‘NOV ZHIVOT 1919’ NCh v Rakovoditel na Upravlyavashtia organ na programata za transgranichno satrudnichestvo INTERREG-IPP (C-620/23)

Contents

Judgment of the Court (Eighth Chamber)6 March 2025^note(Reference for a preliminary ruling — Own resources of the European Union — Protection of the European Union’s financial interests — Regulation (EU) No 1299/2013 — Specific provisions for the support from the European Regional Development Fund to the European territorial cooperation goal — Article 27 — Recovery from the lead beneficiary of amounts paid as a result of an irregularity — Implementing regulation (EU) No 447/2014 — Instrument for Pre-accession Assistance (IPA II) — Specific implementing rules — Articles 40 and 46 — Financial correction in the event of irregularity — Financial correction decision addressed to a beneficiary other than the lead beneficiary — Right of the lead beneficiary to participate in administrative and judicial proceedings relating to that decision — Articles 41 and 47 of the Charter of Fundamental Rights of the European Union)In Case C‑620/23,REQUEST for a preliminary ruling under Article 267 TFEU from the Administrativen sad Sofia-oblast (Administrative Court, Sofia Province, Bulgaria), made by decision of 21 September 2023, received at the Court on 6 October 2023, in the proceedings‘NOV ZHIVOT 1919’ NChvRakovoditel na Upravlyavashtia organ na programata za transgranichno satrudnichestvo INTERREG-IPP,THE COURT (Eighth Chamber),composed of N. Jääskinen, President of the Ninth Chamber, acting as President of the Eighth Chamber, M. Gavalec (Rapporteur) and J. Passer, Judges,Advocate General: T. Ćapeta,Registrar: A. Calot Escobar,having regard to the written procedure,after considering the observations submitted on behalf of:– the European Commission, by D. Drambozova, C. Ehrbar and J. Hradil, acting as Agents,having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,gives the following

Judgment

1This request for a preliminary ruling concerns the interpretation of Article 40 of Commission Implementing Regulation (EU) No 447/2014 of 2 May 2014 on the specific rules for implementing Regulation (EU) No 231/2014 of the European Parliament and of the Council establishing an Instrument for Pre-accession assistance (IPA II) (OJ 2014 L 132, p. 32), and of Articles 41 and 47 of the Charter of Fundamental Rights of the European Union.

2The request has been made in the context of a dispute between ‘NOV ZHIVOT 1919’ and the Rakovoditel na Upravlyavashtia organ na programata za transgranichno satrudnichestvo INTERREG-IPP (head of the managing authority of the cross-border cooperation programme INTERREG IPA, Bulgaria) (‘the managing authority’) concerning a decision by which that authority adopted a financial correction as a result of an irregularity found during the implementation of a project financed by EU funds.

Legal context

European Union law

Regulation (EU) No 1299/2013

3Article 27 of Regulation (EU) No 1299/2013 of the European Parliament and of the Council of 17 December 2013 on specific provisions for the support from the European Regional Development Fund to the European territorial cooperation goal (OJ 2013 L 347, p. 259), entitled ‘Budget commitments, payments and recoveries’, provides:‘…2. The managing authority shall ensure that any amount paid as a result of an irregularity is recovered from the lead or sole beneficiary. Beneficiaries shall pay the lead beneficiary any amounts unduly paid.3. If the lead beneficiary does not succeed in securing repayment from other beneficiaries or if the managing authority does not succeed in securing repayment from the lead or sole beneficiary, the Member State or third country on whose territory the beneficiary concerned is located or, in the case of [a European grouping of territorial cooperation], is registered shall reimburse the managing authority any amounts unduly paid to that beneficiary. The managing authority shall be responsible for reimbursing the amounts concerned to the general budget of the Union, in accordance with the apportionment of liabilities among the participating Member States as laid down in the cooperation programme.’

Regulation (EU) No 1303/2013

4According to recital 65 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ 2013 L 347, p. 320, and corrigendum OJ 2016 L 200, p. 140):‘Member States should adopt adequate measures to guarantee the proper set up and functioning of their management and control systems to give assurance on the legal and regular use of the [European Structural and Investment (ESI)] Funds. …’

5Article 2(36) of that regulation provides:‘For the purposes of this Regulation, the following definitions apply;…(36) “irregularity” means any breach of Union law, or of national law relating to its application, resulting from an act or omission by an economic operator involved in the implementation of the ESI Funds, which has, or would have, the effect of prejudicing the budget of the Union by charging an unjustified item of expenditure to the budget of the Union’.

6Article 143 of the said regulation, entitled ‘Financial corrections by Member States’, states:1. The Member States shall in the first instance be responsible for investigating irregularities and for making the financial corrections required and pursuing recoveries. In the case of a systemic irregularity, the Member State shall extend its investigation to cover all operations potentially affected.2. Member States shall make the financial corrections required in connection with individual or systemic irregularities detected in operations or operational programmes. Financial corrections shall consist of cancelling all or part of the public contribution to an operation or operational programme. The Member States shall take into account the nature and gravity of the irregularities and the financial loss to the Funds or the [European Maritime Affairs and Fisheries Fund (EMFF)] and shall apply a proportionate correction. Financial corrections shall be recorded in the accounts for the accounting year in which the cancellation is decided.…’

Implementing Regulation No 447/2014

7Under Article 6 of Implementing Regulation No 447/2014, entitled ‘Financing decisions and financing agreements’:‘…3. Financing agreements shall provide, inter alia, the terms on which the [Instrument for Pre-accession Assistance (IPA II)] shall be managed, including the applicable methods of implementation, aid intensities, implementation deadlines, as well as rules on the eligibility of expenditure. …4. Financing agreements for cross-border cooperation programmes as referred to in Title VI, Chapter II may also be signed by the Member State hosting the managing authority of the relevant programme. …’

8Title VI of that implementing regulation, entitled ‘Cross-border cooperation’, contains a Chapter II, itself entitled ‘Cross-border cooperation between Member States and IPA II beneficiaries’, which includes Article 33 of the said implementing regulation, which is worded as follows:1. As far as the Member State(s) participating in a cross-border cooperation programme under this Chapter are concerned, in particular the Member State where the managing authority shall be located, the rules applicable to the European territorial cooperation goal provided for in Regulation [No 1303/2013] and Regulation [No 1299/2013] shall apply, as provided for in this Chapter. Where such rules refer to the [ESI] Funds as defined in Article 1 of Regulation [No 1303/2013], for the purposes of this Chapter, IPA II assistance is also considered to be covered.2. As far as the IPA II beneficiaries participating in a cross-border cooperation programme under this Chapter are concerned, the rules applicable to the European territorial cooperation apply, as provided for in this Chapter, without prejudice to reasoned derogations set out in the relevant financing agreement.’

9Article 40 of the same implementing regulation, entitled ‘Beneficiaries’, provides:1. Where there are two or more beneficiaries for an operation in a cross-border cooperation programme, one of them shall be designated by all the beneficiaries as the lead beneficiary.2.The lead beneficiary shall carry out the following tasks:(a) lay down the arrangements with other beneficiaries in an agreement comprising provisions that, inter alia, guarantee the sound financial management of the funds allocated to the operation, including the arrangements for recovering amounts unduly paid;(b) assume responsibility for ensuring implementation of the entire operation;(c) ensure that expenditure presented by all beneficiaries has been incurred in implementing the operation and corresponds to the activities agreed between all the beneficiaries, and in accordance with the document provided by the managing authority as provided for in paragraph 6;(d) ensure that the expenditure presented by other beneficiaries has been verified by a controller(s) where this verification is not carried out by the managing authority in accordance with Article 23(1) of Regulation [No 1299/2013].3. If not otherwise specified in the arrangements referred to in point (a) of paragraph (2), the lead beneficiary shall ensure that the other beneficiaries receive the total amount of the public support as quickly as possible and in full. No amount shall be deducted or withheld and no specific charge or other charge with equivalent effect shall be levied that would reduce those amounts for the other beneficiaries.4. Lead or sole beneficiaries shall be located in a participating country.5. Notwithstanding Article 39(2) of this Regulation, an European grouping of territorial cooperation set up in accordance with Regulation (EC) No 1082/2006 of the European Parliament and of the Council [of 5 July 2006 on a European grouping of territorial cooperation (EGTC) (OJ 2006 L 210, p. 19] or another legal body established under the laws of one of the participating countries may apply as sole beneficiary for an operation provided that it is set up by public authorities and bodies from at least two participating countries.6. The managing authority shall provide to the lead or sole beneficiary for each operation a document setting out the conditions for support of the operation, including the specific requirements concerning the products or services to be delivered under the operation, the financing plan and the time limit for execution.’

10Article 46 of Implementing Regulation No 447/2014, entitled ‘Financial management, decommitment, examination and acceptance of accounts, closure and financial corrections’, provides, in paragraph 6 thereof:‘Articles 85, 122(2) and 143 to 147 of Regulation [No 1303/2013] concerning financial corrections and recoveries shall apply. Article 27(2) and (3) of Regulation [No 1299/2013] shall also apply.’

Regulation (EU, Euratom) 2018/1046

11Article 61 of Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general budget of the Union, amending Regulations (EU) No 1296/2013, (EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014, (EU) No 283/2014, and Decision No 541/2014/EU and repealing Regulation (EU, Euratom) No 966/2012 (OJ 2018 L 193, p. 1), entitled ‘Conflict of interests’, stated:1. Financial actors within the meaning of Chapter 4 of this Title and other persons, including national authorities at any level, involved in budget implementation under direct, indirect and shared management, including acts preparatory thereto, audit or control, shall not take any action which may bring their own interests into conflict with those of the Union. They shall also take appropriate measures to prevent a conflict of interests from arising in the functions under their responsibility and to address situations which may objectively be perceived as a conflict of interests.2. Where there is a risk of a conflict of interests involving a member of staff of a national authority, the person in question shall refer the matter to his or her hierarchical superior. Where such a risk exists for staff covered by the Staff Regulations, the person in question shall refer the matter to the relevant authorising officer by delegation. The relevant hierarchical superior or the authorising officer by delegation shall confirm in writing whether a conflict of interests is found to exist. Where a conflict of interests is found to exist, the appointing authority or the relevant national authority shall ensure that the person in question ceases all activity in the matter. The relevant authorising officer by delegation or the relevant national authority shall ensure that any further appropriate action is taken in accordance with the applicable law.3. For the purposes of paragraph 1, a conflict of interests exists where the impartial and objective exercise of the functions of a financial actor or other person, as referred to in paragraph 1, is compromised for reasons involving family, emotional life, political or national affinity, economic interest or any other direct or indirect personal interest.’

Bulgarian law

12Article 70 of the Zakon za upravlenie na sredstvata ot evropeyskite fondove pri spodeleno upravlenie (Law on the management of the resources of European funds under shared management, DV No 101 of 22 December 2015), in the version applicable to the dispute in the main proceedings, provides, in paragraph 1 thereof:‘Financial support from the European funds under shared management may be cancelled in whole or in part by effecting a financial correction for the following reasons:1. where there is a conflict of interests within the meaning of Article 61 of Regulation [2018/1046] in relation to the beneficiary;…’

13Article 73(1) of that law is worded as follows:‘The basis for and amount of the financial correction shall be determined by a reasoned decision of the head of the managing authority which approved the project.’

The dispute in the main proceedings and the questions referred for a preliminary ruling

14On 4 November 2020, a grant agreement was concluded between the managing authority and Opština Babušnica (municipality of Babušnica, Serbia), which had been designated as the lead partner. The purpose of that contract was the award of a grant by the managing authority for the implementation of the project ‘Cross-border Cultural Network for a Shared Future’, financed under the cross-border cooperation programme INTERREG IPA Bulgaria-Serbia 2014–2020, under IPA II.

15In its capacity as lead partner and in accordance with Article 1 of that contract, the municipality of Babušnica obtained the financing at issue and assumed responsibility for carrying out that project. In that context, it was liable, vis-à-vis the managing authority, for all irregularities committed, including those committed by partners, and for repayment of all amounts due to that authority in the event of an irregularity.

16NOV ZHIVOT 1919 is, for its part, a partner in the said project.

17On 27 April 2021, NOV ZHIVOT 1919 concluded a service contract with the service provider ‘Tsentar za profesionalno obuchenie i orientirane’ EOOD in connection with the implementation of the same project.

18Following a notification of suspected irregularity, the managing authority found there to be a conflict of interests, within the meaning of Article 61 of Regulation 2018/1046, between a person designated by NOV ZHIVOT 1919 as coordinator of the project at issue and a person associated with that service provider.

19Since that conflict of interests was classified, by the managing authority, as an ‘irregularity’ within the meaning of Article 2(36) of Regulation No 1303/2013, the head of that authority, by decision of 20 April 2023 (‘the financial correction decision of 20 April 2023’), imposed a financial correction, in respect of NOV ZHIVOT 1919, amounting to 100% of the eligible expenditure, financed by ESI Funds, under the service contract referred to in paragraph 17 of the present judgment.

20NOV ZHIVOT 1919 brought an action against that decision before the Administrativen sad Sofia-oblast (Administrative Court, Sofia Province, Bulgaria), which is the referring court, and disputed the existence of that conflict of interests.

21That court notes that, according to national case-law, the managing authority concerned is competent to find irregularities committed by beneficiaries established in the territory of the Republic of Bulgaria and, accordingly, to impose financial corrections, as has been done in the present case. That competence extends both to cases of irregularity committed by a lead beneficiary or a lead partner and to cases of irregularity committed by a beneficiary or a partner other than that lead beneficiary or that lead partner. However, that competence is limited territorially, in that it is necessary for the perpetrator of the irregularity to be established in the territory of the Republic of Bulgaria.

22In that regard, that court indicates that, in the dispute before it, the lead partner, to which the financial correction decision of 20 April 2023 was not addressed, participated neither in the administrative procedure determining that financial correction nor in the judicial proceedings seeking annulment of it, on account of the fact that it is established in the territory of the Republic of Serbia.

23As that lead partner assumed responsibility for the implementation of the entire project at issue, including the irregularities committed by the partners in the grant contract referred to in paragraph 14 of the present judgment, however, it is immediately concerned by the financial correction decision of 20 April 2023. The resolution of that dispute therefore requires determining whether it is the said lead partner that should have been the addressee of that decision and, if so, whether it should have been guaranteed a right to participate in the administrative procedure which led to the adoption of that decision and the judicial proceedings seeking annulment of it.

24In those circumstances, the Administrativen sad Sofia-oblast (Administrative Court, Sofia Province) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:(1) Does Article 40 of [Implementing Regulation No 447/2014] not, in situations of cross-border cooperation between a Member State and a beneficiary of the Instrument for Pre-accession Assistance (IPA-II) for the 2014–2020 period, preclude the imposition of a financial correction on an economic operator which is alleged to have engaged in unlawful conduct constituting an irregularity but which is not the lead beneficiary and therefore not the party which has assumed responsibility for the implementation of the entire project?(2) If the first question is answered in the affirmative, do Articles 41 and 47 of the [Charter of Fundamental Rights], in such situations of cross-border cooperation, guarantee the right of the lead beneficiary to participate in the procedure to decide on the imposition of a financial correction and in the judicial proceedings challenging that administrative act, irrespective of its location in relation to the authority responsible under the relevant cross-border cooperation programme for imposing the financial correction, and do the provisions cited permit limitations such as those provided for by the case-law of the national courts in the main proceedings, which curtail those options for participation?’

Consideration of the questions referred

The first question

25As a preliminary point, it should be noted that, in its first question, the referring court refers expressly to Article 40 of Implementing Regulation No 447/2014. That article is featured in Chapter II, entitled ‘Cross-border cooperation between Member States and IPA II beneficiaries’ of Title VI of that that implementing regulation, itself entitled ‘Cross-border cooperation’. That chapter contains Article 46 of the said implementing regulation, entitled ‘Financial management, decommitment, examination and acceptance of accounts, closure and financial corrections’, which provides, in the second sentence of paragraph 6 thereof, inter alia, that Article 27(2) of Regulation No 1299/2013 is also to apply.

26Thus, it must be considered that, by its first question, the referring court asks, in essence, whether Article 40 and Article 46(6) of Implementing Regulation No 447/2014, read in conjunction with Article 27(2) of Regulation No 1299/2013, must be interpreted as meaning that they preclude a managing authority established in a Member State and participating in a cross-border cooperation programme under IPA II from addressing a financial correction decision only to an economic operator which has committed an irregularity, within the meaning of Article 2(36) of Regulation No 1303/2013, when a lead beneficiary, responsible for the implementation of the entire project at issue, including the repayment of any amount unduly paid, has been designated under that programme, but is not established in that Member State.

27As a preliminary point, it should be recalled that, by virtue of Article 2(36) of Regulation No 1303/2013, an irregularity is any breach of EU law, or of national law relating to its application, resulting from an act or omission by an economic operator involved in the implementation of ESI Funds, which has, or would have, the effect of prejudicing the EU budget by charging an unjustified item of expenditure to it.

28In addition, Article 143(1) of that regulation, applicable in accordance with the first sentence of Article 46(6) of Implementing Regulation No 447/2014, provides inter alia that the Member States are in the first instance to be responsible for investigating irregularities and for making the financial corrections required and pursuing recoveries. To that end, as paragraph 2 of that Article 143 states, Member States are to make the financial corrections required in connection with individual or systemic irregularities detected in operations or operational programmes.

29However, no provision of Regulation No 1303/2013 lays down rules relating to the definition of the addressees of a financial correction act.

30In that regard, it should be recalled that the obligation to give back an advantage improperly received by means of an irregularity is not a penalty, but simply the consequence of a finding that the conditions required to obtain the advantage derived from EU rules have not been observed, with the result that that advantage becomes an advantage wrongly received (judgment of 1 October 2020, Elme Messer Metalurgs, C‑743/18, EU:C:2020:767, paragraph 64 and the case-law cited).

31It follows that restitution of an advantage wrongly received by means of an irregularity, within the meaning of Article 2(36) of Regulation No 1303/2013, need not necessarily be claimed from the body which committed such an irregularity.

32In addition, Article 40 of Implementing Regulation No 447/2014, entitled ‘Beneficiaries’, provides, in paragraph 1 thereof, that, where there are two or more beneficiaries for an operation in a cross-border cooperation programme, one of them is to be designated by all the beneficiaries as the lead beneficiary. The latter is, by virtue of Article 40(2)(b), to assume responsibility for ensuring implementation of the entire operation. Moreover, in accordance with Article 40(2)(c), it is to ensure that expenditure presented by all beneficiaries has been incurred in implementing the operation and corresponds to the activities agreed between all the beneficiaries, and in accordance with the document provided by the managing authority as provided for in Article 40(6).

33Under the latter provision, the managing authority is to provide to the lead or sole beneficiary for each operation – provided that the latter fulfils the conditions laid down in Article 40(5) of that implementing regulation – a document setting out the conditions for support of the operation, including the specific requirements concerning the products or services to be delivered under the operation, the financing plan and the time limit for execution.

34It follows that, unlike the other aid beneficiaries, the lead beneficiary maintains a special relationship with the managing authority, of which it is the direct interlocutor.

35That interpretation is borne out by Article 27(2) of Regulation No 1299/2013, which provides that the managing authority is to ensure that any amount paid as a result of an irregularity is recovered from the lead or sole beneficiary and that beneficiaries are to repay to the lead beneficiary any amounts unduly paid.

36Thus, where a lead beneficiary has been designated in accordance with Article 40 of Implementing Regulation No 447/2014, the managing authority is required to recover all amounts from that beneficiary and not from another beneficiary.

37In the case at hand, it is apparent from the file before the Court that the municipality of Babušnica concluded a grant contract with the managing authority, that it was designated as the lead partner and that, in that capacity, it was liable, vis-à-vis the managing authority, for all irregularities committed and for repayment of all amounts due to that authority in the event of an irregularity, whereas the irregularity at issue was allegedly committed by NOV ZHIVOT 1919, a partner under the project ‘Cross-border Cultural Network for a Shared Future’.

38Having regard to the financial accountability which, in accordance with Article 27(2) of Regulation No 1299/2013, is incumbent on the lead beneficiary and which consists in repaying any amount unduly paid, and to the status of such a beneficiary as the direct interlocutor of the managing authority in question, it must be held that, where a financial correction decision directly affects the interests of a lead beneficiary, that decision must be addressed to it.

39In that regard, the fact, mentioned by the referring court, that the managing authority is not competent to address a financial correction to the lead beneficiary concerned – the municipality of Babušnica – cannot be such as to alter that obligation.

40It is apparent from the foregoing that the answer to the first question is that Article 40 and Article 46(6) of Implementing Regulation No 447/2014, read in conjunction with Article 27(2) of Regulation No 1299/2013, must be interpreted as meaning that they preclude a managing authority established in a Member State and participating in a cross-border cooperation programme under IPA II from addressing a financial correction decision only to an economic operator which has committed an irregularity, within the meaning of Article 2(36) of Regulation No 1303/2013, when a lead beneficiary, responsible for the implementation of the entire project at issue, including the repayment of any amount unduly paid, has been designated under that programme, but is not established in that Member State.

The second question

41Having regard to the answer given to the first question, there is no need to answer the second question.

Costs

42Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Eighth Chamber) hereby rules: Article 40 and Article 46(6) of Commission Implementing Regulation (EU) No 447/2014 of 2 May 2014 on the specific rules for implementing Regulation (EU) No 231/2014 of the European Parliament and of the Council establishing an Instrument for Pre-accession assistance (IPA II), read in conjunction with Article 27(2) of Regulation (EU) No 1299/2013 of the European Parliament and of the Council of 17 December 2013 on specific provisions for the support from the European Regional Development Fund to the European territorial cooperation goal,must be interpreted as meaning that they preclude a managing authority established in a Member State and participating in a cross-border cooperation programme under the Instrument for Pre-accession Assistance (IPA II) from addressing a financial correction decision only to an economic operator which has committed an irregularity, within the meaning of Article 2(36) of Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006, when a lead beneficiary, responsible for the implementation of the entire project at issue, including the repayment of any amount unduly paid, has been designated under that programme, but is not established in that Member State.