Case T-320/09 Planet AE v Commission: Lack of Legal Basis, Breach of Rights of Defence, Lack of Reasons

The General Court has handed down a number of interesting judgments lately and we need to catch up after a blogging hiatus.

Let’s start with the judgment of 22 April 2015  in Case T‑320/09 Planet AE Anonymi Etairia Parochis Simvouleftikon Ipiresion v Commission, EU:T:2015:223, in which the Court annulled a series of decisions of the European Anti-Fraud Office (OLAF) requesting the applicant’s registration in the early warning system (‘EWS’) put in place to ostensibly protect the EU’s financial interests.

The interest of the case lies in the fact that the judgment is a sort of text book case of judicial review.  The Court annulled the Commission decisions taken by OLAF on a number of grounds:

  • the Commission had no powers to adopt the measures challenged,
  • the Commission breached the fundamental rights of the applicant,
  • the decisions were not properly reasoned.

Let’s take each ground in turn, but first a bit of background.

Background

Back in 2008, the Commission adopted Decision 2008/969/EC to put in place an early warning system (EWS) which seeks to that the Commission and its services are informed of persons or operators representing a threat to the EU’s financial interests. The EWS identified the level of risk posed by an entity, category W1 being the lowest risk category, and W5 the highest. The Anti Fraud Office, OLAF, could request entry of such warnings. W1 warnings resulted in reinforced monitoring measures only and not in the exclusion of that entity from a given project.

The applicant, Planet AE, is a Greek company which provides advisory services in the field of the administration of companies. Since 2006, it has been engaged, in its capacity as a member of three consortiums, in three projects in Syria financed by the Commission. Since 16 October 2007, it has been the subject of an enquiry carried out by OLAF into suspected irregularities within the framework of these three projects. OLAF requested Planet’s entry in the EWS with a W1 warning.

In 2008 Planet was successful in a call for tenders to work on a project for the Commission. Since the Commission was aware of the W1 warning, it made the conclusion of the agreement subject to Planet opening a blocked bank account. Planet did so and the agreement was concluded. Planet then brought an action for the annulment of the decisions pursuant to which OLAF and the Commission entered it in the EWS.

The judgment

The Court annulled the decisions on various grounds.

The Commission’s power to adopt the measures at issue

The Court raised of its own motion the question whether the Commission had the power to adopt the contested measures. The applicant puts forward two pleas in law, the first alleging, in essence, infringement of essential procedural requirements of Decision 2008/969 and the second alleging infringement of basic principles and fundamental rights of EU law, in particular of the principle of sound administration, the right to be heard, the rights of the defence and the duty to state reasons. But the applicant had not expressly raised the issue of whether the Commission had the powers to do what it did.

Earlier in the proceedings, the Commission had raised a plea of inadmissibility which the Court dismissed by order of 13 April 2011 in Planet v Commission T-320/09, EU:T:2011:172. In that order, the General Court found that Decision 2008/969, on which the contested measures are based, makes no reference to primary or secondary law expressly conferring on the Commission the power to create, carry out and manage a database relating to legal or natural persons suspected of representing a risk to the financial interests of the EU. That Order was upheld by the Court of Justice on appeal in its judgment of 19 December 2012 Commission v Planet, C-314/11 P, EU:C:2012:823.

The Court recalled that lack of jurisdiction on the part of the institution which adopted the contested measure represents a ground for annulment as a matter of public policy, which should be raised by the EU Court of its own motion, whereas neither party has requested it to do so (see, to that effect, judgments of 17 December 1959 in Société des fonderies de Pont-à-Mousson v High Authority, 14/59, EU:C:1959:31, at p. 473; of 10 May 1960 in Germany v High Authority, 19/58, EU:C:1960:19, at p. 488; of 13 July 2000 in Salzgitter v Commission, C‑210/98 P, EU:C:2000:397, paragraph 56). As regards whether the lack of power of the institutions which adopted the measure on the basis of which the contested measure was taken, although the EU Court is not obliged to raise that question of its own motion, it may be called upon to do so. That may be the case on the basis of the information in the file or if there is a manifest defect, in other words if the EU Court can easily detect it and identify it as such (Opinion of Advocate General Mengozzi in Common Market Fertilizers v Commission, C‑443/05 P, ECR, EU:C:2007:127, paragraph 104 – Disclaimer: I represented the Commission in that case).

In his case, the Court held that given its finding in paragraph 40 of the order in Planet v Commission, paragraph 9 above, (EU:T:2011:172), the question of the legal basis of the Commission’s power to adopt the measures provided for in Decision 2008/969 was a live question and needed to be examined.

The Court recalled that by virtue of Article 5 EC, in accordance with the principle of allocation of powers, each institution is to act within the limits of the powers conferred upon it by the Treaty. Respect for the principle of legal certainty requires that the binding nature of any act intended to have legal effects must be derived from a provision of EU law which must be expressly indicated therein as its legal basis (judgments of 16 June 1993, France v Commission, C‑325/91, EU:C:1993:245, paragraph 26, and of 17 September 2007, France v Commission, T‑240/04, EU:T:2007:290, paragraph 31).

It held that it does not follow either from the provisions of Article 274 EC or those of the Financial Regulation that the Commission has the express power to adopt a decision such as Decision 2008/969.

Article 274 EC does indeed provide that the Commission is to implement the budget, in accordance with the provisions of the regulations made pursuant to Article 279 EC. That article provides for recourse to the ordinary legislative procedure. However, the Financial Regulation, the legal basis of which is Article 279 EC, does not make reference to a system such as the EWS.

The Court emphasised that EU law does not make it possible to conclude as to the existence of an implicit power. It is clear from the case-law that the existence of an implicit power, which constitutes a derogation from the principle of allocation of powers stated in the first paragraph of Article 5 EC, must be appraised strictly. It is only exceptionally that such implicit powers are recognised by case-law and in order to be so recognised, they must be necessary to ensure the practical effect of the provisions of the Treaty or the basic regulation at issue (see judgment of 17 November 2009 in MTZ Polyfilms v Council, T‑143/06, EU:T:2009:441, paragraph 47 and the case-law cited).

The Court conceded that a warning system may be a tool useful to the Commission’s tasks as guardian and executive of the EU budget, but it held clearly that the Commission has neither submitted nor shown that the EWS meets the condition necessary to make it possible to conclude as to the existence of an implicit power.

The Court also dismissed the idea that the EWS was an affair that was purely internal to the Commission. It held that internal measures have legal effects only within the internal sphere of the administration and do not create any right or obligation for the benefit of third parties (see judgment in France v Commission, EU:T:2007:290, paragraph 43 and the case-law cited, and Opinion of Advocate General Tesauro in France v Commission, C‑366/88, EU:C:1990:304, paragraph 22). In the present case, it is clear that Decision 2008/969 is intended to have external legal effects. The fact that the agents concerned must consult the EWS and draw certain consequences in the light of the entries therein and the publication of Decision 2008/969 in the Official Journal are important indications in that regard.

The Court found that there was an explicit legal basis for more serious warnings such as W5 which resulted in the exclusion of the entity concerned from any projects. However, there was simply no basis for the lesser W1 warning.

Furthermore, the Court rejected, without disregarded the fundamental rights, which include the presumption of innocence, the adage qui potest majus potest et minus [who can do the most can do the least].

The presumption of innocence enshrined in Article 48(1) of the Charter of Fundamental Rights of the European Union (which corresponds to Article 6(2) and (3) of the European Convention on Human Rights and Fundamental Freedoms, is intended to ensure that no-one is declared guilty, or treated as being guilty, of an offence before his guilt has been established by a court of law.

Unlike the exclusion warnings such as W5, the W1 warnings concern a situation where the investigations are still pending and thus in which no judge has yet established such guilt. Accordingly, if the Commission considers it necessary to take preventive measures at an early stage, it needs, all the more so for that reason, a legal basis permitting the creation of such a warning system and the taking of the relevant measures, a system which respects the rights of the defence, the principle of proportionality and the principle of legal certainty, the latter meaning that the rules of law must be clear and precise and predictable in their effect, in particular where they can have adverse consequences for individuals and undertakings.

Consequently, the Court held that, without a legal basis authorising the Commission to adopt Decision 2008/969, the contested measures, adopted on the basis of that decision, are accordingly also devoid of legal basis, so that they must be annulled.

Breach of the Applicant’s fundamental rights of defence

The Court examined the actual pleas made by the Applicant and also annulled the decisions challenged on those grounds also.

Even if the Commission had the power to adopt Decision 2008/969, the General Court considered that the contested measures must be annulled because the Applicant had not been given any chance to exercise any rights of defence before the contested decisions were adopted.

The Commission claimed that it was unnecessary to hear the Applicant as it was well aware of the reasons for its entry in the EWS and could deduce from all the facts and documents sent to it the reasons for its designation by the Commission as an entity requiring a certain circumspection.

The Court disagreed. It held that respect for the rights of the defence in all proceedings which are initiated against a person and are liable to culminate in a measure adversely affecting that person is a fundamental principle of EU law which must be guaranteed, even in the absence of any specific rules concerning the proceedings in question (see judgments of 13 February 1979 in Hoffmann-La Roche v Commission, 85/76, EU:C:1979:36, paragraphs 9 and 11, and of 1 October 2009, Foshan Shunde Yongjian Housewares & Hardware v Council, C‑141/08 P, EU:C:2009:598, paragraph 83).

Failure to state adequate reasons.

Finally, the Court held that the contested decisions lacked any adequate reasons.

It recalled that, in accordance with a consistent body of case-law, the purpose of the obligation to state the reasons on which an act adversely affecting an individual is based, which is a corollary of the principle of respect for the rights of the defence, is, first, to provide the person concerned with sufficient information to make it possible to ascertain whether the act is well founded or whether it is vitiated by a defect which may permit its legality to be contested before the European Union judicature and, second, to enable that judicature to review the legality of that act (see judgments of 2 October 2003 in Corus UK v Commission, C‑199/99 P, EU:C:2003:531, paragraph 145; of 28 June 2005 in Dansk Rørindustri and Others v Commission, C‑189/02 P, C‑202/02 P, C‑205/02 P to C‑208/02 P and C‑213/02 P, EU:C:2005:408, paragraph 462; and of 29 September 2011 in Elf Aquitaine v Commission, C‑521/09 P, EU:C:2011:620, paragraph 148).

The statement of reasons required by Article 253 TFEU must, however, be appropriate to the act at issue and the context in which it was adopted. The requirements to be satisfied by the statement of reasons depend on the circumstances of each case, in particular the content of the measure in question, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom it is of direct and individual concern, may have in obtaining explanations. It is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons meets the requirements of Article 253 EC must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question (judgments of 2 April 1998, Commission v Sytraval and Brink’s France, C‑367/95 P, EU:C:1998:154, paragraph 63; Elf Aquitaine v Commission, EU:C:2011:620, paragraph 150, and of 15 November 2012, Al-Aqsa v Council and Netherlands v Al-Aqsa, C‑539/10 P and C‑550/10 P, EU:C:2012:711, paragraphs 139 and 140).

In the present case, the Court found that the contested acts were not notified to the applicant. Accordingly, the applicant did not have the opportunity of expressing its views in that regard and nor was it aware of the grounds justifying its entry in the EWS. Even if the EWS was developed as an internal tool, the fact remains that an entry in the EWS has legal consequences for the registered person concerned, meaning that the rights of the defence, including the duty to state reasons, must be upheld.

Interest in pursuit of the proceedings and the need to adjudicate

One final procedural point is worth mentioning.

The Commission claimed that, following the judgment of the Court of Justice in Commission v Planet, (EU:C:2012:823), its services had deleted the warnings concerning the applicant. Taking account of the fact that the applicant is no longer subject to warnings to the users of the EWS and, accordingly, the contested warnings no longer exist, the Commission claimed  that the action had become devoid of purpose.

The Court recalled that the applicant’s interest in bringing proceedings must, in the light of the purpose of the action, exist at the stage of lodging the action, failing which the action will be inadmissible. That objective of the dispute must, like the interest in bringing proceedings, persist until the final decision, failing which there will be no need to adjudicate, which presupposes that the action must be liable, if successful, to procure an advantage for the party bringing it. If the applicant’s interest in bringing proceedings disappears in the course of proceedings, a decision of the General Court on the merits cannot bring him any benefit (see judgments of 7 June 2007, Wunenburger v Commission, C‑362/05 P, EU:C:2007:322, paragraphs 42 and 43, and of 10 April 2013, GRP Security v Court of Auditors, T‑87/11, EU:T:2013:161, paragraph 45).

Thus, an applicant may retain an interest in seeking the annulment of an act of an institution of the EU in order to prevent its alleged unlawfulness recurring in the future (see judgment in Wunenburger v Commission, EU:C:2007:322, paragraph 50). Similarly, an applicant may retain an interest in seeking the annulment of an act which directly affects him in order to obtain a finding, by the EU judicature, that an unlawful act has been committed against him, so that such a finding can then be the basis for any action for damages aimed at properly restoring the damage caused by the contested act (see judgment in GRP Security v Court of Auditors, paragraph 27 above, EU:T:2013:161, paragraph 47).

As for the circumstances of this case, the Court noted that the repeal of an act of an EU institution does not amount to recognition of its illegality and takes effect ex nunc, by contrast with a judgment annulling an act, by virtue of which the act annulled is removed retroactively from the EU legal order and deemed never to have existed (judgment of 6 June 2013, Ayadi v Commission, C‑183/12 P, EU:C:2013:369, paragraph 66). Thus, if the Commission lacks power or if the action must be upheld on other grounds, the entry of the applicant in the present case will be void ab initio.

In the present case, the Court held that it is necessary to avoid acts adopted by the institutions whose temporal effects are limited and which will expire after an action for annulment has been brought but before the General Court is able to give the relevant judgment being excluded from review by the Court of Justice, since such a situation is incompatible with the spirit of Article 263 TFEU (judgment of 18 March 2009, Shanghai Excell M&E Enterprise and Shanghai Adeptech Precision v Council, T‑299/05, EU:T:2009:72, paragraphs 56 and 57).

In addition, although the entry of the applicant in the EWS was deleted (ex nunc deletion), it follows from the case-law above that there is an interest in the proceedings, in particular since the entry of the applicant was likely to harm its image, and only an annulment can provide a remedy and serve as the basis for any action for compensation. Consequently, the Court rejected the application for a decision that there is no longer any need to adjudicate.

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