List of arguments1) [EU finding No 1]EASME rejected subcontracting costs for trial sites, for which the amendment has been signed in April 2018.The argument of the beneficiary is false. The beneficiary initiated the amendment after the first ethical check, where the ethical committee raised the issue of change of sites and therefore the [Project Officer] requested from the beneficiary to introduce an amendment. EASME did not reject the costs because they were not incurred. The costs that are rejected concern the tasks 1.1, 2.1, 2.3, 2.4, 3.1 and 3.6 related to the subcontracting that were not foreseen in the Description of the Action.…2. ConclusionThe reasons of the beneficiary are partially accepted. Recovery order in the amount of EUR 106 928.74.’…

36On 9 April 2020, EASME sent the applicant debit note No 3242004635, setting it a deadline of 25 May 2020 to pay the sum of EUR 106 928.74. Enclosed with that debit note was a table showing the calculation of the balance of the grant yet to be paid.

37On 11 May 2020, EASME re-sent to the applicant the letter of 6 March 2020, together with its two annexes and the debit note of 9 April 2020.…

Facts subsequent to the bringing of the action

40By judgment of 2 March 2022, VeriGraft v Eismea (T‑688/19, EU:T:2022:112), the Court upheld the applicant’s action in Case T‑688/19 and, consequently, declared that the termination of the Grant Agreement was invalid.

Forms of order sought

41The applicant claims that the Court should:– find and declare that EASME’s recovery order concerning costs amounting in total to EUR 258 588.80 is invalid;– find and declare that the costs rejected by EASME (in whole or in part) amounting in total to EUR 258 588.80 constitute eligible costs;– find and declare that EASME’s debit note for EUR 106 928.74 is invalid;– order EASME to pay the costs.

42Eismea contends that the Court should:– dismiss the action as unfounded;– order the applicant to pay the costs.

Law

43In support of its first three heads of claim, the applicant puts forward three pleas in law. The first plea alleges infringement of the right to good administration, enshrined in Article 41 of the Charter of Fundamental Rights of the European Union (‘the Charter’), in that the recovery order issued by EASME does not explain why the costs submitted by the applicant were rejected by EASME. The second plea alleges infringement of Article 6 of the Grant Agreement, in that EASME wrongly considered that the subcontracting costs submitted by the applicant were not eligible costs within the meaning of that provision. The third plea alleges infringement of the principle of the protection of legitimate expectations, in that EASME gave the applicant assurances as to the eligibility of the subcontracting costs which it subsequently rejected.

44Furthermore, in support of its third head of claim, the applicant raises a fourth plea, alleging that the costs which it incurred in continuing the P‑TEV project after the unlawful termination of the Grant Agreement exceeded the amount that EASME sought to recover through the debit note.

45It should be noted that, as is apparent from the application, the expression ‘recovery order’ mentioned in the first head of claim refers to EASME’s letter of 11 May 2020 in which EASME stated that the applicant had received payments exceeding the final grant amount and that, consequently, it intended to recover the difference from, first, the applicant’s guarantee fund contribution, in the amount of EUR 109 230.19, and, secondly, the debit note enclosed with that letter, in the amount of EUR 106 928.74.

46It is also apparent from the annexes to the letter of 11 May 2020 that the difference between the sums already paid to the applicant under the grant and the final grant amount accepted by EASME results from the rejection of the subcontracting costs which were not specified in the Grant Agreement.

47Furthermore, by its second and third heads of claim, the applicant asks the Court to find, respectively, that the subcontracting costs in question are eligible costs amounting to EUR 258 588.80 and that the debit note enclosed with the letter of 11 May 2020 is invalid.

48It follows that the applicant’s first three heads of claim must be regarded as seeking a declaration from the Court that: (i) the subcontracting costs rejected by EASME constitute eligible costs under the Grant Agreement; (ii) debit note No 3242004635 issued by EASME in the amount of EUR 106 928.74 is, consequently, unfounded; and (iii) recovery of the sum of EUR 109 230.19 from the guarantee fund established by the Grant Agreement is also, as a result, unfounded.

The first plea, relating to the right to good administration, enshrined in Article 41 of the Charter, in that the recovery order issued by EASME does not explain why the costs submitted by the applicant were rejected

49The applicant claims that the statement of reasons provided by EASME in the list of arguments enclosed with the letter of 11 May 2020 is too sparse to enable it to determine which costs were rejected by EASME and why those costs were rejected, which constitutes an infringement of the obligation to state reasons laid down in Article 41 of the Charter. The applicant states in this regard that EASME also failed to provide it with that information during the inter partes procedure.

50Eismea challenges the applicant’s arguments.

51In that regard, it should be recalled that, under Article 41(2)(c) of the Charter, the administration is obliged to give reasons for its decisions.

52Consequently, the Court has already had occasion to hold that the Charter, which forms part of primary law, provides, in Article 51(1), without exception, that its provisions ‘are addressed to the [EU] institutions, bodies, offices and agencies … with due regard for the principle of subsidiarity’ and that, therefore, fundamental rights are designed to preside over the exercise of the powers conferred on the EU institutions, including in contractual matters (see, to that effect, judgments of 3 May 2018, Sigma Orionis v Commission, T‑48/16, EU:T:2018:245, paragraphs 101 and 102, and of 3 May 2018, Sigma Orionis v REA, T‑47/16, not published, EU:T:2018:247, paragraphs 79 and 80; see also, by analogy, judgment of 13 May 2020, Talanton v Commission, T‑195/18, not published, EU:T:2020:194, paragraph 73).

53Similarly, when the EU institutions, bodies, offices and agencies perform a contract, they remain subject to their obligations under the Charter and the general principles of EU law (see, to that effect, judgment of 16 July 2020, ADR Center v Commission, C‑584/17 P, EU:C:2020:576, paragraph 86).

54The Court of Justice has also held that, if parties were to decide, in their contract, to confer on the EU Courts, by means of an arbitration clause, jurisdiction over disputes relating to that contract, those Courts would have jurisdiction, independently of the applicable law stipulated in that contract, to examine any infringement of the Charter or of the general principles of EU law (judgment of 16 July 2020, Inclusion Alliance for Europe v Commission, C‑378/16 P, EU:C:2020:575, paragraph 81).

55Furthermore, it should be pointed out that the EU institutions, bodies, offices and agencies are not entirely comparable to private parties to a contract when they act in contractual matters. Thus, first, the grants awarded by them draw on EU public funds, with the result that, when awarding such grants, the EU institutions, bodies, offices and agencies remain bound, in particular, by the budgetary requirements arising from Article 317 TFEU and the financial rules laid down in that regard by the Financial Regulation applicable. Secondly, in the presence of a contract containing, as in the present case, an arbitration clause conferring jurisdiction on the EU Courts, in particular, the Commission has exorbitant prerogatives under ordinary law enabling it to formalise a finding of a contractual claim by unilaterally adopting, on the basis of Article 79(2) of Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002 (OJ 2012 L 298, p. 1) (‘the Financial Regulation’), an enforceable recovery order under Article 299 TFEU, the effects and binding force of which derive from those provisions (see, to that effect, judgment of 16 July 2020, ADR Center v Commission, C‑584/17 P, EU:C:2020:576, paragraphs 68 to 70 and 73). In addition, it must be held that, under the second subparagraph of Article 108(1) of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (OJ 2002 L 248, p. 1), and the second subparagraph of Article 121(1) of Regulation No 966/2012, a grant may be awarded either by means of a written agreement or by means of a Commission decision notified to the beneficiary. Thus, the EU legislature has provided that a grant may be awarded both by contract and by administrative procedure. However, the EU institutions, bodies, offices and agencies cannot, at their discretion, avoid their obligations under primary law, including the Charter, on the basis of their choice to award grants by agreement rather than by decision (judgment of 24 February 2021, Universität Koblenz-Landau v EACEA, T‑606/18, not published, EU:T:2021:105, paragraph 31).

56The extent of the obligation to state reasons must be assessed depending on the specific circumstances including, inter alia, the content of the measure, the nature of the reasons given and the interest which the addressee of the measure may have in obtaining explanations, and it is important, in order to assess whether reasons have been sufficiently stated, to place it in the factual and legal context in which the measure in question was adopted. Thus, the reasons given for a measure are sufficient if that measure was adopted in a context which was known to the addressee concerned and which enables him or her to understand the scope of the measure concerning him or her (see, by analogy, judgments of 15 November 2012, Council v Bamba, C‑417/11 P, EU:C:2012:718, paragraphs 53 and 54 and the case-law cited; of 24 October 2011, P v Parliament, T‑213/10 P, EU:T:2011:617, paragraph 30; and of 27 September 2012, Applied Microengineering v Commission, T‑387/09, EU:T:2012:501, paragraphs 64 to 67).

57The applicant claims that the letter sent to it by EASME on 11 May 2020 and the list of arguments enclosed with it did not enable it to understand which costs had been refused and why those costs had been refused by EASME.

58In that regard, it should be noted that the applicant does not dispute that the document entitled ‘Financial Statement Assessment Sheet’ enclosed with the pre-information letter of 14 November 2019 initiating the inter partes recovery procedure provided for in Article 44 of the Grant Agreement indicated that the rejected costs represented direct costs of subcontracting and that the reason for that rejection was that they were unforeseen subcontracting costs that had been rejected by the Project Officer (see paragraph 29 above).

59In addition, in its observations of 12 December 2019 on the pre-information letter of 14 November 2019, the applicant challenged EASME’s assessment of certain subcontracting costs as ineligible, maintaining, in essence, that those costs were linked to subcontracting activities foreseen by Revised Annex 1 to the Grant Agreement or to subcontracting activities which had been mentioned in the RP1 technical report and approved by EASME (see paragraph 31 above).

60Furthermore, the applicant itself admits that, after contacting EASME in order to obtain additional information on how the rejected costs had been calculated in the letter initially sent to it on 6 March 2020 and subsequently re-sent to it on 11 May 2020, it had received on 24 March 2020, from a financial officer of EASME, a PDF file entitled ‘Subcontracting’ in which the rejected subcontracting costs were specifically identified (see paragraph 35 above). It was apparent from that table that, following the applicant’s observations, EASME had finally accepted certain subcontracting costs, namely those relating to subcontracting activities mentioned in Part B of Revised Annex 1 to the Grant Agreement.

61In those circumstances, it must be held that, although succinct, the statement of reasons contained in the document ‘List of arguments’ enclosed with the letter of 11 May 2020, according to which ‘EASME did not reject the costs because they were not incurred[; t]he costs that are rejected concern the tasks 1.1, 2.1, 2.3, 2.4, 3.1 and 3.6 related to the subcontracting that were not foreseen in the Description of the Action’, was sufficient to enable the applicant to determine which costs had been rejected, namely the subcontracting costs related to tasks 1.1, 2.1, 2.3, 2.4, 3.1 and 3.6, and the reason for that rejection, namely that those costs were linked to subcontracting activities which were not mentioned in Part B of Revised Annex 1 to the Grant Agreement.

62It follows that the first plea must be rejected as being unfounded.

The second plea, alleging infringement of Article 6 of the Grant Agreement, in that EASME wrongly considered that the subcontracting costs submitted by the applicant were not eligible costs within the meaning of that provision

63The applicant notes that EASME rejected all subcontracting costs not listed in the table set out under the heading ‘Tasks to be subcontracted’ in Section 4.1 of Part B of Annex 1 to the Grant Agreement. According to the applicant, that rejection is contrary to the provisions of the Grant Agreement.

64In the first place, the applicant claims that the subcontracting costs rejected by EASME are all due to the change in clinical trial sites from Norway to Lithuania and Spain, which was itself approved by EASME in so far as it was mentioned in Revised Annex 1 to the Grant Agreement. The applicant claims that, prior to the request for amendment of the Grant Agreement, it had reported to EASME the consequences of the change of the clinical trial site and that it had, inter alia, described the subcontractors and the tasks which those subcontractors were going to perform. According to the applicant, those tasks included contract manufacturing preparation, preparation of an expanded set of regulatory documentation and the monitoring of clinical trials and vascular surgery. The applicant also notes that all subcontractors, with the exception of Research Institutes of Sweden (‘RISE’), are also listed in Revised Annex 1 to the Grant Agreement, and that, in its letter of 11 May 2020, EASME questioned neither that the rejected costs had in fact been incurred nor that they were justified. It follows that those subcontracting costs are eligible costs within the meaning of Article 126 of Regulation No 966/2012, to which Article 26 of the Rules for participation in Horizon 2020 grants refers, and that the rejection of those costs by EASME is therefore contrary to the Grant Agreement.…

71In the second place, the applicant claims that, in any event, the changes in project structure and subcontracting were also reported in the periodic technical reports for RP1 and RP2, in which it had also specified the work conducted and the resources used in relation to each task. The applicant states that those periodic technical reports were reviewed by the Project Officer, as well as by an external reviewer whom EASME dedicated to the project, and that the report and project implementation have been approved. Having regard to the approval of the periodic technical reports, the subcontracting costs should be considered eligible, in accordance with the simplified approval procedure provided for in Article 13.1.1 of the Grant Agreement explained in the annotated model Grant Agreement for the Horizon 2020 Programme, which was available to all contractors (‘the AGA’). The applicant adds that it shares the opinion of Eismea that the simplified approval procedure concerns only the fact that a task has been subcontracted, and that the subcontracting costs associated with that task will still have to comply with the legal conditions in order to be considered eligible. However, it notes that EASME has always argued that the reason why EASME rejected certain costs was not because the costs had not been incurred, but because they had been subcontracted, which had not been mentioned in the Grant Agreement or its amendments. According to the applicant, since EASME approved the periodic technical reports, it also approved the subcontracting of the tasks specified therein. Accordingly, it argues that, had those costs not complied with the requirements in Article 126 of the Financial Regulation, they would certainly have been rejected, but that was not the case here.…

73Eismea challenges the applicant’s arguments.

74First, Eismea contends that it does not dispute that EASME approved the change of clinical trial sites by an amendment to the Grant Agreement dated 16 April 2018, or that that amendment provided for the use of subcontractors in the general sense. However, Eismea contends that it cannot follow that EASME considered that all the costs associated with that change of trial sites, and more particularly those related to subcontracting, were eligible, since they still needed to meet the conditions set out in Article 126 of Regulation No 966/2012, to which reference is made in Article 26 of the Rules for participation in Horizon 2020 grants.

75Eismea argues in this regard that the rejected subcontracting costs corresponded to tasks which had not been foreseen as subcontracted tasks in Part B of Revised Annex 1 to the Grant Agreement and were not set out in Annex 2 to that agreement, contrary to Article 13.1.1 thereof. Eismea takes the view that, in those circumstances, EASME objectively assessed that those costs did not meet the conditions in Article 6.1(a)(iii) and (iv), Article 6.2B (Direct costs of subcontracting) and Article 13.1.1 (Rules for subcontracting action tasks) of the Grant Agreement.…

80Secondly, Eismea contends that the applicant cannot rely on the fact that the rejected subcontracting costs had been mentioned in the periodic technical reports for RP1 and RP2, in order to claim that those costs should have been considered eligible. Eismea thus argues that the accelerated approval procedure in Article 13.1.1, by which a beneficiary does not make a formal amendment, but rather includes subcontracted tasks in a technical report, does not mean that the assessment of eligible costs in accordance with the conditions laid down in the Financial Regulation and the Grant Agreement will not be carried out or that the costs will be accepted automatically. According to Eismea, the simplified procedure relates only to the presentation of the fact that a task was subcontracted, since the new costs presented will still have to comply with the legal conditions in order to be eligible. Consequently, EASME’s approval of the applicant’s periodic technical reports merely indicated that EASME had acknowledged that a subcontractor was used, but had assessed the costs separately in the light of the eligibility criteria and had not considered them to be eligible. Eismea refers in this regard to the AGA, from which it is apparent that approval is left entirely to the agency and cannot be automatically granted, and that beneficiaries using that accelerated procedure bear the full risk of non-approval and rejection of costs by the agency.…

82Thirdly, Eismea notes that the European Union can subsidise only expenses which have actually been incurred. Accordingly, in Eismea’s view, in order for the European Union to be able to carry out checks, the beneficiaries of such support must show that the costs attributed to subsidised projects are genuine. The provision by the beneficiaries of reliable information is indispensable for the successful operation of the system of control and evidence established in order to check whether the conditions for the grant of financial support are met. The applicant’s failure to define correctly the precise tasks that would be subcontracted and the amount of the costs of that subcontracting therefore constituted, according to Eismea, a serious failure on the part of the applicant, hindering EASME’s ability to carry out the proper checks and to have the adequate level of oversight regarding the use of public money that the EU system of financial support requires. EASME’s rejection of those costs was therefore entirely foreseeable and, in any event, justified under the Grant Agreement. In that regard, Eismea states that it was not aware of the accounting report, attached by the applicant to the reply, and that that report was never provided to it. Eismea states that it is for that reason not in a position to comment on that report, but notes that the applicant fails to demonstrate that it sent that report to Eismea or to show what impact it is supposed to have in this case.

83In that regard, it should be noted that, in accordance with Article 5.2 of the Grant Agreement, the grant reimburses 100% of the eligible costs of the action. Under that same provision, eligible costs must be declared, for direct costs for subcontracting, as actually incurred costs (‘actual costs’).

84Article 6.1 of the Grant Agreement lays out the general conditions for actual costs to be regarded as eligible costs. In accordance with that provision, in order for actual costs to be considered eligible, they must: (i) be actually incurred by the beneficiary during the implementation period; (ii) be indicated in the estimated budget set out in Annex 2; (iii) be incurred in connection with the action as described in Annex 1 and necessary for its implementation; (iv) be identifiable and verifiable; and, in particular, (v) be recorded in the beneficiary’s accounts in accordance with the accounting standards applicable in the country where the beneficiary is established and with the beneficiary’s usual cost accounting practices; (vi) comply with the applicable national law on taxes, labour and social security; (vii) be reasonable and justified; and (viii) comply with the principle of sound financial management, in particular regarding economy and efficiency.

85Article 6.2 of the Grant Agreement provides that certain categories of costs, including ‘direct costs of subcontracting’, are eligible if they fulfil not only the general conditions laid down in Article 6.1 of that agreement, but also certain specific conditions. Under Article 6.2 of the Grant Agreement, direct subcontracting costs are eligible if the conditions laid down in Article 13.1.1 of that agreement are met.

86Under Article 13.1.1 of the Grant Agreement, if necessary to implement the action, the beneficiary may award subcontracts covering the implementation of certain action tasks described in Annex 1 while ensuring the best value for money or, if appropriate, the lowest price, and avoiding any conflict of interests. It is also stated that subcontracting may cover only a limited part of the action. As regards the manner in which the use of subcontracting must be presented in the Grant Agreement, Article 13.1.1 provides that ‘the tasks to be implemented and the estimated cost for each subcontract must be set out in Annex 1 and the total estimated costs of subcontracting must be set out in Annex 2’. Under Article 13.1.1 of that agreement, ‘the Agency [in this case, EASME] may however approve subcontracts not set out in [Annexes] 1 and 2 without amendment’ if they are specifically justified in the periodic technical report and do not entail changes to the agreement which would call into question the decision awarding the grant or breach the principle of equal treatment of applicants.

87It should be noted that, as is apparent from the list of arguments enclosed with the letter of 11 May 2020, EASME rejected certain subcontracting costs on the ground that they were related to the subcontracting of tasks that were not foreseen to be subcontracted in the description of the action. Eismea specified the subcontracting costs in question in Table 3 of the defence, reproduced below:No. | Subcontractor | Description of Action | Amount (EUR)Reporting Period 1 | Amount (EUR)Reporting Period 2 | Task foreseen to be subcontracted in Annex 1? | Costs accepted/rejected?1 | Research Institutes of Sweden (RISE) | Task 2.3 and task 2.4GMP Process scale-up support, QC Improvement | 21 146.00 | | No | Rejected2 | RISE | Task 1.1Regulatory support | 4 339.00 | | No | Rejected3 | Clinical Accelerator | Task 1.1Additional regulatory interactions due to change of sites | | 976.00 | No | Rejected4 | RISE | Task 2.4QC improvement | 37 835.00 | | No | Rejected5 | UAB Froceth | Task 2.1Process validation, GMP certification | 13 143.70 | | No | Rejected6 | Clinical Accelerator | Task 1.1Preparations in Lithuania for Phase I trial. Regulatory interaction support. Applications for clinical trial, preparation of data collection and processing for clinical trial | 1 198.00 | 5 212.00 | No | Rejected7 | RISE | Task 1.1According to reports from IATA, AEMPS is expected to require more long-term large animal data to approve a phase 1/2 study for ATMP development with the option to continue into a larger phase 2 study. For that reason, a long-term large animal study of P‑TEV was initiated in task 1.1 together with tasks 2.3 and 2.4. Additional regulatory data preparation and quality assurance. 10% Although unforeseen in the application, this is a direct consequence of the amendment in the clinical trial program. | | 14 116.90 | No | Rejected8 | RISE | Task 2.3Additional regulatory data preparation and process adjustments. 10% Although unforeseen in the application, this is a direct consequence of the amendment in the clinical trial program. | | 14 116.90 | No | Rejected9 | RISE | Task 2.4Additional regulatory data preparation and quality control. 80% Although unforeseen in the application, this is a direct consequence of the amendment in the clinical trial program. | | 112 935.20 | No | Rejected10 | IATA | Task 2.1Process validation under GMP. The addition of a Spanish CRO/CMO became necessary due to the amendment in the clinical trial program. | | 27 881.60 | No | Rejected11 | IATA | Task 3.1Training. Due to the amendment in the clin[i]cal trial program, training at the Spanish site had to be added. | | 5 454.50 | No | Rejected12 | Clinical Accelerator | Task 3.1Training costs. Additional training at the new sites became necessary due to the amendment in the clinical trial program | | 234.00 | No | Rejected| SUM | | 77 661.70 | 180 927.10 | || TOTAL | 258 588.80 | |

88In that regard, it should be noted that, although the applicant maintains that that table contains an error as to the identity of the subcontractor mentioned in entry 6, which is IATA and not Clinical Accelerator, it is common ground between the parties that the subcontracting costs rejected by EASME relate to subcontracting activities which were not mentioned in Revised Annex 1 to the Grant Agreement, and that the costs in question were also not mentioned as direct subcontracting costs estimated in Annex 2 to that agreement.

89It is also common ground between the parties that, first, the amendment to the Grant Agreement was intended to draw inferences from the change of clinical trial sites from Norway to Spain and Lithuania and, secondly, that amendment was requested by the applicant.

90In those circumstances, the applicant cannot claim that the subcontracting costs rejected by EASME ought to have been regarded as eligible on the ground that EASME approved the amendment to Annex 1 to the Grant Agreement on 16 April 2018 and that it was aware of the implications that the change of clinical trial sites would have for the need to use subcontractors to implement the P‑TEV project, or that the subcontracting costs in question were intrinsically linked to the change of clinical trial sites.

91It was for the applicant to include in Annex 1 and Annex 2 to the Grant Agreement the amendments which it considered necessary in order to take account of the change of clinical trial sites before they were approved by EASME.

92However, it is necessary to determine whether, as the applicant claims, EASME was wrong to reject certain subcontracting costs on the ground that they were related to the subcontracting of tasks that were not foreseen to be subcontracted in Revised Annex 1 to the Grant Agreement and were not mentioned as such in Annex 2 to that agreement, even though the use of that subcontracting was justified in the periodic technical reports for RP1 and RP2, which were approved by EASME.

93In that regard, it is apparent from a combined reading of Tables 3 (see paragraph 87 above) and 1 (reproduced below) provided by Eismea that the subcontracting costs rejected by EASME correspond to tasks which had not been foreseen as subcontracting tasks in Revised Annex 1 to the Grant Agreement, but were mentioned in the periodic reports for RP1 and RP2, which Eismea itself acknowledged at the hearing.Task | Foreseen to be subcontracted in Original Annex 1 | Foreseen to be subcontracted in Amended Annex 1 | Claimed in Applicant’s Termination report (RP1 and RP2 consolidated) | Accepted?1.1: Various regulatory body discussions and support | Not foreseen to be subcontracted. | Not foreseen to be subcontracted. | RISE, IATA, Froceth, Clinical Accelerator: EUR 25 841.90 | No1.3: Data quality assurance, monitoring and auditing procedures | CRO: EUR 25000 | CRO:No amount stated. | Clinical Accelerator, IRW: EUR 18 561.40 | Yes1.4: Safety reporting to the authorities | CRO: EUR 26053 | CRO:No amount stated. | IRW: EUR 1 195.90 | Yes2.1: Process validation | Not foreseen to be subcontracted. | Not foreseen to be subcontracted. | UAB Froceth, IATA: EUR 41 025.30 | No2.3: GMP Process scale-up support | Not foreseen to be subcontracted. | Not foreseen to be subcontracted. | RISE: EUR 14 116.90 | No2.4: QC improvement | Not foreseen to be subcontracted. | Not foreseen to be subcontracted. | RISE: EUR 150 770.20 | No2.3 and 2.4: GMP Process scale-up support, QC Improvement | Not foreseen to be subcontracted. | Not foreseen to be subcontracted. | RISE: EUR 21 146.00 | No3.1: Training of trial staff | Not foreseen to be subcontracted. | Not foreseen to be subcontracted. | Clinical Accelerator, IATA: EUR 5 688.50 | No3.2: Subject recruitment and informed consent | Department of Vascular Surgery: EUR 5372 | Department of Vascular Surgery No amount stated. | Clinical accelerator: EUR 1 418.00 | Yes3.3: Preparation of personalised tissue engineered veins | Department of Vascular Surgery: EUR 110000 | Department of Vascular Surgery No amount stated. | Froceth, Clinical accelerator: EUR 119 484.10 | Yes3.4: Surgery | Department of Vascular Surgery: EUR 5000 | Department of Vascular SurgeryNo amount stated. | Clinical Accelerator, IRW: EUR 9 402.40 | Yes3.5: Study monitoring, data collection and follow-up of patients | CRO: EUR 50000Department of Vascular Surgery: EUR 5000 | CRO:Department of Vascular Surgery No amount stated. | Clinical Accelerator, IRW: EUR 23 004.52 | Yes3.6: Data analysis, Clinical Trial Report and scientific paper development | CRO:EUR 50000 | CRONo amount stated. | Clinical Accelerator, IRW: EUR 3 707.88 | YesTotal all subcontracting | EUR 276,425(estimated for entire project) | EUR 276,425(estimated for entire project) | EUR 435,363.00(claimed across RP1 and RP2) | Total accepted costs: EUR 176 774.20

94It should also be noted that the applicant provided the reasons for using that subcontracting in the periodic technical reports for RP1 and RP2.…

97The applicant further set out and explained the following, in relation to deviations made to the original project plan:‘5. Deviations from Annex 1 and Annex 2 (if applicable)Originally, the plan was to perform a Phase 1/II clinical trial for safety and efficacy of the P‑TEV product in the ESS country Norway. GMP manufacturing was planned to be done by VeriGraft personnel at a GMP facility at Sahlgrenska University Hospital.The clinical development plans had to be adjusted. Now, a Phase I clinical trial for the safety of the P‑TEV product has been set up in the EU [Member State] Lithuania. Manufacturing under GMP has been set up with a CMO in Lithuania under VeriGraft’s quality management system and supervision.In parallel, a separate Phase II trial to demonstrate efficacy of the P‑TEV product is being set up in Spain using the established pan-European network described in T4.2. The Phase II trial will start once reliable positive safety data becomes available from the Phase I trial.VeriGraft will continue to work with ethical and regulatory documents and approvals for the Phase II trial in Spain while the Phase I trial in Lithuania is progressing.The change of structure for the P‑TEV product clinical development program and change of site for the first trial has led to delays in WP3. In addition, more extensive preclinical testing and a new set of regulatory documents and applications became necessary, before a first-in-human trial can be initiated.…5.2.1 Unforeseen subcontracting (if applicable)When this project was originally designed and applied for, our preliminary plan was to produce the material in Sweden or Norway using VeriGraft’s own personnel. Therefore, we budgeted only a small amount for GMP-production of P‑TEV as subcontracting. However, as described elsewhere including in this report we have got a change of clinical trial site approved by EASME. Since the best strategy for our project is to produce the clinical material as close to the surgical theatres as possible, we have now an agreement with a Lithuanian CRO (Phase I trial) and with a Spanish CRO (for the Phase II trial). This led us to include these two new subcontracting organisations for GMP-production, the SME Froceth in Lithuania and the non-for-profit regional organisation IATA in Spain in our project plans going forward. Importantly, Froceth and IATA will use their own personnel to carry out the manufacturing. In addition to this, we have also teamed-up with UK-based Clinical Accelerator that helps us coordinate the Lithuanian Phase I study. This CRO has the necessary network and experience from the Lithuanian health care sector to be able to successfully initiate this important Phase I trial.The three organisations mentioned above are all European specialised small entities. They are carefully selected to be optimal partners for the specific tasks they are carrying out. In addition to that, we have meticulously negotiated the price for their services, and to the best of our knowledge and investigations we could not find a quality-wise equal partner that could compete with a lower price.’…

105It must be borne in mind that, under Article 13.1.1 of the Grant Agreement, EASME may approve subcontracts not set out in Annexes 1 and 2 without amendment, if they are specifically justified in the periodic technical report and do not entail changes to the agreement which would call into question the decision awarding the grant or breach the principle of equal treatment of applicants.

106That procedure is described in the AGA as the simplified approval procedure. The AGA states that the new subcontracting agreement which was not described in the Grant Agreement must be included and explained in the ‘Unforeseen subcontracting’ section of the periodic technical report and that approval will not be granted if the subcontract could substantially alter the nature of the project, that is to say, if there is doubt that the project is still, in essence, the same as the one selected or that the beneficiary still has the operational capacity to carry out the action. In that regard, the AGA contains an example of simplified approval, which is presented as follows:‘A beneficiary loses some personnel specialised in a particular field, and as a result decides to subcontract some tasks it had originally foreseen to carry out itself. The beneficiary fails to inform the coordinator of this fact and therefore the [Grant Agreement] is not amended. These circumstances are declared in the periodic report and it is approved by the Commission.’

107Furthermore, under Article 4.2 of the Grant Agreement, ‘the estimated budget breakdown indicated in Annex 2 may be adjusted by transfers of amounts between budget categories. This does not require an amendment [of the Grant Agreement] according to Article 55, if the action is implemented as described in Annex 1’. Article 4.2 of the Grant Agreement provides, however, that ‘the beneficiary may not add costs relating to subcontracts not provided for in Annex 1, unless such additional subcontracts are approved by an amendment [to the Grant Agreement] or in accordance with Article 13’.

108In that regard, the AGA also provides an example of approval by the simplified procedure in the following terms:‘A beneficiary wants to subcontract a task that originally it was going to carry out by itself. It wants to transfer EUR 100000 from personal costs to subcontracting. In order to make sure that this new subcontracting is possible and its cost is eligible, this will require an amendment to the [Grant Agreement] before the subcontracting takes place. However, the beneficiary doesn’t request an amendment, but declares the change only with the next periodic technical report (at its own risk). Since the Commission approves the report, the costs of the additional subcontract are eligible.’

109It is therefore apparent from Articles 13.1.1 and 4.2 of the Grant Agreement, and from the explanations contained in the AGA set out in paragraphs 106 and 108 above, that the approval of a periodic technical report in which the beneficiary justified the use of subcontracts not provided for in the description of the action in Annex 1 and Annex 2 to that agreement has the effect of rendering the corresponding subcontracting costs eligible within the meaning of Article 6.2 of that agreement.

110In that regard, it must be pointed out that, contrary to what Eismea maintained at the hearing, it is not apparent from the Grant Agreement that the possibility of using the subcontracting approval procedure described in paragraphs 94 to 109 above is subject to the condition that Annex 1 to that agreement has not been amended beforehand on the initiative of the co-contractor.

111In the present case, EASME itself stated in response to the submission of the periodic technical reports for RP1 and RP2 that, in its view, based on the report of the panel of external experts instructed for that purpose, the implementation of the P‑TEV project, as described in those technical reports, was satisfactory (see paragraphs 16 and 21 above), and that it did not therefore take the view that the use of subcontracting mentioned in those reports raised doubts as to whether the project was still, in essence, the same as the one which had been selected or as to whether the beneficiary still had the operational capacity to carry out that project.

112It follows that EASME could not reject the subcontracting costs relating to tasks which had been foreseen as subcontracting tasks in the periodic technical reports which it had approved, on the ground that those costs corresponded to unforeseen subcontracting for the purposes of Article 13.1.1 of the Grant Agreement.

113It must be pointed out that that finding is without prejudice to the possibility for EASME to reject the costs in question on the ground that they do not meet the general conditions of eligibility set out in Article 6.1 of the Grant Agreement.

114However, in the present case, EASME itself stated in the list of arguments enclosed with the letter of 11 May 2020 that the subcontracting costs had not been rejected because they had not been incurred.

115It is true that Eismea contends for the first time before the Court, in essence, that, by failing to define correctly the tasks to be subcontracted and the corresponding subcontracting costs, the applicant failed to fulfil its obligation to provide Eismea with sufficiently reliable information to check that those costs met the general conditions of eligibility set out in Article 6.1 of the Grant Agreement (see paragraph 82 above).

116However, the formulation of that argument at the stage of the proceedings before the Court is contrary to Article 44.1.2 of the Grant Agreement, which provides that, in the event of recovery, EASME must notify the beneficiary by a pre-information letter of the reasons why it intends to recover a certain amount of the grant.

117Furthermore, although EASME sent the applicant several requests for clarification regarding the breakdown of costs declared in the financial reports for RP1 and RP2 (see paragraphs 15, 22 and 32 above), Eismea does not explain how the responses provided by the applicant to those requests (see paragraphs 23 and 31 above) did not allow EASME to verify that those costs met the conditions for general eligibility set out in Article 6.1 of the Grant Agreement. Accordingly, that argument must, in any event, be rejected as unfounded.

118Therefore, it must be held that the costs declared by the applicant, in the amount of EUR 258 588.80, corresponding to subcontracting mentioned for the first time in the periodic technical reports for RP1 and RP2 and approved by EASME constitute eligible costs within the meaning of Article 6 of the Grant Agreement.

119The second plea and, consequently, the applicant’s first head of claim must therefore be upheld.

120Furthermore, EASME’s finding that it allegedly had a claim against the applicant and the request for repayment of that claim by means of debit note No 3242004635, as well as by means of the applicant’s contribution to the guarantee fund set up by the Grant Agreement, was based on the rejection of subcontracting costs corresponding to unforeseen subcontracting (see paragraphs 45 and 46 above).

121In the light of the finding in paragraph 118 above that the costs in question are eligible, the action must be upheld in its entirety, without it being necessary to examine the other pleas in the action.

Costs

122Under Article 134(1) of the Rules of Procedure of the General Court, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since Eismea has been unsuccessful, it must be ordered to pay the costs, in accordance with the form of order sought by the applicant.

Operative part

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

1.Upholds VeriGraft AB’s request seeking a declaration that the subcontracting costs rejected by the Executive Agency for Small and Medium-sized Enterprises in the amount of EUR 258 588.80 constitute eligible costs under the Grant Agreement ‘Personalised Tissue-Engineered Veins as the first Cure for Patients with Chronic Venous Insufficiency – P‑TEV’, with reference 778620;

2.Upholds VeriGraft’s request seeking a declaration that debit note No 3242004635, issued by the Executive Agency for Small and Medium-sized Enterprises in the amount of EUR 106 928.74, is unfounded;

3.Upholds VeriGraft’s request seeking a declaration that the recovery of the sum of EUR 109 230.19 from the guarantee fund set up by the Grant Agreement ‘Personalised Tissue-Engineered Veins as the first Cure for Patients with Chronic Venous Insufficiency – P‑TEV’, with reference 778620, is unfounded;

4.Orders the European Innovation Council and SMEs Executive Agency (Eismea) to pay the costs.

Delivered in open court in Luxembourg on 13 July 2022.