Objective liability is not so objective

Recently, I had the opportunity to read a very interesting judgment of the Supreme Administrative Court (II GSK 3449/15) concerning the principle of durability of projects or, in other words, the prohibition on fundamental modification, in which the court approached the subject in an almost exemplary manner, and the justification of the judgment is worth discussing in greater detail, because, above all, in terms of technical skills, it is written in such a way that one would like every justification to look like this.

Patient under a drip
The beneficiary (a medical facility) applied for project co-financing in a competition organised by the Centre for Health Information Systems (CSIOZ). In the competition, projects were selected for co-financing with regard to the purchase of specialist means of sanitary transport (ambulances) with equipment for specialist and basic medical rescue teams. As part of the project, the beneficiary purchased, among other things, two specialist ambulances. After completion of the project, already in the so-called durability period, the beneficiary stopped providing healthcare services due to failure to sign a contract with the National Health Fund. Due to this state of affairs, the CSIOZ decided to call for reimbursement of the beneficiary claiming that the beneficiary had fundamentally modified the project. In the opinion of the authorities, the lack of provision of healthcare services concluded with a voivodeship department of the NFZ (or provision of healthcare services financed by public funds on the basis of other titles in a type corresponding to the scope of the project) within 5 years from the end of project implementation constitutes its fundamental modification within the meaning of Article 57 of Regulation 1083/2006. The ambulances purchased by the beneficiary, according to the project, were to be used within the framework of the national medical rescue system, on the basis of a contract with a public payer. The lack of a contract for providing these services was the basis for terminating the contract for co-financing and at the same time demanding reimbursement of funds, due to the fact that one of the key conditions for participation in the competition was presenting a document confirming the provision of healthcare services financed from the state budget, from the part at the disposal of the competent voivode, by the healthcare unit which the project concerns.

The beneficiary argued that the non-award of the contract by the NFZ was the result of an error, whereby it appealed against the decision not to award it the contract for the provision of medical care. However, according to the authorities, the elimination of the faulty decision of the President of the NFZ from legal turnover, as a result of which the beneficiary was deprived of the contract, did not result in the beneficiary signing a contract and providing medical services, and thus the ambulances were not used by the beneficiary in accordance with the purpose of the project. Finally, according to the authorities, the beneficiary’s responsibility to maintain the project under the principle of sustainability is objective in nature, independent of the reasons for its non-maintenance.

The beneficiary appealed against the negative decisions on the reimbursement of funds to the Voivodeship Administrative Court, which did not share its position, confirming that the responsibility for the failure to maintain the sustainability of the project is objective in nature and dismissed the appeal. The Court of First Instance – sharing the authorities’ interpretation of Article 57(1) of Regulation No. 1083/2006 – opted for the objective character of liability, in the assessment of which the reasons for cessation of activity by the beneficiary, in this case a medical establishment, are not legally relevant. In the grounds for the contested judgment, it stated that the 'preservation of the contribution of funds’ depended only on the absence of a substantial modification to the project during the period of durability; the lack of fault on the part of the beneficiary establishment in failing to preserve the durability of the project, as well as the action of a third party causing it to cease providing medical services under a contract with a public payer, are not relevant to the liability of the beneficiary establishment. The beneficiary filed a cassation appeal with the Supreme Administrative Court against this judgment.

Tako rzecze Zaratustra
The judgment of the Supreme Administrative Court in this case addresses the issue of the objective nature of the beneficiary’s liability. As stated by the NSA in its justification, the essence of the dispute under this provision, in the factual state not disputed in this case, boils down to whether the reasons for which the health care institution ceased to provide medical services under the contract with the public payer – which in turn conditioned the granting of co-financing – have a significant legal meaning for the maintenance of durability of the project.

NSA pointed out that, as a rule, the reimbursement of funds used contrary to procedures or in a manner inconsistent with their intended use is based on objective premises, i.e. independent of the circumstances in which the conditions for co-financing were breached. Therefore, in the process of assessing the normative prerequisites of repayment of aid granted from public funds, factual circumstances indicating the lack of fault of the entitled party in the occurrence of a breach of law, resulting in the demand for repayment of the grant, are of no significance. On the other hand, however, NSA indicated that sometimes – despite the adoption of the objective concept of administrative liability in this category of cases – the EU legislator mitigates, in strictly defined situations and on the condition of a narrow interpretation of exceptions to liability shaped in such a way, the legal consequences of a breach of the conditions for the implementation of projects co-financed from the budget of particular EU funds.

In this context, NSA pointed out that the objective character of liability resulting from Article 57 of Regulation 1083/2006 was modified by the amendment of this provision, which introduced a change exempting beneficiaries from liability in cases where discontinuation of production activity was caused by bankruptcy not resulting from illegal acts. The above proves, in the NSA’s opinion, the liberalisation of the approach of the EU legislator to the reimbursement of EU funds in the case of a breach of these provisions, not resulting from unlawful acts of the entity entitled to support. With the legal regulation shaped in such a way with regard to substantial modification of the operation and its consequences, it is no longer possible, in the NSA’s opinion, to defend the view that the EU legislator does not provide for any derogations from objective administrative liability. Therefore, it is important to determine the scope of derogations from the application of the provisions governing the principle of durability of operations, which involves determining situations in which, despite a significant modification of the project, there will be no obligation to return the aid granted.

NSA also pointed out that the notion of „discontinuation of production activity caused by bankruptcy not resulting from fraudulent bankruptcy”, which under the analysed regulation also covers the provision of services, should be understood as a factual state consisting in the loss of financial liquidity and having an involuntary character, and not exclusively the state of bankruptcy of an entrepreneur according to internal regulations of particular Member States. In its view, this concept has an autonomous meaning, detached from national regulations. The above conclusion was meticulously argued by the NSA with reference to, inter alia, the various language versions of Regulation 1083/2006.

The SAC also found it justified to refer to the CJEU judgment of 14 November 2013. in case C-388/12, pointing out that this judgment concerned a similar case, whereby the CJEU in its judgment ordered, on the one hand, to assess the underlying factors constituting the cause of the modification and, on the other hand, pointed out that a modification takes place only if it significantly reduces the possibility of achieving by means of this action the objective assigned to it, however, the circumstance that various components of a given action have been changed to a certain extent in quantitative terms cannot in itself be considered of decisive importance.

The above considerations led the Supreme Administrative Court to the conclusion that in the circumstances of the case, the change in the legal relationship established by the subsidy agreement was caused by extraordinary circumstances that the beneficiary could not have foreseen or prevented even with the exercise of due care and prudence. The NSA pointed out that the mistake of the NFZ competition committee, which resulted in the non-extension of the contract with the beneficiary, was beyond any will and decision of the beneficiary and was the result of the faulty action of the competition committee in the procedure for awarding the contract for provision of services, as established by the relevant judgment.

Conclusions
The above-mentioned judgment, which is first of all excellent in terms of technique, and here one has to give credit to the Judge-Rapporteur Ewa Cisowska – Sakrajda, is at the same time a guideline for institutions and beneficiaries. The objective responsibility of beneficiaries is broken, and institutions cannot completely disregard the reasons for failing to fulfil their obligations under the funding agreement. If these reasons are beyond the control of the beneficiary, ascribing full responsibility to the beneficiaries is unjustified under the regime of EU provisions on reimbursement.

What is important, the fact that beneficiaries’ liability cannot be seen as objective is also confirmed by the very form of granting a subsidy to the beneficiaries. A contract for co-financing, because this was the form of granting a subsidy decided on by the legislator, is of a civil law nature, and in accordance with the adopted position of common courts, the assessment of fulfilment or non-fulfilment of obligations resulting from it should also be based on civil law regulations, including, inter alia, in the scope of fault. The complete lack of assessment of this premise would result in the fact that, in practice, the liability of beneficiaries for the implementation of the project would be a guarantee liability – completely independent of their knowledge, as well as of the reasons why a given contract was not fully implemented. There is no doubt that with such complex economic undertakings as are often the subject of EU projects, such treatment would simply be unfair. Besides, rich jurisprudence of, first of all, common courts (more about it here) and the Supreme Court (which I wrote, among other things, here), shows clearly that reasons for not fulfilling obligations resulting from agreements on co-financing are not only not unimportant for the assessment of beneficiaries’ liability, but are of key importance for the assessment of such liability.

Administrative courts should also not forget about this element in proceedings concerning the reimbursement of funds, the more so because, after all, the so-called 'other applicable procedures’ originate from the co-financing agreement, the breach of which is one of the prerequisites for the reimbursement of funds indicated in Article 207 of the Public Finance Act. Disregarding the nature of contracts for co-financing and their rooting in the provisions of civil law by administrative courts, while referring to them to concretise the infringed obligations, constitutes a clear inconsistency.

Finally, it is worth recalling that, irrespective of the assessment of the nature of beneficiaries’ liability, support for them in reimbursement procedures is also provided by the principle of proportionality, which is a commonly used instrument by the European Commission in situations where a given sanction appears to be unjust. The principle of proportionality, in conjunction with other general principles such as the principle of the protection of legitimate expectations as well as the principle of legal certainty, should not be overlooked in repayment procedures and in the assessment of their correct application by the courts.